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Aerospace Components Manufacturers, Inc.

P.O. Box 736, 1090 Elm Street Rocky Hill, CT 06067 (860) 513-3205 FAX (860) 529-5001

www.aerospacecomponents.org E-mail: alsamuel@acm-ct.org

The ACM Update & Calendar (and previous issues) are also available for viewing on the ACM website.

Annual President’s Meeting The Annual President’s Meeting took place on May 18th at Yarde Metals in Southington. The meeting’s only formal business elected the following to our Board of Directors:

John Delaney, Stowe Machine Bruce Fiedorowicz, Volvo Aero CT

Paul Murphy, AGC Inc. Michael Polo, Adchem Mfg Technologies

Kirk Smallidge, Aerodyne Alloys who join these Directors whose seats remain current:

Tony Cacace, GKN Structures Kristin Muschett, Habco Inc.

Randy Plis, Metals Testing Co. Scott Summers, SPX Precision Components

Jim Wendell, Dell Mfg. Co.

Following the Annual Meeting, Board members met to elect ACM’s Officers:

Paul Murphy, President Bruce Fiedorowicz, Vice President

Kirk Smallidge, Secretary / Treasurer

Congratulations to All!!

After completing the elections of Directors on ACM’s Board, President Paul Murphy reflected on the changes in the economic climate. “There was a big decline since 2008, but hopefully, we have all weathered through it and have positioned ourselves for the upturn; …..everyone is starting to feel positive things beginning to happen, ….some firms are already looking to rehire employees, new programs will begin….,” Murphy said. Paul advised of a recent investment by ACM to develop a financial tool to support our networked business approach to subcontracting. “We have always tried to propose a Leader – Follower networked business model, but have lacked a financial tool. We have created an impressive model to allow us to show the adjacent savings customers can realize from reducing their number of purchases orders, reducing their inventories and unpacking and repackaging expenses; the model generates real numbers that can be readily changed to reflect actual rates, direct or indirect expenses, and can even deal with production part delivery vs. spare part delivery. It is something we hope to roll out in this coming year to move the Leader-Follower approach” advised Murphy.

Next, Paul introduced ACM Team Leaders to provide an update of their Team activities. WorkForce Development Team led by Judy Boyle (Stowe Machine).

Judy Boyle advised the “Workforce Development Team has been extremely busy this year. Using the ‘timeless and priceless’ presentation developed by the Team (last year), our primary goal was to make certain students were aware of the bright and successful future available in the aerospace industry. In addition to the students, making their teachers and guidance counselors aware of aerospace career opportunities is also our goal. And this year, we have been able to make these presentations at the academic high schools in addition to the technical high schools. This has been an outstanding tool for us to help open the eyes of students and educators about the stability and growth, high technology, positive environment in our industry. Already, we have had an outstanding response from the schools to the October 13th “Future Workforce Opportunities Fair.” Judy next addressed the variety of courses being offered by ACM at members facilities and expressed her appreciation for the participation of the Team members and President’s in making the Team’s actions successful.

Progressive Manufacturing Team led by Bob Castonguay (Trumpf) Bob Castonguay recently stepped up to assume the role of Team Leader. His message to the President’s suggested that “even with the very good turnout (at Team meetings), we need your backing” and asked the President’s “allocate the time to attend the meetings and ask the CI personnel about these meetings.” Bob reviewed the broad subject matter presented during the past year’s team meetings. On lessons learned, Bob proposed “if we provide good, meaningful topics, members will actively attend and participate. We look forward to continue to build upon and leverage our group’s success, with more sharing of traditional manufacturing best practices and more sharing of quality Assurance techniques within the industry.” Most importantly, Bob requested we “get more

