A Stunning Public Disclosure from Pratt and Whitney Regarding Faulty Supplier Testing 0 comments Posted by Bob Ferrari on Mar 4, 2013 in Aerospace Supply Chain, Existence of counterfeit and tainted products across supply chains, Procurement and Sourcing, Product Quality | 0 comments
The Wall Street Journal featured a troubling article today, one which adds more credence to the growing problem of quality and conformance lapses that exist in certain industry supply chains. The article, Pratt Discloses Faulty Testing (paid subscription required or free metered view ) reports that United Technologies Corp.’s Pratt & Whitney unit has disclosed that it had uncovered an alleged fraudulent-testing scheme by a sister United Technologies business unit, Carmel Forge Ltd..
The scheme is reported to involve previously unreported multi-year efforts to doctor metallurgical tests involving the production of tens of thousands of engine parts used on business jets and turboprop aircraft. The alleged period is from the mid-1990’s to the summer of 2011, when a disgruntled whistleblower employee of the Israeli Carmel Forge unit provided an insider tip to Pratt officials.
The WSJ characterizes this disclosure as one of the aerospace industry’s longest and most –pervasive examples of improper testing. While the report indicates that the parts in question do not pose any safety hazard, Pratt officials acknowledged that the extent and duration of the testing irregularities shocked them, and has prompted a reassessment of quality control and oversight processes among suppliers.
The U.S. Federal Aviation Administration (FAA) launched a formal administrative proceeding after it was informed in September 2011, which is reported to be closing without any imposition of fines or other penalties. The WSJ reports that United Technologies and Pratt officials have worked aggressively to get to the bottom of these reported testing irregularities and has since replaced the top management structure at Carmel Forge.
The obvious question, at least for Supply Chain Matters, was why was this alleged fraudulent testing undiscovered for as long as it was, and why has it taken this long for these details to emerge. The article quotes Pratt officials as indicating “that all the subject parts produced over the years met basic engineering specifications ensuring their safety, though many weren’t properly subjected to Pratt & Whitney’s tougher internal testing requirements.” Perhaps, a statement dictated by a panel of lawyers, and not very comforting. Readers and industry players can certainly draw their own conclusions.
From our perspective, yet more evidence that the notion of lean supply chains seems to include lean or minimal controls on supplier and testing conformance. For the aerospace industry, already dealing with numerous challenges of backlogged supply chains and the ramifications of the ongoing grounding of Boeing’s 787 Dreamliner, yet another disclosure adds additional stress to supplier relationships.
Preeminent Tool for Performance Improvement
(Interview with Karen Trisko)
(Barry Neighbors Consulting, March 18, 2013
As an Aerospace and Defense Supply Chain consultant who has worked with companies to improve their sourcing metrics, or helped suppliers with their sales and performance improvements, I am always interested in tools and programs available to accomplish and perhaps accelerate this task. The Malcolm Baldrige Award is such a tool. The Baldrige Program was created in 1987 by congress. The goal of the Malcolm Baldrige National Quality Improvement Act of 1987 was to enhance the competitiveness of U.S. businesses. Today, the program oversees the nation's only Presidential award for performance excellence while offering criteria, assessments, tools, and a community for those dedicated to helping organizations improve.
I recently had the opportunity to speak with Karen Trisko, President of Excelleration, Inc., who has extensive, 360-degree hands-on expertise in every aspect of Baldrige Performance Excellence. She has guided companies in all sectors to achieve greater profitability, cost reductions, customer satisfaction, and employee motivation through Performance Excellence and Continuous Process Improvement practices. She has helped over 20 organizations, including two of her own businesses, to earn Baldrige awards and successfully integrate the practices and values of Performance Excellence into their daily practices. Her specialties include Baldrige assessments and award application development, leadership systems, strategic planning, results measurement using the Balanced Scorecard and process metrics, and process management / improvement.
Me: Karen, can you tell me the top 3-4 reasons that a company might want to follow the Baldrige Criteria?
