Week 7
1. What is the most difficult puzzle that your current (most recent) organization has ever faced?
2. What concept/idea in the assigned readings do you find most intriguing or useful? Why? How might you or others apply it?
Week 8
1. On what criteria (differentiation/economy/interaction) should Apple compete going forward?
2. What concept/idea in the assigned readings do you find most intriguing or useful? Why? How might you or others apply it?
Week 9
1. Is an organization’s strategy best described and communicated in words, numbers, or images?
2. What concept/idea in the assigned readings do you find most intriguing or useful? Why? How might you or others apply it?
Reading (http://news.stanford.edu/news/2005/june15/jobs-061505.html)
My Week as an efficiency expert
Judy Lynch is driving a forklift, and I am trotting behind her. A plastic stopwatch hangs from my neck on a lanyard, and I am carrying a clipboard, from which I have wiped several years of warehouse dust. The dust, black and sticky, consists mostly of tread particles from solid-rubber fork-lift wheels. It lies a quarter-inch thick on the concrete. Lynch leaves a furrow as she drives.
She asks whether she needs to slow down for me. I assure her that she needs to drive as fast as she always does; I am timing her drive. When she stops, I will note it on my clipboard. And at the end of the week the data on my clipboard will change her job and possibly cost her two employees. Lynch, then, has reason to be suspicious, but she is not. She tells me I remind her of her former brother-in-law. This is a good thing, she says.
Lynch is in charge of six people in the 50,000-square-foot warehouse serving the main plant of the Heat Transfer Products Group in Scottsboro, Ala. HTPG, with 473 employees, makes parts for industrial refrigeration units and does about $100 million a year in revenue. It had been a small, forgotten part of a larger company when in 2010 it was purchased by Monomoy Capital Partners, a private equity group that manages about $700 million in investments. Monomoy specializes in buying medium-size manufacturers and making them more efficient.
The word “efficiency” hovers over the private equity industry: Find enough of it, and you will end up making some jobs superfluous. “Efficiency” has given private equity partners a reputation as hatchet men. It gets things thrown at them on shop floors when they show up to take ownership. And it has dogged the presidential campaign of Mitt Romney, the former head of Bain Capital.
To buy a company and sell it at a profit requires a complex skill set: financing, restructuring, negotiating new leases and labor contracts, and, of course, “operations,” the term private equity uses for “making things.” Improving operations can mean parachuting in a consultant or a former chief executive officer as an adviser. Monomoy goes further. It occupies a plant floor like heavy infantry, with yellow tape, label makers, and overwhelming force.
In part, Monomoy does this through a series of two-week “boot camps.” Four times a year, the firm pulls about 20 managers from the manufacturers in its portfolio and sends them to one of its plants to suggest–and carry out-efficiencies. In February it invited me to Scottsboro. Not as an observer. As a participant.
My boot camp starts on a Monday at a training room in the main plant at HTPG. Behind the wall, a machine on the plant floor stamps out copper parts. At intervals it sounds like a diesel truck downshifting over a steel plate next to your head. John Stewart, who built and runs Monomoy’s operations group, is telling us what we’ll be doing. He spent most of his career at Toyota Motor, where he started as a 19-year-old on the night shift in Georgetown, Ky. He trained in Japan, then got promoted all the way to general manager of Toyota UK. At several different plants, he ran the Toyota Production System, a philosophy of manufacturing efficiency that touches a company’s every person, object, and motion. TPS made popular the Japanese concept of kaizen, or continuous improvement.
Monomoy has adopted Toyota’s system. Five of the seven people in Stewart’s operations group spent time on the line at the Toyota plant in Georgetown, among them Mike Bray, also in the training room. Bray, tall and goateed, runs the boot camps for Monomoy. He uses the word “kaizen” as a transitive verb and as a noun with an indefinite article, as in “We’re going to kaizen this” and “We ran a kaizen on it.”