President Paul Murphy (AGC Inc) addressing the Annual President’s

Meeting

Judy Boyle (Stowe Machine& Aerex Mfg), WorkForce Development Team Leader

Bob Castonguay (Trumpf Inc.), Progressive Manufacturing Team Leader

commitment from the membership to host team meetings, “sharing their on-site knowledge …..as everyone has a good story.” Business Development Team led by Bruce Fiedorowicz (Volvo Aero CT). During the past year, Bruce Fiedorowicz noted the growth of ACM and intercompany spend (subcontracting) among the members firms. He reviewed the past year’s Team meetings which mixed guest speakers, often from our customers, with candid conversations among only the members. Bruce noted, as challenges, the “continued growth of CT’s aerospace industry" and the “need to identity ACM members that are willing to lead, integrate and add value by bringing other ACM members on board to collaborate (Leader/Follower)”. He reminded everyone to “raise the awareness of ACM and the member’s core competencies when visiting with OEM’s” and to “leverage on the ACM Annual Tradeshow for maximum impact”. A number of members have received significant new opportunities as a direct result of customers visiting ACM. Consolidated Purchasing Team led by Gary Carle (Delta Industries) Al Samuel filled in for Gary Carle, who was unable to attend this morning’s meeting. Al depicted the Team as “an interesting group …..that talks about best practices and procurement related issues. The Team rarely has a formal agenda, but after 1½ hours of conversation, everyone leaves with a good sense of value and time well spent”. Al also noted the value of the insight into the fluctuating metals market provided by Kirk Smallidge of Aerodyne Alloys and Tim Regan of Yarde Metals during the Team meetings. He also reported on the Team’s two longstanding purchasing agreements, with Turtle & Hughes and Aerodyne Alloys, and encouraged members to look into these agreements as opportunities for additional cost savings in their operations.

“PREPARING for the ECONOMIC UPTURN” John Kornegay (Kaman Precision Products) moderated this portion of the President’s meeting. He reminded the President’s “everyone remember how wonderful the early part of 2008 was? ….. but how we said, ‘it might not be so good next year! We discussed, at the 2008 President’s meeting what to do at the next business cycle; we got into planning ahead. In 2009, the recession was upon us and we discussed making sure we didn’t weaken ourselves; we discussed how to make ourselves as efficient and effective as possible. Today, we are saying the downturn is over, at least most companies feel that way. So, what should we be doing and when should we do it ? Aerospace tends to lag, both up and down. Since the 2009 downturn came so quickly, what’s going to happen in this upturn? The consensus is the upturn will be cautious for the next 6-12 months, with cautious customers and suppliers likely causing pinch points in the supply chain. So what is it we can do?? Our roundtable will address these issues.” Importance of Strategic and Tactical Planning, led by Chris DiPentima (Pegasus) along with panel members Kristin Muschett (Habco), Doug Rose (Aero Gear), Scott Livingston (Horst) and Paul Murphy (Habco). Chris opened the discussion, commenting on his firm, last year, making the decision not to abandon strategic planning, showing the President’s this quotation from I. Blackman, “A recession strikes hardest on the least prepared members who tend to focus on the very short term with no strategies or initiatives – those who have not lowered break even costs or invested in continuous improvements.” Chris asked the panel what they did prior to implementing strategic

