From cost center to profit center – includes related article – Northwest Airlines Inc.’ machine shop

Shifting focus from efficiency to making money changed forever the way one Northwest Airlines machine shop does business. Now the shop is bringing in third-party work and generating revenue instead of just consuming it.

It’s a long way from the Northwest Airlines machine shop in Atlanta, Georgia, to Pratt & Whitney’s machine shops in Middletown, Connecticut. But the distance in miles was short compared to the gulf that separated their viewpoints one year ago on the best way to run a machine shop.

Northwest’s Tom Montijo and Dennis Anderson, two managers at the shop in Atlanta, had an invitation from their Pratt & Whitney (P&W) Quality Assurance and Product Integrity representative:

VISIT OUR BUSINESS UNIT 409 IN MIDDLETOWN, CT AND SEE HOW WE’VE CUT LEAD TIME 68 PERCENT, WIP INVENTORY 77 PERCENT, AND SCRAP AND REWORK 75 PERCENT, WHILE SIMULTANEOUSLY IMPROVING WIP TURNS 78 PERCENT AND ON-TIME DELIVERY 64 PERCENT.

Improvements of this order of magnitude held a powerful attraction for the two managers. The commercial airline industry was–and still is–buffeted by the double turbulence of a downturn in business and an upturn in competition. Achieving improvements in line with P&W’s would make Northwest’s three-shift, 515-employee engine shop more productive and competitive.

There were only two small problems in the minds of the Northwest managers. P&W’s improvements sounded too good to be true. And they perceived a big difference between manufacturing, which P&W does, and re-manufacturing, which Northwest does.

Pratt’s reply: The results are real and the differences irrelevant. Come see for yourself.

The Northwest machine shop managers knew that P&W had committed to synchronous manufacturing in 1989 and now had four years of focused continuous improvement experience behind them. They decided to visit Middletown.

Manage The Flow

P&W’s Middletown and Rocky Hill plants are managed by George Katsarakes, who introduced the Northwest representatives to Business Unit 409, a machine shop with more than 400 pieces of capital equipment in four major machining areas covering 86,000 square feet. The unit, which has 150 active part numbers, manufactures turbine cases for commercial and military jet engines.

Mr. Katsarakes explained how P&W shifted its focus from mass-production efficiency to managing the flow of material so inventory and costs are cut, while customer demands are met in the shortest possible time. This is synchronous manufacturing in a nutshell. The key insight that must be acquired and acted on, he said, is that not all machine tools or machining departments are created equal. Some have more capacity than others. One will have the least capacity. This is the shop’s constraint resource. Understanding the linkage between market demand and constraint resources–and knowing how to manage this linkage–is the secret to improving machine shop performance.

Mr. Katsarakes suggested that his two guests from Northwest focus on material flow and make only what customers order. That way, they could slash manufacturing or remanufacturing leadtimes and free up significant capacity to handle much more business with existing resources.

The Northwest managers wanted to talk to the people in the machine shop. They knew that ideas you hear in a conference room often don’t sound like the same ideas when you hear them on the machine shop floor.

Where’s The WIP?

Northwest’s Anderson and Montijo felt right at home in P&W’s machine shop. Pratt uses many of the same types of machine tools that Northwest uses in its engine refurbishment shop.

But there was one striking difference. Whereas Northwest’s facility had work-in-process (WIP) inventory stacked high in many places, P&W’s shop had very little WIP inventory anywhere, although the workers were busy. Four years of “lean production” thinking had flushed out the parts in queue and wait, creating a path down which parts for actual customer orders could move at top speed. According to Mr. Katsarakes, only a customer order can now “pull” material onto the shop floor. He said that releasing only parts committed to actual orders had two major benefits. First, operating expense plummeted because only “sold” material was put into the process. This minimized cash outlays and accelerated positive cash flow. Second, with unneeded work-pieces no longer clogging the process, throughput increased dramatically. Mr. Katsarakes emphasizes that throughput should be defined as “revenue generated by sales,” not “parts produced.” In fact, throughput has become a crucial measurement that drives operational decision-making for the plant.

How do the working leaders feel about operating without safety stocks of inventory? Tom Montijo whose title is Manager–Powerplant Shops, wanted to know. He knew that if Northwest’s employees saw an empty shop floor, they would think all of their work had vanished.

Machinist Rodger Tillbrook, a working leader on P&W’s commercial engine parts line, is responsible for synchronizing the flow of material through a manufacturing center dominated by a row of Giddings & Lewis machining centers and VTLs.

