(FORTUNE Magazine) – Bombardier A new plant saves old brand names

How can a company rebuild a failed manufacturing operation that has been rapidly bringing down two of the best-known names in outboard engines--and do it within a remarkable 78 days? Such a feat is possible if you have the resources and talents of Bombardier, the $14-billion-a-year Montreal maker of business jets, railcars, and snowmobiles.

Bombardier faced a daunting challenge early last year when it bought the stumbling manufacturing operations of Outboard Marine Corp. (OMC), the maker of Evinrude and Johnson outboard engines, for $55 million. The quality of the engines had declined and dealers were deserting in droves. OMC's share of the $2-billion-a-year-plus outboard-engine market had plummeted from 55% in 1995 to 23% in 2000. The powerful Ficht fuel-injection technology that OMC had developed with a German company, hoping to gain a competitive advantage, had turned into an albatross because manufacturing couldn't meet the demanding tolerances.

The company's production facilities were scattered around nine plants in the U.S., Mexico, and China. Component parts often spent three weeks in transit, boosting costs. As an example of the complexity of OMC's manufacturing operations, the engines' transmission housings were die-cast in Waukegan, Ill., machined and subassembled in Andrews, N.C., and then shipped to Calhoun, Ga., for final assembly.

To start the rebirth of the Evinrude and Johnson brands, Bombardier brought in a strapping 41-year-old manufacturing executive already working in its pleasure-boat division as a vice president and general manager. A native of Thetford Mines, Quebec, Roch Lambert (pronounced "rock lambair") had been living up to his first name ever since he started playing ice hockey at the age of 3. A talented mechanical engineer, Lambert led a team of manufacturing experts Bombardier rehired from OMC, supplemented by 20 specialists in plant maintenance, finance, marketing, and quality control from Bombardier's Canadian operations.

The first thing Lambert's team did, in a dramatic reversal of the American business drive to locate plants in the South, was to shut down two of the Southern plants and reduce production in the third. Waukegan was also closed as a production plant. This consolidated operations and drastically shortened parts supply routes. The linchpin of their efforts was a big new assembly plant in Sturtevant, Wis., 20 miles south of Milwaukee. The four-year-old building, with 9 1/2 acres under one roof, had housed a book-publishing operation that went bankrupt. By concentrating final assembly in Sturtevant, Bombardier hoped to eliminate the kinds of defects that plague manufacturing systems structured around multiple facilities.

Lambert's team started working on a highly detailed plan--"down to the last screw and bolt," he says--to reorganize manufacturing. Team members studied all the engineering drawings of engine component parts and redesigned them when they looked faulty. They found, among other things, that only 15,000 of the 120,000 crankshafts and only 20% of the thousands of connecting rods in OMC's inventory could be used.

The team set itself what looked like an impossible goal: Bombardier was determined to start producing the highest-quality Evinrude and Johnson engines ever made, as soon as possible, without waiting a year or two before reentering the market. The idea, as Lambert put it, was "to maintain momentum and get back in the game." That task was especially great because the types of outboard engines Bombardier makes have to be more durable than automobile engines. George Broughton, director of outboard engineering, notes that while you typically operate your car engine at one-fifth of available power, an outboard engine has to be able to run at full power for hundreds of hours. Depending on size, the new Evinrude and Johnson engines sell for $1,000 to $17,000.

In March 2001, Bombardier said it wanted to be building its new engines by the fall. "Our competitors said there was no way we could pull it off," recalls Lambert. The competitors, which include Mercury Marine, a division of Brunswick Corp., and Japanese manufacturers Yamaha and Honda, didn't reckon on Bombardier's ability to execute its plan with military precision. Even as big printing presses were auctioned off and moved out of the Sturtevant building in the early morning hours of June 21, 200l, trailer trucks carrying production machines weighing up to ten tons each from the closed Southern plants were approaching.

The Sturtevant facility, on which Bombardier has spent $50 million, would delight any manufacturing engineer who dreams of starting up a brand-new factory. "We had the luxury of having all the data, all the records of the really good practices, and an awareness of the areas where we could improve," says Frank Bailey, director of operations at Sturtevant and a 20-year veteran with OMC, whom Lambert calls "the mastermind" of the changeover.