Bruce Fiedorowicz (Volvo Aero CT), Business Development Team Leader

Few measurements of performanceMany Kaisens & CI activities not linked to

Company strategy or goalsReactive to noise coming from customers &

employeesReactive to sales opportunities that came to

use rather than proactively directing which industries & customers

Top personnel over deployed

Before . . .planning, with Pegasus’ response shown in the slide (right). Doug Rose advised Aero Gear had been doing little formal planning until 2001 when an ACM workshop provided him the impetus to begin. Kristin Muschett recognized the need to begin her firm’s formal planning in 2007-08. Scott Livingston advised of Horst Engineering’s long history as a family owned business. Horst initially had little formal planning but much hard work and a reactive approach to business cycles. Ten years ago, with a transition to the next generation of the Livingston family’s management of the business, planning introduced stronger management structures, more systems and formal strategic planning. “Today,” Scott said, “we are thinking in the much longer term.” Chris discussed Pegasus’ use of Hoshin Kanri as their planning tool , having originally been exposed to the concept at an ACM workshop in 2006. Doug Rose displayed the ‘seven steps of strategic planning’ process in use at Aero Gear since 2001. Aero Gear has an annual offsite meeting to support their strategic plan which looks ahead at 3-5 year objectives and then puts in place actions for the current year to help meet these goals. Doug noted that initially, many actions were being planned, but over time the company learned to focus on only those few and most important actions necessary for success. Monthly meetings report on progress toward Aero Gear’s goals. Paul Murphy of Habco commented, “when starting from scratch, it’s important to get people away from trying to implement the tool and instead, get onto implementing the thinking.” Murphy suggested “it takes perhaps 2-3 years of constant perseverance for people to fully understand the Hoshin method, so Habco uses a simplified approach”. Paul displayed a chart displaying primary company goals for the year vs. AIPS (Annual Improvement Projects), along with information regarding who is responsible for each project. “It keeps people focused,” Paul said, “and asks throughout the year, is this action still important or should energy be spent doing something else? Are we going in the right direction and are we making progress on the really important things?” Kristin Muschett provided a brief insight into her firm’s strategy regarding outside sales support. Habco is utilizing the expertise of external representatives, who are retired from the armed services, to provide assistance and guidance to Habco’s traditional sales staff; an internal ‘program manager’

Date: 2009 Pegasus Policy Deployment Matrix - Corp Level 1 PD1

Implement LEAN TRANSFORMATION, enterprise wide, based on continuous improvement, standard work and a commitment to the

total elimination of waste

Build PEGASUS TEAM CULTURE with strong sense of Urgency and purpose

Strengthen core competencies & capabilities in TUBING FABRICATION & related technologies... Including equipment, people

skills and certified processes

Develop an ALIGNED CUSTOMER BASE penetrating defined market segments in defense, commercial aerospace and power generation.

STRENGTHEN, STABILIZE & ALIGN BASE OPERATIONS to deliver consistent quality, short response times & on-time deliveries with capacity sized to meet real business opportunities & plans (incl.

production control plan- S&OP)

Build STABLE FINANCIAL FOUNDATION with consistent positive cash flow and management

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- Leader - High Impact / Strong Support - Some Impact / Moderate Support

- Weak or No Impact

Terminology: -"Hoshin" = "Must Do/Can't Fail" initiatives (MDCF)- "MOS" = Measures of Success- "PD" = Policy Deployment - "PM" = Planning Matrix

hype

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2009 Strategic Planning SessionAero Gear Inc Proprietary

2009 Strategic Planning SessionAero Gear Inc Proprietary

6 September 2008

People First

Changing Marketplace

Mgmt Survey

StrengthsWeaknesses

OpportunitiesThreats

Positioning Statement

Primary Products & Markets

Identify Company

Wide Goals

Form Teams & Develop Action

Items & Timelines

How do we sustain and

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(above, left), Pegasus’ Hoshin Kanri chart; (above, right) Aero Gear’s Seven Steps of Strategic Planning chart; (right), Habco’s Policy Deployment chart

Defining AIPSTying projects to goals without the visual complexity

Policy Deployment

now has oversight for marketing, sales, service, etc. Scott Livingston discussed Horst’s drive toward a ‘one page strategic plan’, effectively minimizing the number of tools. Horst is encouraging everyone, at all levels in their firm, to think ahead so today, a machine operator is looking forward 3-4 days. Scott commented that “meetings, such as today’s President’s meeting, provide inspiration”. How to Diversify your Business Base and Create Adjacent Opportunities”, led by Michael Polo (Adchem) along with panel members Michael Francoeur (Joining Technologies) and consultants Alden Davis and Fred Wergeles. Michael Polo described diversification as a form of “corporate strategy aimed at producing profitability for greater sales volume obtained from new products and new markets; diversification can occur either at a business level or corporate level.” At Adchem, the customer has forced diversification because work has moved overseas. Michael Francoeur advised of a need to have a good plan, and along with good leadership, is the core essence to diversification. Francoeur suggested “there are two components to leadership, being a solid visionary and an executioner! Leadership is not easily learned; the visionary has the innate ability to see and those that get the job done get tactical!” Alden Davis asked “why diversify? why do anything different? The compelling reason is to stay in business! Diversity is not just new product lines, but includes diversity of relationships, agreements and balanced product mixes.” Fred Wergeles commented on the need to plan for future events, advising “you can’t predict the future, but you can be prepared for future contingencies. Look outside the company for trends and market changes to help the company better anticipate the future.” Michael Polo advised of the need to plan when and how to enter a market, saying “aerospace supplier codes are really important and Adchem purchased two small companies to get their supplier codes and get some cross pollination of product lines”. In Q&A, Bruce Fiedorowicz commented on the many possible definitions of diversity just within the ACM, “within firms, going from

