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A Quality Program Transforms Saco Defense

May 1, 1993
Related Topics: Total Quality Management, Featured Article
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In June 1989, weapons manufacturing at 178-year-old Saco Defense Inc. came to a virtual standstill. Not only was the organization losing money on its primary product—the MK-19 grenade launcher—but government inspectors claimed that the company was unable to adhere to U.S. Navy quality standards consistently.

"It never was an issue of the functional quality of the weapons or that our employees didn't know how to build them, because the guns did work properly," says Gregory Black, manager of human resources for Saco Defense in Saco, Maine. "The problem was our paper systems. The government questioned our adherence to policies and practices in the area of quality control."

For example, suppose an employee discovered that a bolt was defective after it had reached a nearly completed state. According to Black, an operator would walk over to a holding area and select another bolt to replace it, without filling out the necessary paperwork to go along with the scrapped bolt.

Another example of paper-systems problems, says Black, was in the area of inspector certifications. Depending on their job classifications, some inspectors had to recertify themselves regularly, but at times they would miss the deadlines. "Let's say that a magnetic-particle inspector needed to have written certification that his skills were updated every two years," says Black. "It might be 25 months, and the employee still wouldn't have it done."

On an individual basis, the government didn't look at these discrepancies as a severe problem. Combined, however, these discrepancies made production inefficient overall. Consequently, the government found that the plant didn't meet military quality standards adequately and shut it down.

Three months after the shutdown, however, a radically transformed Saco Defense began to emerge. The company had brought its paper systems under control through a total-quality-control program and had revamped and revised many of its manufacturing practices. During the next two years, Saco Defense increased its productivity by 50%, made on-time shipments the norm, rather than the exception, and reduced the cost of its products.

Key components of the organization's transformation include:

  1. A reduction of the work force from 760 to approximately 450 employees and the elimination of several layers of management. According to Black, this en-abled the organization to shift decision-making responsibilities to lower levels of supervision and improve its efficiency, streamline communications and reduce bottlenecks.

  2. The formation of work cells—essentially, small businesses within the company. The company allowed teams that ranged from four to 13 persons—depending on the complexity of each operation—to manage their own production with limited direct supervision. Their responsibilities ranged from budgeting to assigning their own overtime. Twelve work cells currently are operating at Saco Defense.

  3. The elimination of 76% of its suppliers through a strict quality-rating program. This move increased Saco's acceptance rate of more than 3,000 supplied products from 68% to 99%.

  4. Empowering employees by giving them the responsibility and accountability for their performances—including the authority to halt production to correct problems. The company also gave production employees the responsibility for product quality, eliminating the need for a vast number of quality-inspector positions. This crucial step shifted the organization's emphasis from detecting defects after the fact to preventing them beforehand.

"Empowering production workers with decision-making control has transformed Saco's work culture from authoritarian to participatory," says Black. The most remarkable example of this evolution is the manufacturing process for bolts used in the MK-19 grenade launcher. Previously, it took 262 days for each bolt to travel the six miles through the company's 400,000-square-foot facility. Today, a work cell of 13 employees can complete the same bolt in 20 days.

Shutdown forces Saco Defense to make changes.
Saco's journey through this transformation has been a long one. It began in June 1989 with the plant shutdown. Termed a Method D situation, the government pulled its inspectors out of the facility. As a result, the company was unable to receive incoming materials, build components for the guns or ship outgoing product.

"We had no alternative but to stop production in the plant until we could get the quality system under control," says Black. "We knew we had to change the way we were doing things. We had had inspectors inspecting inspectors who were inspecting inspectors, and then the inspectors would inspect the products again. We knew it wasn't working, and that we probably were overstaffed and operating inefficiently."

The mayor of nearby Biddeford, Maine—the city in which many of Saco Defense's employees live—offered the use of the local junior high school to company employees so that they could meet and assess the situation. A group of 75 salaried, nonexempt and hourly employees, representing a cross section of functions and departmental lines, met at the school to discuss how to turn the company around.

During a three-month period, the group developed a game plan, which included Continuous Process Improvement (CPI)—now a way of life at the company. "We took the military quality specifications apart, piece by piece, and developed new policies, practices, procedures and retraining guidelines by which to ensure compliance with government requirements," explains Black.

Saco Defense re-examined production processes required by the government contract (Military Quality Specification 9858A) to ensure that employees were building each component properly. If workers didn't adhere to or understand production standards, the company revised the processes and outlined retraining efforts.

"We knew that this attitude had to change," says Black. "It no longer was the World War II or Vietnam Era, during which companies built destroyers every 17 days," regardless of whether each met exact military standards. "The cliche good enough for government work no longer was acceptable," he says.

By September 1989, Saco Defense had re-examined the specifications and rewritten and re-evaluated the policies and guidelines for production. Consequently, the company was ready to implement the retraining effort.

The retraining began with companywide meetings, during which management explained the new order of business. Many of the 75 employees who worked on the new procedures then began a two-month-long task of retraining all employees, including senior management, in the new mode of operation.