Karen: Sure – a company may be in trouble, it may be stuck at a plateau and unable to break through to a higher level of performance, or it might be doing great but needs to identify and overcome blind spots to get to the next level of high performance. The beauty of the Baldrige Criteria is that it’s a complete roadmap that continually shows executives the company’s strengths and the next opportunities for improvement, no matter how mature or immature the company is.
Me: What do you see as the most common misconception about the Baldrige Process?
Karen: Most people think it’s just about winning an Award. True – it’s great to have an award trophy, especially the National Baldrige Award for Performance Excellence, because it is difficult to attain due to its comprehensiveness and emphasis on results trends against competitors and comparisons. The best reason for using the Baldrige Process is to improve your company to get better and sustainable results. It’s funny, I’ve worked with companies where the top executive was insanely focused on earning the Baldrige Award, and it took them longer to improve than companies who used the Baldrige Award Criteria purely to improve. Another misconception is that Baldrige is only for large companies. If you run a company with 10 people or 100,000 people, isn’t it equally important to be successful? My smallest client had 7 employees, and we took the basic essence of the Baldrige Criteria to make that little organization highly focused on attaining its goals.
Me: There are many “Performance Improvement” strategies and tools out there such as LEAN, Six Sigma, TQM, etc., what makes the Baldrige different and can it co-exist with these other programs?
Karen: The Baldrige framework embraces those performance tools – it assumes that your company uses one or more of them for continuous improvement, because that’s fundamental for any business to survive and prosper. However, the Baldrige framework is an over-arching umbrella that transcends the traditional performance improvement methods that you cited, which mainly focus on design and production of products and services. Baldrige includes expectations that a company fully understand customer segment requirements and then build products and services to meet them. A company following the Baldrige roadmap must develop and consistently execute sound leadership processes, strategy and execution methods, business measurements, knowledge asset management, workforce effectiveness from recruiting to retention, and more. And it expects you to track key results based on your company’s long- and short-term goals, customer requirements, and process effectiveness. That’s why I say it’s comprehensive and complete. It’s not a quick fix – but rather a system for companies that tried quick fixes like process improvement methods and didn’t get where they needed to be. A company is a complex system, and to keep it in good health, you must address all the company’s components and processes.
Me: If I were to recommend the Baldrige Process to a client company, what do you feel are the most significant results that would be obtained?
Karen: The most significant results are better customer loyalty and repeat business, reduction in costly rework and mistakes, higher revenue and market share, more effective and focused employees, and improved bottom-line profit. To get the results, a company must fix “broken processes” and put in “missing processes” to better deliver value to customers.
Me: If a company has done no “continuous improvement” at all, are they still a prospect for this approach?
Karen: Absolutely! Companies have to start where they are. The Baldrige system can be taken in “tiers” – starting first with the basic requirements of the Baldrige Criteria to get a baseline reading. Then a company moves up to use more of the details of each Baldrige Criteria Category. The important thing is to get started. I would say that 98% of companies are immature and never come close to their true potential because they’ve never seen a real world-class company, like I have in my 20 years of examining Baldrige Award applicants. Maybe two percent of companies are mature and excellent. But how did they get there? They started using the Baldrige roadmap and stuck with it. They got help from someone who could shorten their learning and implementation time.
Me: Karen, thanks for your time and insight. If someone were interested improving performance using the Baldrige Criteria, what would be your recommendation?
Karen: They could start with an assessment. Occasionally I offer an online assessment to companies at no charge, just so they can“get their feet wet” and get a basic understanding of the types of things that should be going on in their company. They could participate in my Baldrige webinar to teach them the Criteria and how to evaluate their own company’s processes and results. They can schedule an in-house workshop to learn to write an application for the State’s Baldrige Award. Only companies that earn their State’s top Baldrige Award are eligible for the National Award for Performance Excellence – the ultimate prize. They should also attend State and national Baldrige Conferences to hear award-winning company executives speak about how the Baldrige system transformed the company’s results. But they MUST do SOMETHING different than they have in the past, for as Einstein said, “Insanity is doing more of the same but expecting a better result.”