(left), Chris DiPentima (Pegasus); (above), (l to r) Paul Murphy (Habco),

Scott Livingston (Horst), Kristin Muschett (hidden), Doug Rose (Aero Gear);

(right) Kristin Muschett (Habco)

Michael Polo (Adchem)

(l to r), Fred Wergeles, Michael Francoeur (Joining Technologies),

Alden Davis

fixed to rotary wing products, going from P&W to Rolls-Royce, from engine components to airframe components or diversifying across program models within a single customer”. It was pointed out that obtaining a piece of equipment with new and advanced technology can open new business opportunities. Metrics for Success led by Paul Murphy (AGC Inc.). Rather than have a panel, Paul asked meeting attendees to share their thoughts about metrics, commenting, “you can only manage what you measure and you should only measure what’s worth managing!” Comments from Paul and the attendees: Paul Murphy: “Metrics tie directly with the first roundtable, Strategic Planning. When you believe in metrics, they really help you to run your business. Many traditional metrics reflect budgets; you need a mix of financial metrics and operational metrics, along with shop floor specific measurements. Metrics need to be understood by the employees. Bonus plans can be set up based on metrics that shop employees can directly affect; metrics and money will cause behaviors to change.” John Kornegay: “Metrics below the management team become a cultural issue. Shop floor metrics are often thought of as a means of punishment (for failure). We need to create proper metrics to avoid driving the wrong behavior.” Chris DiPentima: “Metrics are tied to performance reviews and directly to daily work. Many firms tie metrics into bonuses; a bad metric can drive performance and negatively affect the overall company. Every metric must relate back to the tactical and/or strategic plan. Metrics help engage employees in the company’s success.” Colin Cooper: “Metrics have been developed for the company level, the business unit level and the cell level. Cell leaders can now discuss their cell’s margin trends, work capital trends and safety. A cell does not compete against other cells, or other business units, and are only looked at in regard to getting favorable trends. If unfavorable, cell leaders are asked what they are you doing about it?” Fred Filios: “Metrics are a tool, but bonuses are provided company-wide. Metrics can generate bad behavior, example the need to reduce scrap can drive an increase in rework hours”. In summary, Paul Murphy offered the following:

-Optimizing one variable can come at the expense of another. -Tie metrics to a company strategy -If your business plan changes, change your metric. -Employees need to understand a metric and how they affect them; use different metrics for shop floor employees vs. senior management. -The five ‘golden metrics’-- total cost, total cycle time, delivery, performance/quality and safety. -Watch the perceptions of employees to metrics and subsequent behavioral changes.

Presentation materials for the first two panels may be found on the ACM website; go to Member Login, Business Development and see: Strategic_Planning_Panel-_ACM_Annual_Meeting_5-17-10.pdf and Diversification_Panel-_ACM_Annual_Meeting_5-17-10.pdf.

Business Development

● The next meeting of the Business Development Team will take place on Thursday, June 24th at 8:15am at CERC, Rocky Hill. ● The next Export Control Informational Meeting will be held on Thursday, June 3rd at 8:00am at Connstep, Rocky Hill. This session will provide the opportunity to share what your firm is doing regarding Export Control, discuss best practices, ask questions and learn from your fellow ACM members. Please RSVP to the ACM Office if you have not already responded!

How to improve?We adopted two important business strategies

that impacts the way we work, run and manage our business….