In the different departments, the organization asked those individuals involved in the re-evaluation process to be facilitators for small group meetings. Saco Defense retrained everyone in each department—regardless of whether or not that department had had previous quality or paper-systems problems—on all aspects of Military Quality Specification 9858A. One-on-one training on the specifics of each employee's job followed these initial training sessions.

For example, the machinery department requires fixed schedules for regular, preventive maintenance. The company developed new schedules and procedures and trained employees in what it required of them. "We developed schedules, and employees were told to stick to them," says Black. "In the new game plan, employees couldn't do just part of a procedure today and hope they could finish it tomorrow. If the schedule required them to oil a machine, they were to do it today and sign off on it. That way, an inspector could check it and file the proper paperwork."

The company made it clear that it would punish no one for making mistakes. However, says Black, "employees who intentionally ignored these new procedures no longer would be employees at Saco Defense."

Customer critique facilitates more change.
In getting the company back on track and restarting production, Saco Defense addressed several other issues. First, to regain the confidence of its primary customers—the U.S. Navy and the U.S. Army—management hosted the Acquisition Improvement Review (AIR) team to evaluate the company's new production method.

"The AIR team was an important facilitator of change," says Black. "It took an impartial view of our operation and developed a set of recommendations. When the team left, we developed a program around every recommendation."

The AIR team outlined four areas of recommendations:

  • Customer satisfaction
  • Rising costs and lower productivity
  • How to remain competitive
  • Long-term survival of the company.

In the area of customer satisfaction, the AIR team recommended that the company ensure on-time deliveries. Consequently, Saco Defense developed a program in which it assigned managers to each major weapon produced and gave them responsibility for their products from start to finish. The program required managers to develop schedules, chair regular business meetings to detect and resolve production pitfalls, report regularly to senior management and ship the products on time.

To combat higher costs and low productivity, the AIR team recommended that Saco Defense change its incentive system from an individual to a group system. "They believed our current individual incentive system wasn't appropriate for efficient, quality manufacturing," says Black.

Under the old system, the faster the worker made each piece, the more money he or she made. The system didn't take into account the quality of each piece, because sometimes employees didn't find defects in individual pieces until the product was near completion. The problem here was that there was no way to trace the defective piece back to one of many operators making it. In addition, employees might have scrapped an entire product after much time and money had been spent building it.

"After the first operation, the piece might have cost the company $20. After the second operation, it would cost $20.10 and then $20.30 after the third," explains Black. "After many more operations, the total product would cost $900. If you scrap a bolt during the last operation because of a defect that employees didn't detect earlier, the cost is significant. The reason? You've been paying an incentive to operators down the line for product, which then became defective somewhere along the process."

To resolve this dilemma and meet the AIR team's recommendation, Saco Defense developed a program to switch some operators to small, self-contained, work-cell groups of employees. The company decided to pay these employees on a group-incentive basis for quality and finished products, rather than on an individual basis for completed pieces.

In the area of long-term survival of the organization, the AIR team recommended that Saco Defense reduce the number of employee classifications. At that time, the company had 125 classifications for jobs, although many of its 350 employees were performing the same or similar operations. Saco Defense adopted the recommendation and developed a program that will decrease the number of classifications to 10 by the end of 1993.

In total, the AIR team presented the company with 203 different findings in areas that needed improvement. Some of those recommendations had simple solutions, such as rearranging the company's stockroom for more efficient access to products. Some required the restructuring of its production floor space. This involved moving the mechanical-engineering offices onto the shop floor to provide better access to operators and machinery. Other solutions required such major team or organizational efforts as:

  • Implementing in-process control inspection
  • Rewriting the company's quality manual
  • Instituting a corrective action board to meet each day to resolve production problems
  • Reorganizing the company's receiving area.

Saco Defense was thorough in addressing these recommendations. According to Black, when the company invited the AIR team back one year later to evaluate the company's progress, the team said that the company had made dramatic improvements.

Management builds key relationships to increase productivity.
Meanwhile, management was addressing another important company issue—developing better relationships and cooperation with its collective-bargaining unit. This process began in August 1989, when Saco Defense's management team opened early negotiations with the Amalgamated Clothing and Textile Workers Union of America. The labor contract didn't expire until November 1990.

Black describes the union-management relationship before the shutdown as "very combative." However, given the dire circumstances the company faced, he says that both sides quickly agreed to extend the current contract for an additional three years.

This new management-union relationship was a crucial factor in the organization's implementation of the AIR team's recommendations. For example, in developing work cells, Saco Defense needed to change its labor contract to switch employees from an individual-incentive to a group-incentive system.

"We knew that we had to start working together or our past problems would resurface," explains Black. "It was important to us to develop a better working relationship with our union. Because the union agreed to extend the contract to 1993 and make changes in such areas as the employee-incentive system, we could tell that they wanted to work with the company." In August 1992, both parties agreed to extend the 1993 contract to 1996.

Another issue Saco Defense's management addressed was building better relationships with its materials suppliers. The company developed a supplier-rating system that ranked suppliers according to such factors as quality, on-time deliveries and cost. Saco Defense's own quality-control team then visited all suppliers and helped them develop quality-improvement programs to meet the standards required by the various contracts.

