Cases BRIDGETON INDUSTRIES AUTOMOTIVE COMPONENT AND FABRICATION PLANT ‘The union has worked with us and has even led in cost reduction programs. Now corporate is talking about out- ‘sourcing additional products, What more can we do to keep the business? Mie Lvs, Plant Manager ‘The Automotive Component and Fabrication Plant (ACF) was the original plant site for Bridgeton Indus- tries, a major supplier of components for the domestic automotive industry. The history of the plant dated back to the 1840s when the adjoining river attracted mills that processed the rich lumber resources in the area, ‘The site progressed through several industrial uses, in cluding an early wagon works, until it was finally par- chased by the founder of Bridgeton. He opened his first office there in the early 1900s. All of ACF's production was sold to the Big Three domestic manufacturers. Competition was primarily from local suppliers and other Bridgeton plants. As long as the market was growing and dominated by U.S. man ufacturers, this strategy worked. It became less effective when foreign competition and scarce, expensive gaso- line caused domestic loss of market share, Suppliers found themselves competing for a shrinking pool of production contracts, Throughout the 1980s, ACF expe- rienced serious cutbacks due to this competitive pres- sure. However, as the 1989/90 model year budget ap- proached, ACF was still considered a critical plant. ‘Model years ran from September I to August 31 and ‘were the basis for budgeting. Production contracts were usually awarded for a model year. The Engine Plant Shutdown ACE first felt the effects of domestic oss of market share in 1985. After the first oil crunch in the mid- 1970s, Bridgeton had built two plants for manufacture of fuel-efficient diesel engines in anticipation of a con- tinued growth in the market. One of these plants was at Ths cave vas pepe by Pail J. Bos, Reseach Asoit (onder he _sspetion of Aske Poesia Coops ‘Caprigh © 1590 by tne Peer Sd Palos of Harvard Clee, Hs vavd Baar Seba eane ID. 8 the ACF facility. When the growth in diesel-powered cars was not sustained, one of the operations had to be shut down. Special studies were made of the relative costs of the ‘wo plants, and ACP's facility was the one chosen to be closed, When the production workers at ACF were told they were not cost competitive, they took actions to re- duce unit product cost, brining it down to within a few cents of the competing quote. Despite these efforts, ACE's facility was closed. “Management told us we were not cost competitive, We worked ourselves into the ground and lowered the unit cost, and stil lost the business” recalls Ronald Peters, « long-time production worker in the old engine facility When the engine plant closed at the end of 1985/6 model year, all ofthe related production jobs were elim- inated. The skilled trades positions were eliminated ‘where possible. However, tradespeople who had unique skills that were needed in other ateas of the plant were retained. The physical machinery, equipment, and build- ing were written down and taken off the plant books, Strategic Analysis During the 1986/7 model year, the corporation hired a strategic consulting firm to examine all of Bridgeton’s, products and classify them in terms of world-class com- petitive position and potential. Four criteria were con- sidered: (a) quality, (b) customer service, (€) technical ‘capability (engineering and sophistication of plant processes), and (d) competitive cost postion, ‘The data used to evaluate quality included warranty failure rates, product rejects per million, percent sched. ‘led maintenance versus breakdown maintenance, cus- tomer complaints per million, and published user rating service scales. To evaluate customer service, in addition to inter- views, the study examined percent on-schedule produe- tion and shipments, percent variation in these schedules, time to respond to requests for information, time to re spond to customer complains, lead-time from design of concept to production of product, and degree of manu. facturing flexibility ‘Technical capability was largely estimated by inter- viewing customers. Internal data were gathered aboutCHAPTER 1 product feature innovations, degree of technological proprietary, and depth of engineering expertise. Competitive cost position was evaluated by inter- viewing financial, purchasing, and engineering person- nel and undertaking a cost analysis which examined the cost of production by breaking