They are: Lean Enterprise Transformation &Hoshin Kanri (Policy Deployment)

Progressive Manufacturing ● The Progressive Manufacturing Team met at Pegasus Manufacturing, Middletown, on May 20th. Steve Sowa, Pegasus’ Engineering / CI Manager, assisted by Pegasus’ President Chris DiPentima, led the meeting in discussing Pegasus’ approach in implementing lean principles with their business strategy. Beginning in 2006, Pegasus began the process of reviewing its business strategy, and using the Policy Deployment process called Hoshin Kanri, initiated significant changes to their existing customer base and the fabrication of complex tubing components, their core competency. The Hoshin Kanri process launched a number of actions which Pegasus calls, “Must Do – Can’t Fails”. With the improvement actions well underway, the economic downturn in 2009 caused Pegasus to face a dilemma of whether to continue.

Having decided it was best to keep moving forward in spite of the economy, Pegasus shared with the Team their actions and accomplishments. -Five S had been a significant issue driven by Pegasus’ unusually large quantity of part numbers, driven by their mixed business interests. The combination of focus on their core competency and elimination of certain product lines, while implementing the rigorous 5S program, has made a significant impact. -Value Stream Mapping of the business processes resulted in many actions that led toward the streamlining of processes and creation of a “Value Stream Team”, co-located in an office cell, that includes sales,

engineering, procurement and shop floor management. -A weekly Gemba (factory floor) Walk by senior managers and leaders was implemented. Bob Castonguay commented a Gemba Walk offers “weekly shots at doing what you said you would do!” -Expanded manufacturing capabilities in welding, brazing and NDT, all NADCAP certified processes. Progressive Manufacturing Team members walked through Pegasus’ shop looking at their improvements and discussing possible changes. Team feedback suggested, “the need for improved ‘walk-around’ sheets for daily machine PM” and “good job on visual factory and, apparently good communication.” Many of these changes made at Pegasus may sound relatively basic, yet had a profound effect on broad aspects of business operations. For additional information, please contact Steve Sowa at ssowa@pegasusmfg.com or Chris DiPentima at cdipentima@pegasusmfg.com. Pegasus’ presentation slides are available on the ACM website; go to Members Login, Progressive Manufacturing and Pegasus_Presention_to_Lean_Team_5-20-10.pdf Pegasus’ improvements have recently been published in “Target” magazine, published by the AME (Association of Manufacturing Excellence). The article is available in the ACM website library in Progressive Manufacturing as 2010_Target_Magazine_-_Pegasus_Leadership.pdf ● Team Meetings such as that held at Pegasus, or at Sterling Engineering (Winsted) in March, have been exceptionally well attended and represent the best ACM has to offer – the sharing of best practices and practical experiences from which everyone can benefit. ACM thanks our meeting hosts for openly sharing and looks forward to other members stepping up to host future monthly meetings to discuss their accomplishments or needs. Please contact the Progressive Manufacturing Team

Leader, Bob Castonguay at robert.castonguay@us.trumpf.com (860) 255-6625, or Al Samuel at the ACM Office, to offer your ideas or to volunteer to host a monthly meeting. ● The next Progressive Manufacturing Team Meeting will take place on Thursday, June 17th at 8:00am at Kamatics Inc, Bloomfield. This meeting will feature a presentation by Kamatics on Engineering Visual Management, a system to manage customer requests for new design work, technical proposals and drawing changes. The metrics for this process are tracked by both Engineering and Sales and involve on-time delivery and a rolled throughput yield measurement. Kamatics will also present their electronic ‘Quotation Approval Sheet’ that is used in Sales to expedite the development and approval of pricing. Editor’s Comment: Jim Womack’s essay is very appropriate in the context of Pegasus’ actions!