Even as they were preparing to lift manufacturing to new heights, Lambert and his associates were assembling a brand-new workforce for the plant. They got 6,000 applications for the 300 openings. Aided by professional labor consultants, they carefully selected workers whom they considered "team players" with problem-solving skills, rather than looking first at prior work experience such as engine assembly.

The foremost aim of the Lambert team was uncompromising emphasis on quality control. The quality effort starts with careful inspection of parts received from suppliers. Once parts pass inspection, they move down two separate assembly lines. One is for engine blocks that become powerheads--an equivalent of an auto engine minus the transmission--and the other is for the outboard's midsection and gearcase.

On a line called Turnaround, engine assemblies travel inside carriers with electromagnetic cards that store data. Bombardier chose the cards over bar codes because bar codes can sometimes get erased. Turnaround directs the assembly of powerheads by setting off computer signals that tell the assembly line to start building the correct powerhead to match up with a particular lower unit--an important matter, since the engines come in eight different versions. The two lines, powerhead and lower engine, eventually come together, but not until the lower engine components pass through an ultramodern paint shop for chromate conversion. This is a chemical process that converts the surface of the aluminum casting to aluminum oxide, which forms a tight molecular barrier against corrosion by seawater.

All along the way, quality control reigns. Each assembler spends as much as 20% of his or her time making sure the prior operation was done properly. This idea was borrowed from Bombardier's sports-boat operations. At every fourth or fifth assembly station, the assembled structure is taken aside and fully inspected. Checking whether assembly was performed to specifications was something OMC didn't do.

To further ensure quality, Bombardier brought in-house a crucial operation formerly performed by a supplier: precision manufacture of the tiny fuel-nozzle housing and the Ficht fuel-injection needle. To make those parts, Bombardier invested in two precision-grinding machines, each costing $1 million. The Ficht technology, which got an undeserved black eye during the last years of OMC, now works perfectly.

Assembled engines are put through a "hot" test in one of the 12 computer-controlled water tanks inside the plant. Each engine roars for 15 minutes, its propeller spinning at full speed--the only such complete tests in the industry. To top it all off, once a day a randomly selected engine, already packed for shipping, is taken out of its box and inspected at 250 points for fit and finish and workmanship. The engine is then attached to a boat and taken out for a test run on Lake Michigan or a nearby smaller lake.

The Sturtevant plant, which completed its first engine on Sept. 26 and started shipping a few weeks later, is already paying off handsomely for Bombardier. Impressed by high quality, dealers are flocking back. The company has re-enrolled 3,800 of the original 4,600. Bombardier now offers a three-year warranty on its engines, the longest in the industry, and says they outperform competitors' products in tests. Plans call for further improvements in manufacturing flow and major expansion at the Sturtevant plant, to boost production to as many as 60,000 engines a year, nine times the current rate. As they would say in Montreal, the start at Sturtevant has been a renaissance exceptionnelle.

ChevronTexaco Keeping an eye on 230,000 pieces of equipment

The idea of a nuclear power plant--the Millstone Nuclear Power Station in Waterford, Conn.--permanently losing track of two highly radioactive spent-fuel rods in these times of terrorist "dirty bomb" fears may seem preposterous. But maybe no more so than a big aircraft-leasing company's forgetting about one of its big jets, enabling a baseball team to fly on it free for two years. Or a big telecom provider's not knowing that employees were auctioning off routers on eBay for personal profit and replacing them with new ones. These examples, of which only the lost fuel rods became public, reflect a disturbing and costly failing of American industry. It doesn't know all the assets it has or where they are.

The problem is widespread. In a survey of 243 chief financial officers of companies with sales exceeding $500 million a year by CFO Enterprises Research Services in Boston, an affiliate of the trade journal CFO Magazine, 70% of the CFOs described asset management in their companies as "inefficient" or "erratic." No one knows the exact cost of such mismanagement, but according to an FCC audit three years ago, Baby Bells alone had lost track of $5 billion worth of communications equipment. "It's an incredibly common problem," says Daniel Miklovic, a vice president at the computer industry research firm Gartner Group. "People do not want to admit to misplacing things--it's not good for shareholder confidence," adds James Heaton Jr., director of information systems and services integration at GM. "I would say from my pre-GM experience that every big company I have worked with has lost track of many major assets and a plethora of minor ones."