Speaking for the other machinists, Mr. Tillbrook explained that P&W employees recognize that change is necessary to stay competitive, serve customers and make money. He said, however, that change brings machinists face to face with challenges and pressures they have never dealt with before, and that these new situations are demanding.

Today, operators do many more set-ups because of significantly reduced batch and transfer lot sizes. Performing several setups a day is not uncommon. And because only the exact number of workpieces needed are released, operators must “dial in” setups with precision accuracy the first time. “There’s no margin for error,” as Mr. Tillbrook put it.

In addition, machinists now need to be able to move from one machine to another, in effect, going where the work is, because once work for the customer is done on one machine, there are no parts left over to keep machinists busy for the sake of efficiency. Cross-training is mandatory for workers who want to see their paychecks grow in the future.

Nowhere To Hide

The elimination of excessive inventories throughout the operation has one overwhelmingly positive effect, according to Mr. Katsarakes of P&W: “Quality problems have nowhere to hide.” For example, if an operator has to scrap a workpiece because a drill bit broke and created too large a hole, the attention of everyone is focused on that problem in real-time, not six months later, when someone notices an expensive casting gathering dust in a corner. The safety net of large WIP inventories which were standing by to “forgive” quality problems in the past, has simply proved too expensive. It is gone forever. The result is a high degree of awareness of how important it is to do the job right the first time.

The new approach had been a challenge to machinists who had gotten used to having a generous supply of parts to fall back on if a part had to be scrapped. Now machinists have no “spares.” Also, they may now be working on more than one machine tool on a given day.

The new environment has broadened the responsibilities of the working leaders, too. As in the past, they are concerned with paperwork, gages, tooling, engineering, scheduling the machine maintenance and electronic maintenance people and, of course, cutting chips. But they now think in strategic ways to optimize the flow of material through the process.

A Shop Reshaped

P&W’s shift to focusing on customer satisfaction and making only what customers order, as fast as possible, has sparked a dramatic change in the way the shop runs its business. Now engineering and purchasing resources are moving into the business units to work along side the machinists. The idea is on-the-spot continuous improvement Now machinists are being certified to inspect and approve their own finished workpieces. Other changes are reshaping day-to-day operations on the shop floor. For example:

* Brain power comes together where the work is.

Design engineers and NC programmers routinely visit the shop floor to revise and improve CNC part programs based on what the machinists can show them about machining strategies. Everyone is accustomed to spotting areas that become the constraining point when a constraint is relieved somewhere else. Because improvements are prioritized on the basis of constraint thinking, each improvement translates quickly into progress the customer can see.

* Time-based thinking drives technological improvements.

Creep-feed grinding has replaced milling for a number of operations which had not been considered worthwhile candidates for the switch in the past. This change has cut the processing time of some operations from 12 hours to two. In some cases, the superior repeatability of creep-feed grinding or the minimal deburring it entails have prompted the change because secondary operations were reduced or eliminated.

* All the needed tools are right at hand.

Gages, cutting tools, clamping fixtures, and so on are now kitted and placed next to the machine tools. The idea is to cut to zero the time that was formerly wasted looking for setup materials. Reductions in setup time on many machines has exceeded 50 percent.

* CNC capabilities are used to aid setups.

Setup time, thus total cycle time, is minimized by seizing every opportunity to use the CNC’s processing power. For example, table-mounted probing stations speed tool length compensating routines. Touch probes in the spindle establish workpiece orientation and location automatically.

* Parts take the shuttle.

Pallet shuttles have been installed to move large workpieces from one machine tool to another in minutes. The common fixturing on the pallets facilitates rapid–and in-cycle–setup on twin-pallet machines. While the machine is cutting on one pallet, the operator is setting up the next operation on the other pallet.

The Pratt & Whitney working leaders told the Northwest Airlines managers that changing a shopfloor culture took time and hard work, but that the changes were working and the company was benefiting. One key measure: Since adopting synchronous manufacturing, the number of defects-per-million-parts at Unit 409 has dropped more than 75 percent.

The Big Idea

Suddenly, what Tom Montijo saw at P&W made him see his own shop in Atlanta in a whole new way. He saw the connection between eliminating excess inventory and accelerating turn time. In his vision, synchronizing Northwest’s machine shop involved not merely cutting operating costs, improving turn time and eliminating overtime. It was not simply a matter of freeing up capacity there were plenty of engine overhaul shops with excess capacity who couldn’t get all the work they wanted.

