- A Heineken Moment -
In 1987 I was developing a strategic plan for Norris Industries in Los Angeles. After a few discussion sessions with senior management, John Musat, Executive Vice President, visited my office. He asked me where I get those strange philosophies about manufacturing. I told him about Shigeo Shingo. He then asked to borrow the book. I loaned him the Study of Toyota Production System from Industrial Engineering Viewpoint by Shigeo Shingo.
A few days later John called me from Maui. You could hear the waves and Hawaiian music in the background. John said, "they should build a monument about this guy, Shingo." He said it is the best book he had ever read even though the text was poorly written. (It was the original version, published by the Japan Management Association in 1981). John later said the "broken English along with my hand-written comments in the margins helped in understanding."
A few months later, Hans Beisch, who lived next door to Elizabeth Taylor, visited our plant. Hans was the CEO of that division. He told the president of the company, Dick Winstanley, that the cut-off from the next U.S. Army contract had better not end up with residual inventories. According to the materials manager, Mike Olenijck, Norris had not enjoyed a "clean cut-off" in over twenty years. Many of them wound up with residual inventories of millions of dollars. Over the years, much of that excess had been hidden and this bothered John. He had a distaste for the slightest amount of dishonesty.
A few days later the U.S. Army submitted a contract for some additional 509mm projectiles. Norris typically budgeted a 3.5% scrap rate. Each 0.1% error in budget amounted to $180,000 of standard costs. This was a highly repetitive and high volume business. Hans had previously told Dick that any residual inventory over $100,000 would result in his dismissal. Dick was a "happy-go-lucky-guy" who did not worry about too many things, but this had him concerned. John did not care if Dick lost his job. He did not like Dick for hiding scrap and residual inventories. Dick had a financial background and was expert at creative accounting. If the only tool one has is a hammer, you tend to see every problem as a nail. I liked Dick and enjoyed his company, but I was just a consultant and did not have the same emotional attachment to Dick that John had. John was hired by Hans and as you can imagine the political environment was pretty intense.
A few days later, I analyzed the situation about the 3.5% scrap and conveyed the need for tighter controls and some creativity to keep the residual inventory to under $100,000 to several employees. A study of their history of non-clean cut-offs revealed their scrap rates ranged from 1.5% to 12.8%. If Norris pumped enough material into the system to support their budgeted 3.5% scrap rate and wound up at only 1.5% they would wound up with $3,600,000 residual inventory. They had done that several times before. And if that happened again, Dick would be fired. Dick hired me as a consultant, but he was using me primarily to hold John at bay.
Norris historically pumped in plenty of material to avoid delinquency penalties to the U.S. Army. The manufacturing process was not simple. The quality of the output had to be perfect. If too much copper impregnated the alloy material, the projectile could explode in the chamber, killing U.S. soldiers.
I shared all these facts, figures, and concerns with several employees at Norris. None of them knew what to do and I was not coming up with anything myself. The manufacturing process covered two linear miles with over 120 operations in six different buildings. There were plenty of destructive metallurgical tests during these operations. If these tests were out of specifications, the entire lot would have to be scrapped.
After finding that no one knew what to do about the problem, I approached John Musat. I told him my concerns and advised of the financial threat. He replied let's go have a steak and a Heineken as it was late into the evening. So, we went to Maggie's Pub and drank a few Heineken's. I kept talking about my concerns and John was listening. I then said, in my past, we solved problems like this in the oil patch by applying the "phenomenon of commonality." After explaining the phenomenon of commonality, John froze. He said, "I got it."
The next day, John called a meeting with all of this staff. John is a self-taught mechanical genius. He described how we would schedule the shop between the 483mm and the 509mm projectiles. Both were made from 4340 alloy grade material with the primary difference in the outside diameter and overall length. Early in the process, they were formed in mechanical presses in building #19 from similar slugs. Both required copper band welding.
John conceived of a Kanban loop from any scrap in the 509mm anywhere in the various shops to building #19. As a 509mm was scrapped, another was formed. No more and no less.
Over the next several months both contracts were executed. And to John's credit, less than $169.82 of residual inventory was incurred. Dick kept his job, which disappointed John, but John was happy since "we did the right thing."
John and I had several "Heineken moments" over the next few years. John later became President of Braun Engineering of MascoTech in Detroit in the early 1990's, where we won the Shingo Prize in 1995. This led to John tripling revenues for Braun and quadrupling profits. Braun became one of the few suppliers good enough to supply Honda with a drive train component.
©1995/2006 James Vick, Inc.
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