Value-Chain Report -- Job Content Redesign

Dec. 21, 2004
Productivity improvements benefit the entire value chain.

During the last two decades, most manufacturing firms have tried downsizing, right-sizing, reengineering, and similar processes in an effort to maximize productivity. Many of these programs have resulted in significant bottom-line improvement. For example, labor productivity in the steel industry rose by more than 270%, from 10.1 man-hours per finished ton in 1982 to approximately 3.7 man-hours in 1998. However, recent surveys indicate that these successes tend to be the exception. More often than not, results are likely to be disappointing at best and may even be detrimental. One of the challenges for the entire supply chain, as well as individual value-chain trading partners, will be to continue to find creative methods to continually increase the effectiveness of human capital. Competition Prompts Case Study A leading integrated steel producer recognized the need to address productivity as it wrestled with improving its cost structure to enable it to compete with mini-mills and other new competitors entering its markets. To meet market pressures, the company established a target to reduce operating costs by $75/ton or more in the short term. In addition to systems upgrades, equipment modernizations, and several other significant improvement initiatives that were already in progress, management sought to leverage the knowledge and experience of its workforce to find innovative opportunities to reduce or eliminate non-value-added job content. To do so, the company initiated a comprehensive project to identify opportunities that could significantly increase the productivity and effectiveness of the entire organization. Initial Assessment The first step of the project involved documenting the current job content for every operating position in the mill, covering about 2,300 employees. Enlisting involvement of both hourly and salaried personnel, a detailed itemization of job content was prepared for every individual identifying what specific activities comprised actual job content, how time was allocated to those activities, what support systems were used, and other relevant data and information. Following documentation of job content, each activity was classified based on the nature of the activity and its relationship to the immediate purpose for that particular position. Each classification was predefined to include certain activities or responsibilities and exclude others. Typical classifications included activities related to production, maintenance, inspection, training, supervising, and similar categories. A total of 13 classifications were defined during the course of the project. To support analysis, each operating position was assigned one or more "primary" classifications. For example, the primary classifications for a millwright included maintenance and projects. In addition, those activities determined to be critical to production or otherwise essential to meet the business needs of this steel producer were identified as "mission critical." The results were eye-opening, but not unexpected. On average, nearly 17% of hours worked involved activities not considered part of the primary role(s) for that position, accounting for more than 19,800 hours per week. How were these non-primary hours being spent? Four major activity classifications accounted for more than 80% of the non-primary time. These included administrative, reporting, meetings, and miscellaneous. The time allocated to these activities amounted to more than 16,000 hours per week -- the equivalent of more than 400 full-time personnel. Similar observations were made during the analysis of "mission critical" activities. On average, less than 70% of the hours worked in a typical week were devoted to those activities considered critical to production or other essential business activities. Based on the results of the initial assessment and comparisons with industry-specific performance benchmarks, productivity improvement targets were defined. These targets included reducing hours spent on non-value-adding activities by 50% and redesigning job content to reduce overtime hours by one-third. Achievement of these objectives was expected to add more than $20 million in operating profit annually. Do these findings make this company unique from other integrated steel producers? Or from other manufacturers of any kind? We suspect it does not. Job Content Redesign Having identified the opportunities, management selected a seamless tube mill as the initial site for pilot implementation. A target improvement objective of $3.5 million in annual productivity improvement was established for the pilot implementation. Project teams, consisting of both union and management personnel, were formed and included not only production and support personnel from the seamless tube mill (which was the focus of the redesign effort), but also representatives from upstream and downstream processes, as well as IT and HR. From the very beginning, management emphasized that the job content redesign efforts would not result in any employee losing their job. The objective of the project was to identify productivity gains which, when implemented, would:

  • Free up workers to meet staffing needs in other areas of the mill. In fact, the company was looking ahead to the need for an additional crew for its 12-in. bar mill and additional staffing for its skilled trades.
  • Reduce long-term mandatory overtime requirements, which had resulted in an average workweek in excess of 57 hours for more than 70% of the workers in the seamless tube mill, with maintenance workers averaging more than 61 hours per week.
Three macro-processes, hot mill, finish mill, and maintenance and administration, were identified to organize production and support activities for the seamless tube mill. Each of these macro-processes was decomposed into component processes and current performance metrics were established as baseline measures of productivity, cost, and throughput. These metrics formed the basis for calculating the future benefits of the job content redesign effort. Baseline metrics for the seamless tube mill included 268 production and support personnel (hourly and salaried) working an average of 15,057 hours per week (or 56.2 hours per person per week). The working hours typically consisted of 10,562 straight-time hours and 4,495 overtime hours, based on the schedules and crew sizes involved. Once the current environment had been fully defined and relevant benchmarks of performance were identified, the teams turned their focus to the "visioning" process. Each project team was challenged to identify non-value-adding job content that could be eliminated, combined/consolidated, replaced/reduced by technology, or otherwise achieved by alternative means. The visioning process took place in three distinct phases. During the first phase a series of brainstorming sessions were used to generate a significant number of ideas with only minor regard for cost, feasibility, contractual issues, or other evaluative criteria. This "non-judgmental" approach created an environment that encouraged creativity and risk-taking. Following development of improvement ideas, the teams set about evaluating and prioritizing these ideas. Initially, improvement ideas were categorized according to the magnitude of the potential benefits anticipated and the estimated degree of difficulty or complexity involved in implementation. The project teams then focused on evaluating approximately 30 ideas that were believed to have high benefits. Evaluation of potential benefits included estimates of productivity gains, reductions in overtime, increased throughput, increased quality/reduced scrapwork, and other tangible benefits. The teams also focused on identifying key implementation considerations including costs for new equipment or equipment modifications, retraining requirements, labor relations/contractual issues, costs for improved technology support/infrastructure, inter-dependencies between initiatives, timing and sequence of implementation, and their significant impacts. As a result of the evaluation process, some improvement ideas were combined, modified, or revised to optimize the potential benefit/cost relationships. In some cases this resulted in a significantly higher quality of the improvement initiatives recommended for implementation. Finally, the teams prepared implementation plans detailing the sequence and timing of improvement initiatives, timing of costs and benefits, implementation responsibilities, resource requirements, and other factors. The results of the pilot implementation exceeded everyone's expectations. Job redesign efforts yielded productivity gains and overtime reductions valued at nearly $5 million annually, compared with the initial target of $3.5 million. Based on the successful pilot, the job redesign project was rolledout to the entire mill. The Bottom Line From initial assessment to the beginning of implementation, the entire process required about 20 weeks to complete. Upon completion of development of job redesign initiatives for all business units, net benefits were projected to be about $31 million annually, exceeding initial benefit targets by more than 30%. From an individual value-chain-participant perspective, this company increased its competitive position relative to other producers. Equally as important, the competitiveness of the entire value chain was improved. Customers leveraged the lower material costs enabled by these productivity gains to sustain or improve competitiveness of their products, while suppliers to the mill benefited from the increased volume that resulted. Reducing the total cost structure of the entire value chain, rather than simply shifting cost from one trading partner to another, is the key to long term success. Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.

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