Toyota’s system is not new to America, but it can be disruptive, and it rests on a sometimes alien obsession with cleanliness and order. Stewart, Bray, and the rest of the operations team apologize for the system even as they ruthlessly carry it out. Their accents, their dress, their turns of phrase all say: We are going to upend your workday, but it happened to us once, too. We’ve swung a hammer. We like Wildcat basketball. It’s going to be OK.
Stewart starts with cleaning. Seri, seiton, seiso, seiketsu, shitsuke. “I don’t like to use those words now that I’m not at a Japanese company,” he says. They translate nicely into five English s’s, too: sort, straighten, sweep, standardize, sustain. Deb Farrister, sitting next to me, nods her head quietly. Farrister works as a team leader on the main plant floor at HTPG. She wears grandma readers and has a bright-red ponytail. She’s worked at HTPG for 11 years. In the past two years seven boot camps have made their way through the company. The five s’s have happened to her already.
At the table next to me and Farrister sits Justin Hillenbrand. He is a Monomoy founding partner, and it was his idea to hire Stewart, but this week he’s a camper like me. All three of Monomoy’s partners, along with the seven employees not in operations, have graduated from at least one boot camp. This is Hillenbrand’s fourth. Monomoy has even run a boot camp at its headquarters in Manhattan, identifying several hundred distinct steps in its dealmaking process and increasing threefold the number of prospects it can consider in a year.
Bray divides us into four groups of five and assigns each a station at the plant. I will be at the warehouse across the street, working with Farrister. Before we head over, she leads the warehouse team out of the training room and onto the main plant floor for a tour. She runs the station at HTPG that builds the V-series–15,000-pound refrigeration parts that, among other things, help make ice in skating rinks. Stewart walks behind us, shaking hands and chatting with workers on the line. “It’s clean,” I tell him, looking around at the plant. “It’s clean now,” he says. I ask Farrister what it was like when the Monomoy boot camps started rolling through in 2010. “Hoo-ee,” she says, remembering. “Hoo. Ee.”
Stewart explains that since buying HTPG, Monomoy has moved roughly 15 tractor-trailer loads of machines and inventory off the floor and consolidated into the same space an entire plant from Yuma, Ariz. Copper tubing and sheet metal had been stacked between stations; you can now see clear across the plant’s 200,000 square feet. Before Monomoy, stations had “pushed” parts forward, simply making them at will and keeping them to be used down the line as needed. The plant now “pulls” product, starting with the day’s orders from customers and building components on demand. Excess inventory wastes capital and hides problems, says Stewart. I will hear that often this week.
Farrister nods again as Stewart speaks. She doesn’t nod like an employee. She nods like a believer. “It’s the best thing that’s happened to this plant,” she says. At her station, a boot camp team removed the clutter, ran time studies, created more space to work, defined a precise job for everyone, and improved productivity from two units per shift to five units a shift. “People are nicer now,” she says. “It used to be so stressful. You’re searching for parts, trying to get sheet metal, everyone’s at each other’s throat. It’s not as stressful now.”
Stewart leaves us with a koan, passed on from his mentor at Toyota. “TPS is the best way,” he says. “The best way is TPS.” Whatever the right thing to do is, that’s the right thing to do. Simple.
Tuesday morning at 7, the five members of my boot camp team start tracking the first shift at the warehouse, and I start following Judy Lynch. An office near the loading bay contains three computer desks, a calendar from a supplier, and a fax machine, which prints out orders from the plant across the street. Lynch often notices the orders first, so I begin tracking her “picks,” her trips to the warehouse floor to fill orders from the plant.
Mike Bray is in charge of the boot camp team in the warehouse. He watches as seri, seiton, and seiso begin around him. Lynch’s staff takes turns on a scrubber, a machine the size of a ride-on lawn mower that sucks up rubber dust. “A kaizen from last year,” says Bray. It leaves a wet trail, in which it slowly becomes apparent that the concrete floor was once finished with a glossy sealant. Craig Sanders, a boot camper from Oneida, the iconic flatware company, which Monomoy bought in November 2011, knows how to drive a forklift. He starts moving unused inventory to the back of the ware-house–400-pound copper spools and packs of seven-foot-long stands left over from the Yuma consolidation.