Luckily, software companies have stepped into this chaotic and costly gap. With new Internet-based programs, they are saving users millions of dollars a year by enabling them to keep track of where their production equipment is located and to automate inventory management and maintenance scheduling. To see how such software is transforming a vast oilfield operation, visit what ChevronTexaco calls it its San Joaquin Valley Business Unit near Bakersfield, Calif. This modestly named facility is in fact one of the world's largest outdoor factories, stretching 110 miles from north to south and 60 miles from east to west.

From a bluff overlooking the Kern River production field an incredible view greets a visitor. The mostly flat, desert-like plain is filled to the horizon with metal structures, like a gigantic sci-fi battlefield. Amid a maze of storage tanks, filtering installations, and pipelines, some of the oilfield's 17,000 pumping units, which look like big steel grasshoppers with their legs tied down, nod their heads ceaselessly. They pump 231,000 barrels of crude a day from the business unit's five production fields. Because the crude in the San Joaquin Valley Business Unit is of the heavy variety, steam must be injected into the wells so it can be pumped. Once lifted, it is run through special filters and softeners inside the steam plants.

All told, the production tools in use at the ChevronTexaco operation add up to 230,000 pieces of equipment and machinery in hundreds of categories. Valves alone come in 19 subsets of hydraulic, mechanical, and other types, while the thousands of motors in use range from one to 700 horsepower and include AC, DC, and induction varieties. How do you keep track of the billions of dollars' worth of assets in a huge production facility like that?

Robert Hobbs, 41, does the job partly with a computerized asset-management program called MP2 from Datastream Systems of Greenville, S.C. The software covers the Chevron half of the operation; Chevron and Texaco merged last year. The Texaco side uses a similar program, Maximo from MRO Software of Bedford, Mass. (Indus International of Atlanta is another major provider of asset-management software.) Since the ChevronTexaco oilfield is an assembly line that never stops, reliable asset performance is absolutely critical. Hobbs, a 20-year Chevron veteran, says he "couldn't live without computerized asset management."

And for good reason. The first thing that MP2 did at Chevron, after all the data about the nature and location of assets were entered into the system, was to eliminate an avalanche of paper requests for equipment repair. Formerly, field operators driving around the vast production fields in white pickup trucks would detect such things as a squealing fan belt at a pumping unit and enter a repair request on 42-by-seven-inch greenish slips of paper called Intra-Shop Work Orders. Hundreds of slips would pile up daily on a foreman's desk with no indication of which jobs needed to be done first. Not surprisingly, this led to slip-ups and neglect of important repairs. "When you're in paper," says Hobbs, "you have no way of knowing what you've been doing."

The software made possible a greatly improved full-scale application of preventive maintenance. Prior to that, a lot of oilfield equipment was serviced only when it stopped working. Some preventive maintenance was done, but the effort was never very precise or scientific. The way pumping units were maintained was typical. "We automatically greased every unit every three months," says Hobbs. "We never had any failures, so we decided to grease them once every four months. We still had no failures, so we decided to extend greasing to once every six months, and that seems to be the right interval. That experience told us that one of the few things we had been doing in preventive maintenance we had done wrong."

"The software gives you a footing, a basis for modifying preventive maintenance," says Hobbs. "You don't just automatically do it--you use the data to fine-tune the procedures." He and his associates are now able to spot and classify equipment failures. They can now group together the most frequently failing equipment by cost and importance and set priorities. Hobbs plans to enhance that ability by incorporating into the system data from sensors attached to key production equipment to signal emerging problems.

A team of planners who work with Hobbs now schedule maintenance work. Any one of them can bring up on his computer screen the latest repair requests from the field operators. On a recent weekday the system listed work to be done on a pumping unit over the coming weekend. The foreman of a contractor team was electronically notified to force steam down the well for cleaning, after putting a choke of a certain size on the pumping unit to shut it down. Meanwhile, a preventive-maintenance instruction listed 606 valves to be serviced, with their location indicated.