"The supplier-rating system is similar to a report card," says Black. "If they don't make the grade, they're out. We told our suppliers that we would hold them accountable for their shipments. If they didn't want to play in the arena under those conditions, they should pull out. Some did."

The suppliers that stuck with the company and worked to improve their operations along with Saco Defense didn't go unrecognized. For the past three years, the company has held its Annual Supplier Conference Awards Ceremony to pay tribute to companies that it chooses as Suppliers of the Year.

With these improvements affecting crucial components of client, labor and materials in place, management continued to look inward and improve on the changes taking place daily in its operation. One critical goal that management undertook was to increase overall plant productivity.

To accomplish this goal, management looked at the length and makeup of the company's three shifts. They found that overlapping hours and numerous, scheduled breaks disrupted work flow and decreased overall productivity. By eliminating a 15-minute afternoon break and changing the employee lunch break from 30 minutes of unpaid time to a 20-minute paid break, the company tightened the actual break time and reduced each shift by 25 minutes.

"People always prepared for their breaks early and were late getting back," explains Black. "This could result in a half-hour break for some people." Now, for example, employees clock in at 7:00 a.m. on the first shift and have a 15-minute morning break and a 20-minute paid lunch. If an individual leaves the facility for lunch, that person has to clock out. If he or she isn't back and on the job in 20 minutes, that person doesn't get paid for lunch. Because the shift ends at 3:00 p.m., rather than 3:30, employees now have more quality time at home.

With this schedule, the company reduced each shift from 8.5 to 8 hours. This also eliminated the half-hour overlap of one employee's waiting around to take over while another was finishing up on the machine. In addition, the organization moved all preventive maintenance to the third shift, giving a more accurate picture of productivity and freeing up an entire shift for increased production, if necessary.

Work cells empower employees and increase production.
For Saco Defense to get back on track, the company had some catching up to do in meeting the production obligations of its military contract. To meet MK-19 numbers for the 1991 production year, employees needed to produce 300 guns a month. Employees never had made more than 200 a month, however.

In a meeting, the company discussed these figures with employees. Although management was skeptical about employees' ability to accomplish these production numbers, the employees expressed the belief that they could do it.

"Our bolt production was already on a work cell," says Black. "A welder who worked on receivers—a necessary component—came forward and asked for receiver production to be put into a work cell as well. He and others suggested that if they were left alone but given necessary support (such as temporary additional workers), proper materials and the authority for facilitation (versus supervision), they could make those 300 units."

Included in that list of requirements was an unusual, but morale-boosting incentive request. If the work cell met its production goals, Saco Defense would buy company jackets for each employee in that department. When monthly production reached 320, the organization bought the jackets and recognized employees for their efforts.

Black cites this as an example of how work cells have changed employee attitudes and work ethics. Employees now feel empowered to make their own decisions about the production environment.

In the work cells, employees sign in rather than punch a clock. They determine among themselves who will work on which machines and how overtime will be used if it's necessary. In the receiver work cell, employees initiated a cross-training effort on jobs within the department—with management approval and support—so that the cell could detect and eliminate bottlenecks. The indirect benefits of these changes include a virtual elimination of employee turnover and a 50% reduction in the amount of scrap or defective material created.

Black cites several factors that have contributed to the decrease in turnover. Most obvious, he says, was a 40% reduction of the work force. This increased the average age and seniority of the entire work force. Coupled with a depressed local economy, employees are reluctant to terminate their relationship with the company.

"There have been retirements and some separations or discharges, but voluntary turnover has been [less] than a handful of people since these programs began," says Black. "All employees have more authority and accountability, regardless of whether they work in a cell or not."

Black says that he believes the change in work culture to be a prominent contributor not only to reduced turnover, but to reduced scrap material as well. "This relates back to the employees and the quality-control processes that give them direct control over, and accountability for, their work," he says. "Now, instead of a worker's completing 20 pieces and an inspector's checking each 20th piece, the operator checks more frequently. He or she stops production immediately to check the machine to see if something is wrong."

There are many other ongoing improvement projects at Saco Defense. These projects include:

  • Reducing cycle time and product cost
  • Implementing training programs for skills integration
  • Introducing additional computerized operations
  • Implementing new incentive programs for maintenanceand other service-area employees whom the company pays on a flat-rate basis.

In addition, management has its own list of goals for the company. That list includes expanding the company's international business and hiring a sales team to drum up new business in areas outside weapons manufacturing. On the domestic side, management hopes eventually to have every production employee involved in a work cell, leading the company toward a more self-directed work environment.

"We believe this is the way manufacturing has to go to compete in the foreign market," says Black. "There has to be a tremendous change to get the U.S. to be a world leader in manufacturing and industry again. Labor unions and management must depart from traditional adversarial relationships and form partnerships, working toward developing goals and sharing successes. Doing things as a team is the only way companies like ours will be successful."

Personnel Journal, May 1993, Vol. 72, No. 5, pp. 90-101.

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