In 2010, Monomoy cut 86 workers from HTPG’s payroll in Scottsboro. Then a funny thing happened. A year of boot camps has helped the company beat industry lead times, the weeks that pass between sale and delivery. On-time delivery ran at 72 percent before Monomoy bought the plant; so far for 2012 it’s at 96 percent. Deb Farrister’s V-series now take two weeks to build, a quarter of the industry average. In 2011 sales grew by 10 percent. And overall, since Monomoy bought HTPG in 2010, head count is up in Scottsboro and sales are up 19 percent.
It’s a bright picture, clouded somewhat by the 150 jobs lost in Arizona when Monomoy closed the Yuma plant. If you add Yuma into the head count, the net loss at HTPG is about 75 people. The partners at Monomoy are not saints, and people are expensive. But if you cut costs through head count alone–and not by improving operations–you have to just pray the economy goes your way. To survive, you cut people. To grow, you cut waste.
The Toyota Production System recognizes three kinds of waste, muda, mura, and muri. Translation: movement that creates no value, overburdening people or machines, and inconsistent production. People are easy to find on a cash-flow statement. Muda, mura, and muri all add drag on capital just like a day’s wages, but they hide on the plant floor.
I begin bird-dogging the fax machine in the warehouse office, pouncing when orders arrive from the plant. Paul Griffin, one of Lynch’s forklift drivers, gets an order, and I follow him on a pick with my stopwatch. He heads down an aisle, craning his neck to find a crate. He starts talking about Carrier, the heating and cooling company that used to own HTPG, and Vijay Inbasagaran, the plant’s old director of operations. “Vijay,” says Griffin, “he brought the kaizen.
Bray sees waste in the copper stacked at the loading bay. He knows it makes sense to leave it there–the plant turns over its stock of copper 13 times a month–but it bothers him to see so much inventory. Bray is sometimes on the road four and a half days a week. Usually he drives the boot camp truck, which contains supply carts for making signs and cleaning, a computer workstation with a printer, and a toolbox so spotless and so comprehensive that, he says, “Nascar would be proud.” He’ll show it to the maintenance staff at a plant and tell them, “If your toolbox looked like this, my machine wouldn’t be down.” By which he means Monomoy’s machine. Bray is a type-A obsessive masquerading as a good ol’ boy.
Monomoy’s headquarters is on the 17th floor of a building in midtown Manhattan. In the early 2000s, Justin Hillenbrand, Daniel Collin, and Stephen Presser were turning companies around for KPS Capital Partners when they noticed an opportunity. With larger companies they found more capital chasing fewer deals, and the market tended to be more efficient. By “efficient,” read: harder to make money in. On the lower end of the middle market, however–companies bringing in $100 million to $150 million in revenue–they could double, triple, and sometimes even quadruple Ebitda (earnings before interest, taxes, depreciation, and amortization).
“There’s always a disproportionate amount of underperforming businesses when you’re looking at the smaller end of the spectrum,” says Collin. Smaller businesses are more exposed to market fluctuations and have more trouble raising money in capital markets. Over time, better managers leave for larger companies. Although the businesses are small, it’s a huge market, he says; in North America there are more than 150,000 companies this size.
In January 2005 the three left KPS and started Monomoy. They visited hundreds of plants. The better-performing companies consistently used some form of the Toyota Production System. The partners began to realize that the traditional private equity approach to operations-putting a former CEO on a company’s board–wouldn’t work for some of their purchases. “You could have the best CEO in the world,” Hillenbrand says, “but in a manufacturing company profits are made on the floor.”