Consolidated Purchasing ● The Purchasing Team met at Technical Metal Finishing on May 11th and discussed the issues relevant to their procurement activities. Following the Team discussion, attendees toured Technical Metal Finishing’s facility. ● The Team’s next meeting will be held on Tuesday, June 22nd at Adchem Manufacturing Technologies, Manchester, CT on Tuesday, June 22nd at 8:00am. ● Suppliers having Agreements with ACM are:

Supplier: Key Contact: Telephone: Shop Supplies, Abrasives, Cutting Tools, etc

Turtle & Hughes Mike Kelly Dave Howard

203-497-1529203-497-1555

Raw Materials: Nickel, Cobalt, Titanium – Sheet, Plate & Bar Stock

Aerodyne Alloys Kirk Smallidge 860-508-1271

A Message from Jim Womack of the Lean Enterprise Institute commenting on

“Becoming Horizontal in a Vertical World”

One of my favorite value-stream walks is with the senior managers of several organizations who share and jointly manage a value-creating process that stretches all the way from raw materials to the end customer. I've been taking walks of this sort for more than 20 years and I usually see the same thing: smart, hard working managers, each trying to optimize their portion of the value stream and wondering why there is so much inventory, interruption, and waste along the stream and why it is so hard to truly satisfy the customer waiting at the end.

This is what I usually see because we live in a world where everything is oriented vertically - departments, functions, enterprises, and, very important, individuals - despite the fact that the flow of value to the customer is horizontal across all the departments, functions, and enterprises. And - here's the really odd part -- every manager and employee touching the value stream knows intuitively, just below the surface, that value flows horizontally and that customers have no interest at all in the vertical constraints interrupting the flow.

So what's the problem? Why is it so hard for us to act horizontally rather than just work around (or simply ignore) the enormous problems of being vertical?

--continued on Page 11--

Workforce Development ● The WorkForce Development Team met at Volvo Aero CT on May 13th. During the previous month, ACM and Team members have been contacting local schools and updating lists of teachers, principals and guidance counselors. A preliminary “Save the Date” notice was sent to the entire list and Team members attending this meeting discussed the large and somewhat surprising response. Our October 13th “Future WorkForce Opportunities” Fair will be very well attended! As Team members continue to visit local schools and present to students the career opportunities available in our local industry, we continue to get excellent feedback such as Jim Clarke’s, of Prince Vocational Technical High School” commenting he was “very positive about ACM’s support.” Another important way to support the local technical schools, and those community colleges with a machining program, is to donate scrap raw materials and/or older machine tools. The schools are always appreciative of a donation of remnant or scrapped materials and never will ask for a material certification. Contact your local school and find out what their needs are and how to make delivery. Not sure how to do this???—contact the ACM Office and Al Samuel will help you make the proper contact and set up the logistics. And even better, come to the next Team meeting and be a part of planning this effort! ● The Aerospace industry is beginning its recovery and hopefully, hiring of additional employees. ACM offers member firms a Job Posting service on its website at NO cost. Jobseekers visiting the ACM “Job Listings” pages will see a display of available positions by company as well as by job type (see sample listings, below). Applicants clicking on a listing will open a page showing the individual job description and related contact information.   Job postings for this website are created from information provided by members using the ACM Job Posting template. Please contact the ACM Office to obtain this template and detail information on how to submit a Job Posting. ● The next meeting of the WorkForce Development Team will take place on Tuesday, June 15th at 8:00am at The Har-Conn Chrome Co in West Hartford. Please plan to attend and become an active member of this important activity.

News from ACM Members

Please forward significant company news and announcements to Allen Samuel at alsamuel@acm-ct.org for posting on the ACM website and publication in the UPDATE

May 21, 2010

Eckart & Finard Inc. achieves a Perfect Audit Score in earning AS-9120 Certification and in upgrading their existing ISO Certification to ISO9001:2008, with a scope that includes the distribution of Industrial & Aerospace fasteners and custom engineered components. Eckart & Finard Inc. (E&F) is pleased to announce that it has earned AS-9120 Certification and upgraded its existing ISO certification from ISO 9000:2000 to the latest standard, ISO 9001:2008, achieving a “perfect score” in the process. These certifications ensure that E&F consistently provides products and services that meet or exceed customer expectations and applicable legal, regulatory and industry required accreditations. E&F provides products and supply chain management services, including sophisticated “KanBan Inventory Management” programs, to a wide range of customers and market segments including OEM’s in the aerospace, marine, automotive and military industries. E&F seeks to be our customers’ one-stop source for standard & special-make-to-print fasteners and inventory management programs. E&F also provides custom machined and fabricated parts to print specifications, including stampings, castings and injected molded components. This is accomplished via “state-of-the-art” bar-coded warehouse facilities and factory-trained staff dedicated to lean-manufacturing and continuous improvement concepts. Every supplier is held to the highest ethical and quality standards, using the latest manufacturing technology at each stage of their manufacturing and distribution process. Earning AS-9120 and ISO 9001:2008 Certifications attests to E&F’s commitment to operating at the highest standards of quality, continuous improvement and total customer satisfaction. E&F is a privately held Corporation with offices and warehouse facilities located in Hartford, CT. Eckart & Finard Inc. 80 Weston Street Hartford, CT 06120 Phone 860 246-7411 Fax 860 247-1649 http://www.eckart-finard.com

