William H. Miller
At A Glance
- Since 1993 cost of quality as percent of sales reduced by more than 76%, scrap and rework by 46%.
- Order-to-shipment leadtime for major products reduced by 25%.
- Manufacturing cycle time slashed by 48%, setup times by 60% to 80%, inventory by 46.4%.
- Productivity (sales per employee) increased by 54.5%.
- Formal training for production employees boosted to 22 .6 days a year.
- Leadtime on major purchased materials cut by 64%.
- Number of benchmarking studies increased to 42 during the last year.
Managers at Halliburton Co.'s oilfield-products manufacturing facility just north of Dallas thought they had done all the right things. When the plant's business began to sour in the early 1990s -- amid one of the "down" cycles in the boom-bust market that is the bane of the oil patch -- they responded aggressively. Among other things, they made the plant a Class A MRP facility, adopted cellular-manufacturing concepts, and implemented an ambitious quality-improvement program. Alas, it all was to no avail. "The feedback from our customers -- internal as well as external -- continued as if nothing had changed," reports plant manager Steve Mc- Gowen. "We got the message from them directly, and their message was consistent: 'Your leadtimes are too long, and your costs are too high.'" Sobered by this customer rebuke and watching its longstanding profitability erode, the plant took stronger steps. "It was apparent that our previous actions were insufficient and that what was required was nothing short of a radical departure from business as we had known it," reflects McGowen. A sweeping series of changes, launched in 1993, began at the corporate level. The Dallas-based parent company -- which also has engineering-maintenance and construction businesses -- consolidated its nine oil- and gas-related companies into a single division. Called Halliburton Energy Services (HES), the unit operates 14 plants in eight nations. Carrollton, a 480,000-sq-ft, 750-employee facility that opened in 1962, is part of Halliburton's so-called Dallas Mfg. Center that includes smaller satellite plants in Houston and New Iberia, La. The plant designs and produces highly customized, sophisticated surface- and subsurface-completion and production equipment, along with a variety of service tools, for oil and gas wells. ("Completion" is the process of making a well ready for production after it has been drilled.) But changes closer to home -- at the plant itself -- are even more important. To perhaps a greater extent than any other facility in HES, Carrollton has successfully implemented the "6 Key" performance-measurement system launched by Ed Phipps, who became HES' vice president of manufacturing in 1993. The system covers the areas of cost; speed (order-to-shipment leadtime); quality; health, safety, and environment; customer service; and asset management. "The 6 Key measures drive everything we do," says McGowen, who came to the plant in January 1994. "They provide an umbrella -- a set of consistent, shared measures under which we have developed other more narrow measures." They provide a basis, explains McGowen, for specific stretch goals for the plant's individual business units, along with specific action plans and incentive awards for employee teams. The 6 Keys, moreover, underlie three philosophical thrusts that guide the plant's activity: a strengthened external focus, a goal of annual double-digit productivity improvement (at least 10% reduction in costs), and a strategy of being No. 1 or No. 2 in all its product lines. Equally important in the turnaround, however, has been the plant's decision to reorganize into a facility structured around business units. McGowen and his team created cross-functional teams around each of the plant's three product families -- packers (expanding plugs used in a well to seal off sections of tubing or casing), subsurface flow-control devices, and well-safety products. Each of these three business units has its own support functions. Among them: customer service; logistics; procurement; health, safety, and environment; quality; manufacturing technology; human resources; finance; and even design engineering. Previously, these functions had been centralized. The reorganization had the added advantage of chopping two full layers of management from the plant's once-bloated hierarchy and reducing a third layer by as much as 50%. The plant now has only 25 supervisors, who are called production-group leaders; they oversee an average of 42 employees, compared with 1993's supervisory span-of-control of only six. As part and parcel of all these changes, the plant is placing heavy emphasis on such areas as:
- Employee empowerment. Fully 90% of production workers participate in 26 self-directed work teams.
- Training. Production employees average 22.6 days of training a year.
- Benchmarking. The plant has conducted no fewer than 42 benchmarking studies during the last year. It even buys competitors' products and reverse engineers them to detect where they might have a cost advantage.
- Supplier relationships. The plant has been able to increase its percentage of purchased material that no longer requires incoming inspection from 50% to more than 70%. It has also reduced its average leadtime on major purchased materials by 64%.