“A little bit to our credit,” he says, “we’re pretty good at the other stuff, the financial restructuring, the lease restructuring, the union negotiations, the commercial side. But we recognized that in order to improve operations you needed someone on the ground.” The partners began bringing candidates to a plant that eventually became part of Compass Automotive Group, which they also own. It already had a Toyota-like system in place. The first several candidates thought the business was fine. Not John Stewart. “When John came in,” says Hillenbrand, “he tore the place apart.”
After a day at the warehouse on Tuesday, my time studies are sloppy. I have crossed out and marked over rows of steps; everyone picks differently. Mike Bray explains that the first kaizen is the worst. There is no process when you start to create a process, so it’s harder to isolate the steps that add waste.
I have determined, however, that the time between an order’s arrival and the moment a worker starts a pick averages just shy of 13 minutes. I point out to Bray that the faxes sit in the office while the forklifts move on the floor, so nobody sees them arrive. He says the problem is worse than that. If the plant is working as it should, Judy Lynch should know at the start of the day what needs to get trucked over. Now there are orders when the shift starts, orders on the fax, and “hot” orders, which the plant follows up with a phone call.
Bray proposes that we turn the fax machine into a “bat phone.” We will install it on the end of a row just inside the loading bay and rig it to a photo sensor and a rotating green light to summon the forklifts. I have discovered a muda: movement that creates no value, in this case movement between the office and the warehouse floor. I am as proud as a toddler. I ask Bray whether we should get a handheld inventory scanner for each forklift, too. “Well, we don’t even know yet how many forklifts we need,” he says. I am kaizening ahead of myself. “Most of what forklifts do is just drive.” More muda. The scrubber is still circling. More seiso.
On Wednesday the warehouse boot camp team runs more time studies and feeds them into spreadsheets. We all have hunches, and these hunches need to be confirmed. Around 9 p.m. a maintenance crew arrives to install the bat phone. We are almost done for the night, and the warehouse boot camp gathers as maintenance finishes up. I place a sheet of paper in the tray. The sensor sees it. The green light begins sweeping in circles, 10 feet in the air. I raise my hands in triumph. I have moved a fax machine. I have created an efficiency. I have completed a kaizen.
Thursday morning we’re back in with the first shift to make sure our big ideas are working. Joe Meinke has trouble getting used to a new layout. He works the FedEx station at the warehouse, shipping out smaller replacement parts to customers. “It’s like I kinda got my insides ripped out,” he says. Two boot campers have been tracking Meinke this week, and by Thursday morning one of two boxing tables at the station is gone, along with a chair and an extra stand that dispenses bubble wrap. Tape on the floor shows him where to stack boxes. A square is marked “trash can.”
By 8:30, Meinke has come around. A sheet metal platform on the remaining table has brought his keyboard up to the height of his elbows when standing. He taps the platform. “This is sweet,” he says. “I’m kind of a tall guy.” Gone: one mura, the overburden of leaning down to type. Deb Farrister has been running time studies on the UPS receiving station on the other side of the warehouse. She has marked out lanes with tape. She is mopping them. Still more seiso. Over the week’s cleaning, we have discovered 18,000 pounds of copper tube and a broken forklift that everyone had forgotten about. Near the loading bay, Meinke is singing Movin’ on Up, the opening theme from The Jeffersons.
I walk to the bat phone and begin running time studies. We have placed the tray at elbow height for someone driving a forklift, and drivers can grab the order without climbing out. 0:19. 2:13. 4:28-the new time from the arrival of a fax to the start of a pick averages 2:20. I have reduced the cycle time for a pick by about 10 minutes. This took four days. In one warehouse. At one plant. The Toyota Production System is like a diet. It is not hard to grasp. It is hard to do.
A group of boot campers has gathered with Farrister at the UPS station. They are talking about Monomoy’s demanding reporting requirements for their own plants. “I get it,” says Farrister. “I invest a million dollars, I’m going to see what happened.” I ask her how Monomoy is different from Carrier, the company that used to own the plant. “They talk to you,” she says.