each product cost into three elements: materials, direct labor and benefits, and overhead. The product costs used for the study were to- tal fol-factory costs based on examination of the manu- facturing cost reports generated by the facility's cost system. The details were provided by the plant financial personnel. Comparative competitive costs were ob- tained through plant tours and interviews with engineer- ing and purchasing people at other Bridgeton plants (in- ternal competitors), information from competing component suppliers (external competitors), and discus- sions with financial personnel. ‘The budgeted unit costs provided by the plant for the 1986/7 model year study included overhead (burden) applied to products as a percent of direct labor dollars ‘The overhead percentage was calculated at budget time and used throughout the model year to allocate over- hnead to products using a single overheed pool. The overhead rate used in the study was 435% of direct la- bor dollars. Product costs were analyzed by the consultants to classify products by degree of cost competitiveness. Product classification was finished and reviewed at the corporate level with little plant adjustment or involve- ment after initial date collection. Products classified as world class (having costs equal to or lower than com- petitors’ manufacturing costs) were considered Class 1. Products which had the potential of becoming world class (having costs 5% to 15% higher than competitors’ costs) were classified as Class TI, Products which had no hope of becoming world class (having costs more than 15% higher than the major competitor) were clas- sified as Class ID. ‘The other criteria (quality, customer service, and technical capability) were weighted into factor that determined the final classification of the products. The consultants recommended that Class I products should remain at their present locations. Class TI products were to be watched closely for improvement or deterioration. Class TIL were designated to be outsourced (i.e, the ‘business was awarded to another Bridgeton location, or purchased from an outside competitor) or eliminated, ‘The consultants advised ACF's management that ‘heir products fell into the following classifications (for COST AND PERFORMANCE MANAGEMENT SYSTEMS 9 description of these products see Exhibit 1): (a) Class I: Fuel tanks; (b) Class Il: Manifolds, front and rear doors; and (c) Class III: Muffierexhaust systems, and oil pans. Product Outsourcing At the end of the 1987/8 model year, ofl pans and muf- fler-exhaust systems were outsourced from ACE. This outsourcing resulted in a foss of 60 direct labor (pro- duction) jobs and 30 indirect (skilled) jobs. These 90 people were transferred to a retraining job pool, which ‘was administered and paid by the union. The job pool ccost was not part of plant burden costs. With this second major cutback, plant management and labor moved toward more cooperation and open- ness in efforts to retain the remaining business. Several programs were introduced to improve product quality and increase productivity. These programs stretched the traditional unior/management boundaries as both sides worked toward ereative solutions to meet these challenges. ‘One of these efforts, led by Fred Simmonds, an experienced die maker, involved union formation of teams to lower the time required to change dies, a ma- jor constraint in the production process. By combining union Inbor classes and skill levels on press line die change teams, ACF lowered the required time to change dies from 12 hours to 90 minutes. This was the best in Bridgeton. Other locations averaged between four and five hours. The world-class times of Japanese assembly lines, approximately 10 minutes, required special plant layouts Another productivity improvement program created by Simmonds and Peters used “hourly to time hourly” In this program, hourly workers kept track of the causes of downtime and categorized them as being related to personal time, tools and equipment, or startup. People from the retraining job pool formed by the union at the time of the prior layofis were asked to time the lines. Production personnel’s knowledge of the process and experience on the line resulted in highly accurate activ. ity times for the operations they observed. Their report- ing emphasized the positive side of the information us- jing uptime reports to show progress toward the world-class goal of 80% uptime set by the Tapenese. ‘Through identifying