The big idea was that synchronous manufacturing just might be the tool to help his shop out-pace other overhaul shops. This improvement would create a clear point of difference in the quality of service Northwest could provide. It could even translate into a revenue-generating competitive advantage.

Mr. Montijo reasoned that by freeing up misallocated capacity to cut turn time, Northwest could bring in outside work from anywhere in the western hemisphere, recover the shop’s overhead costs and even return a profit–something that had never been asked, nor expected, of the Atlanta facility. He saw that the new approach focused on the flow of material through the shop. This focus revealed the broad similarities in the problems both manufacturers and remanufacturers face. The differences did not invalidate the practicality of the approach for a remanufacturer. The real ingredients that were essential for improving the performance of Northwest’s machine shop were fresh thinking, leadership and training. Step one was to start the training process. To get ground training in the principles behind P&W’s improvements, Montijo and Anderson read The Goal, by Goldratt and Cox, and Regaining Competitiveness: Putting The Goal to Work, by Srikanth and Cavallaro. Then they passed these books on to shop supervisors. The coauthor of the latter book, Harold Cavallaro, is a principal of The Spectrum Management Group, the consulting firm that has been providing training and implementation to P&W since 1989. Mr. Cavallaro is also a trainer who uses an unusual technique developed for machine shop managers and machinists. Alums of this training affectionately call it “The Production Dice Game.”

In January, 1993, Harold Cavallaro, who had helped Pratt & Whitney’s George Katsarakes train more than 3,000 employees in dice game sessions, arrived in Atlanta to conduct one-day seminars for Northwest’s employees.

On A Roll

The first Northwest training group of 24 was quickly organized into three teams of eight each. Mr. Cavallaro went down the line at each of the three long tables, handing a die to each Northwest machine shop employee. He said that the attendees should think of the die as one of their resources: a five-axis milling machine, a CNC machining center, a vertical lathe, a large surface, or one of the other machine tools in the shop.

While each die has the capacity to roll a “six,” the die also has the ability to roll ones, fives, and everything in between. The number each participant rolled would represent the output for that machine tool for the day. A “six” is a good day; a “one” is a bad day.

With roll after roll, the Northwest employees created a month’s production, moving brightly colored plastic Legos, which represented production units, down the line to the shipping dock. This training process was designed to reveal the statistical fluctuations that are an inescapable reality in every machine shop. A machine theoretically capable of producing six parts per day will, on average, always produce less. There are a variety of reasons for this: planned and unplanned down-time, worker absenteeism, a machine being requisitioned to expedite an un-scheduled part, and on and on.

As players rolled the dice, their objective was to maximize throughput at each machine tool. But the results were unsatisfactory. Among a host of unwelcome developments, two big problems stood out: Inventory went up and delivery performance went down.

The group found this process to be extremely illuminating. While certain individuals were highly efficient, this did not result in high efficiency for the total system. The double whammy of statistical fluctuations combined with dependent events (Operation 2 had to be performed before Operation 3 could be performed) quickly put the machine shop behind schedule and below expectations–and kept it locked in a vicious cycle of underperformance.

The situation changed dramatically when the dice were rolled in adherence with the principles of synchronous manufacturing and constraint thinking. In the second game, the constraints in the system were identified. Material was released based on the system’s true capacity. Other techniques that synchronized the flow of material through the process were deployed. Result: promised deliveries were met. This positive development occurred not despite the low inventory but because of it.

Culture Shock

The 24 Northwest employees knew a major cultural shift would be required for the shop to accept a change as revolutionary as “no excess inventory.”

As expected, the machine shop workers were skeptical at first, particularly in light of the shop’s acquisition of numerous CNC machines. At the CNC machines, the strategy had been to assemble big batches and avoid setups. A synchronous strategy calls for multiple setups and batches no larger than what customers have actually ordered for immediate delivery.

Making this change would be fairly easy in an ideal world, for example, if all of Northwest’s machines and fixtures had quick-change features. But quick-change capability was nonexistent at many machines that were critical to increasing throughput. Managers there had to adapt synchronous manufacturing to the shop’s culture.

The employees were told that no jobs would be lost because of productivity improvements. Bringing in outside business would give them all the work they could handle no matter how much faster they could turn engines around in the shop.