The software has another plus. It enables Hobbs to keep track of surplus equipment, such as generators, and ship them to other ChevronTexaco fields in the U.S. or Canada where they might be needed, thus avoiding purchase of duplicate equipment. To keep abreast of their work, Hobbs meets once a month with his counterparts from the other facilities.

Added up, all those changes are saving ChevronTexaco millions of dollars a year. For competitive reasons Hobbs doesn't want to cite the exact figure, but he notes that maintenance costs have dropped by 40% on the Chevron side of the operation and by 30% at the Texaco fields. Hobbs anticipates even greater savings as he leads the effort to unify the business unit's asset management under Datastream's new Internet-based program, 7i. It allows easier access for users and offers even better equipment tracking and classifying. Based on a Web server, 7i eliminates the need to purchase additional hardware.

"Ideally," says the trade journal Control, "you want to track every asset in the plant, analyze every sensory nuance for potential problems, know without a doubt when a control valve or compressor has to come for preventive maintenance, and operate every process on the absolute knife edge of efficiency." Asset-management software is moving a growing number of companies in that direction.

As for those lost fuel rods at the Millstone reactor, their whereabouts remain a mystery--perhaps the best argument for using this new management tool.

Baldor Electric Automating what's hard to automate

Taking the roads less traveled," as he puts it, is the philosophy that has guided Baldor Electric Co. for decades under the leadership of chairman Roland S. "Rollie" Boreham Jr., 78. Under that philosophy, also endorsed by CEO John McFarland, 51, Baldor has never run with the herd. When competitors engage in indiscriminate firings during recessions, Baldor cleverly picks up their best salesmen. Its main plant in Fort Smith, Ark., which employs 1,500 people, hasn't had a layoff in its 34-year history. More than 80% of those employees and those at the 11 other Baldor plants in Arkansas, Oklahoma, and other states own stock in the company, which recently became the leading U.S. maker of industrial electric motors, with sales of $558 million last year.

Instead of going abroad as its competitors have done in hope of building motors more cheaply, Baldor has put itself on one of those less traveled roads. When it decided to expand into commercial small motors, Baldor elected not to go overseas. Competitors lured by cheap hourly labor in countries like Mexico and China seldom take into account shipping and other costs, Boreham feels. Baldor has gone no farther than the other side of Roland S. Boreham Jr. Street, across from its big plant that assembles 25,000 industrial motors a week, humming along with three shifts even in this weak economy. There the company has set up a new facility in which it recently began assembling small, one-sixteenth- to three-horsepower commercial motors in a unique, mostly automated production system.

Baldor can use the new plant's revenue. While the company has doubled in size every five years under Boreham's stewardship, the market for industrial motors has been leveling off in recent years. Baldor has boosted growth by branching out into generators and "drives" that control motors. Boreham and MacFarland became intrigued by the expanding commercial small-motor market about seven years ago. "There used to be two motor markets," says Boreham, "industrial and consumer, which means motors used in homes. But now we were watching this in-between market grow pretty fast. We call it 'commercial' because these motors don't go into homes. They go into hotels, office buildings, hospitals, airports, and restaurants. That's what caught our eye--a new market growing faster than the industrial motor market." He puts the total electric motor business in the U.S. at about $16 billion a year: $3 billion industrial, $2 billion to $3 billion commercial, and the remaining $10 billion consumer--motors used in CD players, home appliances, automobiles, and so on--which Baldor has no plans to make.

At first Baldor tried to assemble commercial motors in a conventional way with a lot of hand labor, but that was too costly. A team assigned to study the automation of small-motor assembly grew to 23 members, most of whom thought it couldn't be done. Frustrated because "you couldn't get that team into one room," as Boreham puts it, the Baldor executives called for five volunteers to take on the project. Led by Randal G. "Randy" Waltman, vice president for engineering and motor operations, the team brainstormed the problem.