Also, total cost of quality as a percent of sales has dropped from 4.2% to 1% since 1993. Scrap and rework are down 46%, and the customer-reject rate is down 11% to just 67 parts per million. Lot sizes have been cut 60%, manufacturing cycle time 48%, and setup times 60% to 80%. Order-to-shipment leadtime for major products has improved 25%. Total inventory has been slashed 46.4%. Energy consumption per unit of production is 33% lower. Lost workdays because of recordable accidents have been reduced 52%. Productivity based on total sales per employee has increased 54.5%. Manufacturing costs per unit shipped have skidded 26.3%. Exports have climbed nearly 12% (about 75% of the plant's revenue). And the plant has sharply boosted its return-on-assets to a sparkling 24.12%. Although such numbers speak for themselves, Phipps is quick to lavish praise on the facility. "I give the Dallas Center tremendous credit," he says. "It has been a leader in embracing and expanding our philosophy and the 6 Keys. The employees there see their role as providing 'value' -- not as the company sees it, but as
see it." Phipps credits Carrollton's management particularly for its success in relating the 6 Keys to individual employees. Indeed, McGowen acknowledges that bringing the concept down to the shop-floor level has been one of his team's greatest challenges. "You can't simply exhort people to do better," he observes. "You have to break it down to manageable pieces. "The term 'asset management,' for example, doesn't mean anything to machine operators. But they understand the work-in-process level at their workstations. They understand overtime costs. And although they may not understand the concept of 'gross expense,' they identify with the cost of cutting tools. They understand that if they don't fully use a cutting tool before getting another one, cutting-tool costs will be high -- and thus gross expense will be high and the cost of the product will be high." The task of personalizing the 6 Keys to each employee wasn't easy. "It took at least a year to get employees to buy in," recalls quality supervisor Grady Peterson. He points out that his department, now essentially a "coaching staff" consisting of only seven employees, has more influence than when it had more than 200 in the early 1980s -- before production workers were given ownership of quality. "Down through the years," says Peterson, a 19-year veteran of the plant, "employees had seen new programs come and charts go up, but then not much happened." But there's no doubt that the 6 Keys and other elements of the plant's strategy have taken firm hold. Testifies Jason Paglia, manager of the packer business unit: "Employees here are empowered. They're not told how to solve a problem. Instead, they're told, 'Here's the problem, solve it anyway you want.' It's a huge selling point with them." A visit to the plant floor -- immaculately clean and dotted with more than 200 high-tech lathes and mills -- bears out the employee buy-in. For example, Sal Villareal, a machinist in the flow-controls business unit, shows off the new combined lathe-mill he operates that has cut production time by more than 50%. Proudly describing how he was on a team that helped design the machine, he notes that the plant "now charges you with responsibility." In the past, the 17-year plant veteran says, "you'd just run a machine, and that was all." Then there's Ruben Camarillo, a 19-year employee in the raw-materials support function of the flow-controls unit. He voluntarily developed methods to reuse certain excess raw material, resulting in annual savings of more than $600,000. Would he have made the effort before his new empowerment? "In the old days," he answers, "we spoke, but [management] didn't listen." And there's Danny Heffley, a CAD/CAM programmer in the packers unit. "For the first 15 of the 19 years I've been here," he says, "we pursued the program of the moment -- zero defects, just-in-time, whatever the current buzzword was. But it always was a 'rule' that came from above. The new management team, however, has changed us to a 'cultured' organization. Now communication flows downstream like it always has, but upstream like it never has." And there's John Franks, a 16-year machinist in the safety-valve unit. "It's pleasurable to come to work now," he says. "Yes, there's more responsibility. But we don't have the frustration we used to have. Now I feel like a part owner of the company." The enthusiastic testimonials come not only from employees, but also -- significantly -- from customers. For example, Kevin Giverin, technical-services coordinator for Shell Export Materials Services, the U.S. purchasing organization for Royal Dutch Petroleum Co.'s operating companies worldwide, says, "HES bends over backward to fill customer requirements." So reliable has HES become, he adds, that Shell late last year withdrew third-party inspection of the division's products. "We can rely on them totally," he says of HES. Adds Bill Hudgins, a purchasing representative for another large international oil company (which asks not to be named because of a corporate policy against endorsing products): "Over the last three to four years, the plant has really matured. They allow the customer to come in 'unfiltered' -- to be an integral part of the [manufacturing] process. I can talk to anyone on the shop floor -- unannounced." Continuous improvement remains a watchword at Carrollton, despite the plant's already-impressive turnaround. For example, it is investing in a costly manufacturing-execution system due to come on line in October 1998. The new technology, being installed company-wide, not only will put the plant on a common computer system with the rest of Halliburton, but also will link the plant's MRP-generated production schedules to direct process-control software. "It'll give us the real-time information that's been missing," McGowen says. The biggest challenge facing the plant, however, is to increase its "speed." Even though Carrollton produces highly customized products, its on-time delivery rate (on a date-promised basis) is only 93% -- one of the plant's few metrics that falls below the median of
Best Plants finalists. Improving the number is the plant's "next hurdle," Phipps stresses.