problem areas and working with industrial engineers, they increased their uptime from fan average of 30% to 65%, the best in Bridgeton.10 CHAPTER | Jn spite of these improvements in the production process, manifolds, designated Class Il in the initial study, were downgraded to Class II in the 1989/90 model year budget and identified as candidates for out- sourcing (for the 1986/7 through 1989/90 model year budgets, see Exhibits 2 and 3). Any decision to out- source manifolds was complicated by the possibility that increased emission standards would require new vehicles be fited with lighter weight, more efficient manifolds. If this occurred, the demand for stainless steel manifolds covld increase dramatically and so, probably, would its selling price. Reacting to the change in status of the manifolds, Lewis called together his plant superintendents and union representatives. “This doesn’t make sense. I know ‘we are more competitive. We have made all kinds of improvements, but our costs keep going up and we're still Tosing business. What more can we do?” EXHIBIT COST AND PERFORMANCE MANAGEMENT SYSTEMS EXHIBIT 1 BRIDGETON INDUSTRIES Product Lines in 1990 Budget uel tanks: These are produced on six stamping lines from coated sheet metal, which is stamped in halves and then placed together and automatically seam welded, (Manifolds: Stainless steel exhaust manifolds are produced Jn a highly automated production process. The parts are loaded on fixture and robotically welded. These manifolds are superior to the older technology east iron manifolds in pollution control. The disadvantage of using stainless steel is its high relative cost. Front and rear doors: These are the front doors and rear cargo doors for vans, They are produced on four press Fines with up to six presses per line ‘Mufler-exhaust systems: These are formed from sheet metal that is bent to shape and robotically welded. Oil pans: These are small steel stampings. They are pro- duced on two lines containing one press each. 2 BRIDGETON INDUSTRIES 1986/7 through 1989/90 Model Year Budgets (000) 1986/87 _1987/88 1988/89 _ 1980/90 Sales Fuel tenks 70278 75,196 79,816 83.535 Manifolds 79459 84.776 89,323 93,120 Doors 41845 45,174 47199 49,887 Mauller/exhausts «62,986 66,266 0 0 il pans 75,586 79,658 0 0 Total 330.184 351071 716538 Z265H2 Direct material Fuel tanks 15125 15,756 16,812 16.996 Manifolds 31,696 33,016 34,392 35,725 Doors 14886 15,506 16,252 16,825 Mufler/exhausts 28,440 29,525 0 0 il pans 32218 33,560 0 0 Total T2736 177363 «86956 | USNS Dinect labor Fuel tanks 41 42384415 4.599 Manifolds 5886 6027 «6.278 «6.540 Doors 2621 27312 88A 2,963 ‘Muffler /exhausts 5635 5,766 0 0 Oil pans 6371 6592 0 0 “Total 4682 75084 «T3537 TET eontinuel)(CHAPTER 1 COST AND PERFORMANCE MANAGEMENT SYSTEMS 11 EXHIBIT 2 (cont) (Overhead by account number 1000 7,713 7,806 $572 «5,679 1500 © 67436824 5,883 «5.928 2000 3,642 3,794 2081 2,115. 3000 2428-2529 11354 1,410 4000881788 7360 7.493, 5000 24,181 24/460 © 20,063 20,274 8000 5,964 5,946 3,744 3,744 9000 6708 «6,771 5,948 5,987 11000 5,089 5,011 3,150 3,030 12000 26,954 28,077 15,027 15,683 14000 9,733 9,784 «= 8,025 «8,110 Total 107,954 109,890 78,157 79,993 Factory profit 88,524 57,688 63,501 EXHIBIT 5 BRIDGETON INDUSTRIES Description of Chart of Accounts ‘ACCOUNT NUR DESCRIPTION 11000 ‘Wages and benefits for nonskilled hourly personnel such es janitors and truck drivers 1500 All plant salacied personnel expense, including benefits, except industrial engineers (included in account number 11000) 2000 Production supplies such as gloves, safety goggles and packing material 3000 Small wearing tools such as grinding wheels, hammers, and screwdrivers +4000 All purchased utilities including coal and compressed gas 5000 Wages for nonproduction employees with specialized skilled classifications used for plant maintenance and rearrangement; the benefits associated with these wages are in class 14000 8000 Depreciation, on a straight-line basis, and property taxes 3000 Various relatively constant personnel-related expenses, including items such as training, travel, and union representation 11000 Project expense for one-time setup and some rearrangement cof new equipment and machinery 12000 Benefits and overtime premium for production hourly workers including COLA (Cost of Living Adjustment), state unemployment, and pension (Wages are in direct labor.) 14000 Benefits for skilled hourly workers similar to those for production workers (Wages are in account 5000,