To start with, it redesigned the small motors. With design engineering manager Bill Reed playing a major role, it simplified their structure to seven major components. Another team member, Harol DeWitt, corporate manufacturing engineer and a 38-year Baldor veteran, wrote the specifications for the assembly lines. Baldor approached Alliance Winding Equipment of Fort Wayne, which had never designed an automated system of the required complexity but took on the task nevertheless. The $4 million project spanned a year and a half, with many Baldor engineers, technicians, and software specialists from England--where the company has a software research facility--taking part.

The new facility's machines and conveyors, fittingly powered by 144 Baldor motors and drives, and controlled by 14 computers, occupy an area measuring 125 feet by 65 feet, with expansion to come. There are two interconnected assembly lines. One, oval in shape, is dedicated to winding copper wire on the stators, stationary parts of the motors that generate magnetic fields. Before being put in their housings, stators look like brains without skulls. They are the most important part of a motor and the most difficult to assemble, a task usually done by hand. In the new plant, six interconnected machines handle the winding automatically. Additional functions are performed on the other line, such as connecting terminals and testing the stator assembly.

Amid hissing and crackling machine noises, the assembly sequence starts with boot-shaped pallets called transfer tools moving toward the battery of winding machines. Embedded into these "smart" pallets are radio-frequency chips that transmit data over short distances. They hold instructions for all the operations to be performed on each yet-to-be-formed stator. Six machines stand ready to wind coils for different models of the motors. The pallets then pick up the finished work of the winding machines.

The winding machines themselves aren't new, but in conventional motor manufacturing such machines are employed as stand-alone units, with an operator running each. Here unmanned machines are tied together electronically in a novel way and also run faster than regular winding machines. The machines are loaded automatically with copper wire, which they shape into the specified coils.

Next, other machines bring up laminations. These are thin plates of steel stacked and then welded together electronically by a human operator. Their function is to help generate a magnetic field, and once welded they form a stator structure that looks like a fat doughnut. A machine then shoves the copper windings into slots formed by the stacking of the laminations. Insulation wedges keep the windings from touching the steel laminations. The stator arrives next at two form presses, machines redesigned to meet the needs of the new assembly system. They lift the stator and compress the coils to make sure the stator will not interfere with the movement of the motor's rotor, which will be installed later inside the stator.

The stator is then transferred by a pick-and-place robotic arm to an adjoining line, where humans again get into the act. The stator is examined by one of the three operators, who sees on computer screens what kinds of connections have to be made. The operator pulls the copper coil ends from the winding into a plastic cavity--a task Baldor found too difficult to automate, since wires stick out from the windings in unpredictable ways. Unmanned machines then trim loose wires and insert the terminals into appropriate slots from which electricity will flow into the stator.

The stators move on to automatic test and bonding stations where they are energized and tested for proper rotation of the magnetic field. The wires are then electronically bonded. The copper wires have a varnish coating on top of their insulation. The varnish is made to melt, bonding the wires together into a solid block, eliminating air pockets. In conventional manufacturing, stators are dipped in varnish and then baked for three hours. Here, with varnish already coated on the wires, all it takes to melt it is heat. At a shell press next to these stations, the stator "brains" get their "skulls"--they are pushed inside protective housings.

At the end of the line, having traveled for a grand total of 20 minutes through initial assembly, the stators are assigned ID numbers and are ready to be taken to a manual final-assembly line. With conventional assembly, getting motors to this point would take up to a day and a half and could involve ten times as many workers. The Baldor plant, which at this stage has only 15 workers and 20 different machines, has automated the most time-consuming and costly part of motor assembly.

Working eight hours a day, the new plant is turning out about 2,000 small motors a week. Production will soar when the facility eventually starts operating around the clock. Mike Ballman, its manager and the grandson of a Baldor founder, sees "a great future. We're extremely pleased with the market response." Baldor's aim is to capture 15% of the commercial motor business in five years. At that rate, the company would have to turn out 4.6 million small motors a year. Boreham and MacFarland expect commercial motors, which sell for an average of $65 each, to help take Baldor over the $1 billion mark in annual revenues in a few years, without using cheap labor abroad. In the process, says Boreham, "we'll learn a lot and apply this winding system to larger motors."

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