Targeting Quality Keeping government customers happy keeps Azusa, Calif., plant in contracts.
Northrop Grumman Space Systems Div./Aerojet Electronic Systems, Azusa, Calif.
At a glance
3.7 million hours without a lost-time accident (Until mid-August 2001).
98% employee retention.
Plant-level profitability up 40% in the last five years.
Since 1196, value-added per employee up 20%, sales per employee up 44%. Make no mistake, it is rocket science. While manufacturers of steel, autos, computers, textiles, and cameras churn out products that have their own levels of complexity, Northrop Grumman Space Systems Div. one-ups them all. The plant, which until mid-September was known as Aerojet Electronic Systems, produces satellite sensors and smart weapons containing a combined level of durability and technology unmatched in almost any business you can think of. "We're on the cutting edge of a number of unproven technologies," says Tony Alvarez, manager of manufacturing operations at the Azusa, Calif. works. Take, for instance, the mission-processing software in its smart bombs. Each device has to know where to look for the target, what it's looking at when it gets there, and how to verify the identity of the chosen target once it finds it. The plant has more than 200 software designers and engineers who craft the code that handles this kind of complex mission for a coffee-can-sized device that is shot out of a cannon, has only the tiniest fraction of a second to zero in on the target, and packs enough explosive to blow up a tank. What's more, the company has developed software that can detect smaller tactical ballistic missiles such as the SCUD missile. The Space Systems Div. not only designs and builds satellite sensors and smart weapons for the government, it also builds the tooling and machines to manufacture them. As chief contractor for the Army's Advanced Sense and Destroy Armor program, the plant serves as a job shop, designing and manufacturing smart weapons sensors, as well as ground-based satellite monitoring and control systems. The company was one of two spinoffs -- the Jet Propulsion Laboratory was the other -- to come out of the California Institute of Technology during World War II. Founded on a flat, rocky site near an orange grove in the shadow of the rugged peaks of the San Gabriel Mountains, the Azusa facility includes several low-slung, modern buildings housing 1,200 employees, about one-tenth of them unionized production workers. Plant employees perform tasks such as stringing together wire harnesses for satellite sensors, assembling sensors for smart bombs using laser positioning devices they designed, and meticulously testing each product to ensure that it performs as intended in the field. The Azusa plant's stellar records of quality and on-time delivery have enabled this sprawling 71-acre facility to get the highest marks from Uncle Sam. For example, the company achieved a 100% customer satisfaction rating over a period of several years for its role as a manufacturer of sensors for the DSP satellite program. A pair of buildings contain sophisticated test equipment designed to ensure that both weapons sensors and satellite systems undergo the most rigorous examinations before they ever get shipped out the door. Whether a piece of electronics will still be able to find the target after it's shot out of a tank can't be left to question. Similarly, a sensor used in space as an "eye" to protect the U.S. from an intercontinental ballistic missile attack absolutely has to perform when subjected to the gravity-less atmosphere of space. In 2000 Azusa received a total of 13 complaints from customers; i.e., various government units. Euphemistically termed "quality escapes," the problems cited in some instances had to do with a missing overlay on a sensor, a logbook with an error, or a prohibited material used in a product. During the year, the plant had only one contract that had to be renegotiated because of time constraints, and that was due to unforeseen problems with design and procurement of components. "We search to find the root cause of the error and to figure out how to prevent it from happening again," says Joe Mogilewsky, vice president of operations. "We see as many paperwork errors as hardware errors. For most companies the cost of poor quality is scrap, rework, and repair. But we have expanded the definition of the cost of quality beyond the factory floor to include late deliveries, lost paperwork, and even lost opportunity costs. Our goal is to continue to drive these down." The plant's quality mantra is delivered to the troops in the form of large "scorecards" in the plant that list goals and achievements in the company's four "key result areas." Company management believes these scorecards not only ensure that employees are pulling in the right direction, but also that they buy into the overall mission of the firm. Adds Mogilewsky, "For employees, understanding where the company is going, and how they fit in and how they can make a difference, is important." Azusa got quality religion three years ago, says Dick Bregard, director of smart weapons. "A customer gave us a pretty good wakeup call, and in fact our first-pass yield before 1998 wasn't there." The company has since embraced the principles of Six Sigma, and expects to have 5% of its 1,260 employees certified as black belts by next year. "We want Six Sigma to be our management philosophy," adds Mogilewsky. On the safety front, the plant had a run of 3.7 million hours without a lost-time accident until mid-August, when a worker suffered a hernia while lifting. "The prior record at this facility was 170 days, so we're pretty proud of that achievement," says Mogilewsky. The plant has won the National Safety Council's Grand Trophy seven times, more than any other company. And Azusa has a reputation in the Los Angeles area as an attractive employer. The plant's employee retention rate is 98%, up from 91% a few years ago. "Employee retention is key to our success," says Carl Fischer, vice president and general manager, Space Systems. The company is currently tripling the floor space of its employee exercise facility. The plant has a union membership of about 120 workers, of whom more than 90% ratified the latest contract in May 2000. Only one