“Scrubber’s all tore up,” says a member of Lynch’s team. Indeed, the scrubber has finally been driven into the ground. It sits by a loading door, bleeding gray fluid. Before it expired, it excavated near the UPS desk several lines of tape on the floor from a previous attempt at a kaizen, back when the plant was owned by Carrier. A square from that prior effort is marked “trash.”
Before I leave Scottsboro, John Stewart walks me around the main plant, as before stopping to chat with line workers. Some have his personal cell number, and use it. When he gets to a new plant, he looks at hands; if they are not moving, something is being wasted. He looks at forklift loads; if they are not full, something is being wasted. Stewart believes that if you can get costs down, there’s no reason not to make things in the U.S. Offshoring carries political risks and incurs supply-chain costs, he says. It can prove difficult to teach culture to a foreign workforce. “You make investments in people,” he says. “We believe that North American manufacturing deserves to exist.”
This is the language of a union leader, not a private equity executive. Later that day, I talk to HTPG’s union steward and try without success to get her to say something bad about Monomoy. After several tornadoes touched down in Scottsboro last year, Monomoy’s partners sent everyone at the plant whose houses were hit a Home Depot gift card for $500. Yet Monomoy is not a charity. It sells its acquisitions when it is done with them.
Justin Hillenbrand is on the floor, too, wrapping up his boot camp. At his station, which assembles small condensers, five boot campers have kaizened away an entire production shift. They have created a “kitting area,” a single spot for parts delivery, so a worker doesn’t have to look for them to build a new condenser. At the Scottsboro plant, about one in three cars and one in five persons display in some way the colors of the University of Alabama. Hillenbrand, who grew up in New Jersey, is wearing a Crimson Tide T-shirt. He’s taking John May, HTPG’s CEO, through the week’s results. That is: A partner in a private equity firm is showing an executive at an acquisition a set of changes that he, personally, has made to the production line.
As I walk with Stewart, I notice tape on the floor that reads “Top brazing cart #1.” It does not contain anything that looks like it might be a brazing cart. I see oil and water on the floor, too. A cart labeled “closing cart” is a mess. I point these out to Stewart. “TPS is an ideal state,” he says. “We’re trying to get from a B-minus, C to a B-plus. We don’t have to hold this long enough to get to Toyota quality to get significant value.” I ask him whether this should worry a potential buyer. HTPG CEO May–and Farrister, a team leader on the line–both seem dedicated to the system. Yet on the plant floor, I can already notice it beginning to slip in places. Investors “aren’t going to look at it like that,” says Stewart. “They’re looking at financials. They’re looking at 12 months of value.”
Practiced this way, private equity is not slash-and-burn liquidation, extracting money from capital. It’s not over-leveraging, making profits off dividends paid out of unsustainable loans. Private equity, the way Monomoy does it, is a castle in the sand, a brief victory for order in the constant slide toward entropy. We walk past the electrical-box assembly station. A broom leans against a machine. Above it, a shadow board, painted to show where tools belong, reveals an outline where the broom should hang.
PHOTO (BLACK & WHITE): WIZARDS OF WORK FLOW Operations group head John Stewart
PHOTO (BLACK & WHITE): WIZARDS OF WORK FLOW The warehouse in Scottsboro, Ala., post-optimization
PHOTO (BLACK & WHITE): WIZARDS OF WORK FLOW In one instance, forklift response time was reduced by 10 minutes
PHOTO (BLACK & WHITE): WIZARDS OF WORK FLOW Copper tubing, found
PHOTO (BLACK & WHITE): WIZARDS OF WORK FLOW Mike Bray, boot camp sergeant
PHOTO (BLACK & WHITE)
Copyright Bloomberg L.P., Copyright 2012
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By Brendan Greeley
Photography by Jamie Chung