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.