grievance has been filed since August 2000, and the union hasn't struck the plant in nearly 40 years. If the Azusa operation has a weakness, it's inventory management -- the plant does about one turn a year. The reason, though, is that the customer dictates it. For national-security purposes, the U.S. government in many cases requires defense suppliers such as the Space Systems Div. to stockpile weapons on its behalf. Thus, the facility has on hand about $39 million worth of inventory for the DSP satellite program, including some expired finished goods. All this is maintained in case one day Uncle Sam decides it's needed. Through no fault of its own, the plant lost a couple of contracts earlier this year as the federal government ended funding for some weapons projects. The result was that about 30 production workers were laid off. But company managers are optimistic that under the Bush Administration, and with the Space Systems Div.'s reputation for quality, more work to bolster the nation's defense will be coming the Azusa plant's way. After all, not everybody can do rocket science. Web-Exclusive Best Practices By Doug Bartholomew Benchmarking contact: Mike Preston, [email protected], 626/812-2153. On-Time Delivery Rates One of the key areas where the Azusa plant has excelled in recent years is in on-time delivery. The company has achieved a 100% on-time delivery rate for all major hardware deliverables scheduled for 2000, although one contract earlier had been renegotiated to a 2000 date because the company was unable to deliver the product earlier due to design and procurement difficulties. Under the company's contract with the Dept. of Defense for the Sense and Destroy Armor (SADARM) smart weapons program, the plant succeeded in delivering a total of 20 product orders in the month scheduled for delivery. The total number of weapons units delivered was 252, and the total value of the contracts was more than $44 million. To speed production, and thereby ensure on-time delivery of the weapons sensors, the Asuza facility employed Six Sigma and lean-manufacturing techniques to achieve cycle-time reductions. The company achieved these gains by focusing on design improvements as well as manufacturability. At the same time, first-pass yield went up by 46%. One way these improvements were accomplished was through implementation of artificial intelligence software to optimize the matching of two key components of the device, the circuit card assembly, and the electronics module assembly. For another major project for NASA, the plant was able to deliver complex remote sensor units ahead of schedule on three out of five major contracts. On contracts valued at $25 million and a pair at $33 million, for instance, the company delivered the sensor units three months ahead of time and two and three years ahead of schedule, respectively. Productivity Over the last five years the company has trimmed manufacturing costs while boosting total plant output, achieving impressive gains in productivity at its Azusa, Calif., facility. From 1996 to 2000, manufacturing costs were curtailed by 17%. On the Sense and Destroy Armor project the company was able to reduce the cost of a unit from more than $9,000 to about $6,000 over the last year and a half. Since 1996 the value-added per employee is up 20%, while sales per employee increased 44%. As an annual value per employee, productivity, as measured by sales per employee, was up to $267,000 in 2000, versus $186,000 in 1996. Over that period, the number of employees dipped slightly, from 1,252 to 1,210. Similarly, annual value-added per employee over the same time period rose from $135,000 to $162,000. Through a combination of lean principles and Six Sigma efforts, the company also has been able to increase the productivity of its plant space. In terms of sales per square foot, the Azusa plant today has sales of $322,000 versus $234,000 in 1996. Likewise, overall plant-level profitability has gone up by 40%. Contributing to the productivity gains was the plant's employee involvement and empowerment program. The plant assigns all production employees to teams responsible for cost reductions, performance gains, and schedule adherence. The teams contributed to the plant's average cycle time reduction of 35% as well as a reduction of 63% in the amount of touch labor. Another key contributor to the plant's improved productivity is the implementation of self-inspection. Production workers inspect their own workmanship according to an in-process workmanship check plan. Defects and Scrap The Azusa operation's product quality has been on a steady upswing since the company began embracing Six Sigma and lean manufacturing principles. The company's first-pass yield for all finished products is 98%. Scrap and rework costs as a percentage of sales have been cut by two-thirds over the last five years, from 0.40% in 1996 to 0.13% in 2000. The defect rate on all components, including products that fail finished product tests, also has been cut by about half, from 3,435 ppm to 1,792 ppm. Similarly, the customer reject rate on shipped parts has fallen by about half, from 154 ppm five years ago to 79 ppm today. Using a specific product as an example, the SADARM CCA is a highly complex circuit board that undergoes severe environmental conditions, since the device has to withstand 16,000 times the force of gravity during firing of the projectile from a cannon. The board itself, about a foot long by an inch-and-a-half wide, has 14 layers, contains through-hole and surface mount components, and contains more than 1,100 solder joints. Over the last three years, first-pass yield on the manufacturing of this device has improved from 83% to 94%. Overall, the first-pass yield on the entire SADARM submunition electronics package made by the Azusa plant climbed from 65% in 1998 to 95% in 2000. To ensure the precision with which the SADARM sensor is manufactured, the plant's engineers designed a laser-guided positioning system that enables plant operators to locate the weapons sensor device precisely within its housing. This is critical, because once the sensor is in place in the housing, it is firmly set in place using a special adhesive designed to keep it there even after the coffee-can-sized unit is fired from a cannon.