May 12, 2010 -- Governor Rell Signs Bi-Partisan Jobs Bill at Pegasus Manufacturing Governor Rell and legislative leaders visited ACM member Pegasus Manufacturing in Middletown…. to sign a comprehensive jobs bill designed to spark small business growth….. during a ceremony at Pegasus, which is a contract manufacturer for precision tube bending, machining and gearing with 65 employees. LOCALONLINENEWS.TV For a video link to the Governor’s visit, go to: http://localonlinenews.tv/video/news/2010/05/14/1488/

“Becoming Horizontal in a Vertical World” --continued from Page 8—

I hate to say, but the problem begins with you and me. We are all points along the stream, standing tall in our own estimation, and our first objective is to optimize ourselves, our own point! Given this, it's not surprising that we first seek to optimize our department (where our boss, our personnel evaluation, and our career path reside) and then our function and then, maybe, our enterprise, with no energy left over for optimizing the whole stream.

But let's not be too hard on ourselves. Our personal objectives, compensation, and career trajectories strongly direct us to look up, for fear of falling down, rather to look from side to side in hopes of doing better. We aren't so much bad people - at least I'm not! - but good people working in a bad management process. However, unless we can devise a new framework for thinking together about the horizontal flow of value in a way that makes everyone better off, we will all continue to act as we always have. The predictable result is frustrating work lives and an exasperating experience for customers.

How can we do better? The first step is simple. Take a walk together along the stream to see, and to reach agreement on, what is really happening and the problems the current state causes managers, employees, and customers. Then draw a map that everyone touching the stream can see and post this as the baseline. This step always produces amazement and then relief that all of the dysfunctions and conflicts are finally out in the open.

Next, assign someone to lead a team involving every function and firm touching the value stream to envision a value-creating process that better solves customer problems while saving time and money. Then ask why this can't be created and seek the root cause. Part of the problem may be technical and some outside help may be needed when skills are lacking. But in my experience the critical problems are more likely to be organizational across multiple functions and enterprises. For example, money may need to be spent at one point (for facilities, equipment, training, new packaging of goods, etc.) and behaviors may need to change at this or other points to create a better result for the whole stream.

But why would the managers of the factory or the warehouse or the retailer do this when all of the benefit goes to one or a few points elsewhere along the stream? And why would employees cooperate in rethinking work when they may individually have more work or no work at all? The answer, of course, is that they won't and everyone involved will spend their time instead on explanations of why the failure to improve performance is everyone else's fault. A classic prisoner's dilemma in which everyone gets to stay in their vertical jail!

So the job of the value-stream leader - who it should be noted has no authority over most and perhaps all of the departments and firms involved - is to take responsibility for the performance of the whole value stream and discover ways to make everyone along the stream whole as the stream is improved. In the end the senior leaders of all the departments, functions, and firms will need to agree with the plan, arrange compensation mechanisms for those who would otherwise be losers, and make sure that everyone touching the stream has incentives aligned with the goal of optimizing the stream. But the first step is to raise consciousness, create the vision, highlight the problems to be overcome, identify the costs of improvement along with the benefits of success, and describe the ways to offset costs with benefits to achieve a positive sum solution. Without this first step, starting with a simple walk together, we will all continue along our vertical path, where value stream performance is a stagnant, horizontal line.

Best regards, James P. Womack, Founder and Chairman Lean Enterprise Institute, Inc.