Draining The Swamp

The first action was to stop the induction of material into the shop. The dropping of work-in-process inventory levels facilitated short runs and more frequent setups. The increasing number of setups focused attention on the need to reduce setup time. Northwest started to invest in quick-change features. Almost at once, the inventory began to drain down, trimming operating expense. Also, rebuilt engines started to go out the door faster, accelerating cash flow. The new ideas seemed to be working.

The shop put its setup improvement program in high gear. In some cases, the shop went back to the machine tool builder for help. For example, Wasino provided quick-change chuck jaws for the CNC lathes it had supplied the shop, resulting in a 45-percent reduction in setup time. A number of manual lathes were also upgraded with quick-change jaws. They, too, enjoyed a significant reduction in setup time.

Dedicated workholding fixtures have been attached to faceplates that match those mounted on worktables or tombstone fixtures to provide a common interface. Moving work from machine to machine is now much faster.

In addition to these specific hardware changes, Northwest embarked on an overall setup improvement program, which has trimmed setup time shop-wide by 25 percent. Mike McBurnet, who operates a Wotan horizontal boring mill, remanufactures gear boxes in Northwest’s facility in Atlanta. He says the synchronous approach was scary at first. The machinists were used to seeing a lot of material on the shop floor. They looked at those piles of parts and saw job security. “When the managers started to drain the swamp, many of us thought we wouldn’t have a job the next day,” he remembers.

In truth, those piles of inventory constituted the real threat to their jobs. Now with inventory levels shrinking, throughput is increasing. This turn of events is putting the machine shop in the desirable position of producing more–much more–with less–much less.

Meanwhile, Tom Montijo was doing his part. Now, every time the workers free up a little more capacity, another outside engine can come onto the shop floor. With synchronous manufacturing (read synchronous thinking) in place, the Northwest machinists have had all the work they could handle.

Next Stop: Profitsville

The new approach is working. In fact, the new approach is working better than Montijo and Anderson expected. By the end of 1993, the machine shop had processed 27 third-party engines and has an agreement with its largest outside customer to bring in 30 to 35 engines in 1994. This represents incremental business that was achieved with no capital equipment outlays. The small purchases made for jaws, chucks, and the like, were more than paid for by reductions in operating expenses. Best of all, the continuous improvement has only just begun, with significant potential waiting to be realized from further training and making continuous progress down the learning curve.

Mr. Montijo estimates that when the shop reaches the 100-engines-per-year level for third-party work, the facility will recoup its annual operating costs and begin making a contribution to profit for Northwest Airlines.

“Pursuing profit wasn’t part of my job description a year ago,” says Mr. Montijo. “But it is now.”

Synchronous Means Timely

“Timely manufacturing” is another way of describing synchronous manufacturing. This manufacturing management philosophy stresses the importance of organizing production resources so that things happen at the right time, in the right order, and to the right quantity. In other words, don’t make anything ahead of time or not needed NOW; don’t do anything if something more important isn’t done yet or will have to wait; and don’t make anything extra just to keep machines or people busy.

If you do, according to the concepts of synchronous manufacturing, your shop will actually end up, 1. making less money, and 2. making less efficient overall usage of equipment. That’s because WIP inventory goes up and starts to interfere with throughput–getting finished work to the customer (as opposed to individual operations completed). Operating expenses also go up because money is tied up in material, which may have already absorbed considerable labor and machine time. This investment in WIP cannot be recouped until it is sold as finished goods. That is why synchronous manufacturing defines throughput as revenue generated by sales.

Spectrum Management Group, a consulting firm devoted to helping manufacturing companies apply this approach, says that synchronous manufacturing can produce improvements in small, medium and large companies and is viable for any type of manufacturing. Companies that sell a product stand to gain the most from this approach because they are the most sensitive to raw material costs. But even job shops, who bring their expertise at machining to market, can benefit from synchronous thinking.

The emphasis on linking incoming work with constraints in production capability is an important lesson for job shop managers. Since work can flow only as fast as the tightest bottleneck will allow, that bottleneck represents the shop’s efficiency and determines the shop’s profitability. The capacity of other workstations becomes irrelevant except to indicate how quickly unfinished work can be piled up behind the bottleneck.

By focusing on those constraints, job shops can learn ways to sequence process steps so that these constraints have less of an impact on throughput. More work can pass through the shop without adding new people or adding more machines. Spectrum believes that too many shops pass up money-making jobs because they think their workcenters are already filled, when, truth is, only their bottlenecks are filled–filled with work not effectively paced with the shop’s real capacity.