(Karen Trisko can be reached at Karen@excellerate.biz)
(Barry Neighbors can be reached at firstname.lastname@example.org)
The Magic of STANDARD WORK.
Authored by Barry Neighbors and Cheryl Archer.
I am often surprised at the lack of “Standard Work” in many, if not most, of the companies I visit and consult with. There seems to be a general lack of awareness of how Standard Work affects the bottom line of the company, the attitude and motivation of the workforce, and the work product or service the company delivers. The lack of Standard Work is apparent everywhere; on the shop floor, the back office, within customer service functions, sales, finance, and the within the executive leadership. It encompasses not only the “hard skills” of manufacturing, but the soft skills found in other areas of the company.
A common definition of Standard Work is “the most efficient and effective tasks, combined with manpower, materials and machinery.” Standard work is the method, and one of the four M’s of manufacturing (manpower, material, machinery, methods). Standard Work is only “the most effective” until the standard is improved. It has also been said that, “Standard Work is the foundation of effective continuous improvement.”
A quick search on Google with the term “Standard Work” produces dozens of websites with different definitions and different focus. I’d like to discuss my opinion as to what Standard Work should be, and why it is important.
First, “Work methods that are standardized, documented, and followed are sometimes described as Standard Work. Standard Work is often more than following procedures. It usually means that personnel are following an exact step by step process (or set of tasks) for doing the work. This process, through some form of consensus, should be the best way to do the work. This type of document is called a Work Instruction. It is important that a knowledgeable team reach consensus on the one right way to do the job.” Industrial Trainer, Gary Griffith, 3rd Edition, 2004.
At first glance one might ask how these work instructions are completed? I would argue that this is accomplished using the most knowledgeable people with the most experience with the work. Furthermore, to prevent tribal knowledge from creeping back into the process, a formal job/work skills certification program with certified trainers is necessary for the workforce to maintain and improve the work. Only then can you create repeatable best practice within the work that will be sustained.
Why, then, is Standard Work important?
Among the many, here are a few benefits achieved with Standard Work:
• Increased employee morale
• Higher quality
• Improved productivity
• Reduction of variation (consistency) among staff members performing the work
• Reduction or elimination of errors and mistakes (causes of defects)
• Increased employee safety
• Improved cost management as wastes are removed,
• Standard training tool for current and new employees
However, none of these benefits can be realized unless a system to measure each is put in place. Performance KPIs (key performance indicators) must be tracked on each work instruction, including actuals to current target.
Efficiency = Time
Safety = Total recordable case (TRC) rate
Quality = Percentage of work redone (% Rework)
Improvements must be directly correlated to financial benefits. In the case of efficiency, a reduction in time of a specific operation, or series of operations, may mean that more parts or assemblies are processed, opening up capacity and reducing overtime. Overtime savings have a direct benefit to the bottom line of any organization.
Standard Work has a direct influence on the way an employee performs their job. It will improve among many things, the Quality, Cost and Delivery metrics that most organizations use to track and trend their business success. Everyone working in the business knows that they all have the same ability to generate the same results as long as they follow the same best practice.
In summary, I’d like to relate a recent conversation that I had with a manufacturing CEO after a conference presentation that I made. He told me that his company had instituted an “Activity Based Accounting” system to track and record the financial impact of the new company standard work certification program for the shop floor employees. Although the program was only 7 months old, he estimated that his company was going to save close to 15% of their total COGS. I then asked if the ROI was worth it. His answer was , “yes it was magical”.
Got Cash? Why Not Spend Some on Your Suppliers? By: Robert J. Bowman, SupplyChainBrain
January 14, 2013 As if corporations didn’t have enough money sitting idle in their accounts today – now we learn that they’ve been borrowing aggressively, spurred on by record-low interest rates. We know that businesses have been hoarding cash ever since the Great Recession. A Federal Reserve Flow of Funds report from last year showed U.S. non-financial companies sitting on $1.7tr in liquid assets, in domestic accounts alone. When you factor in international holdings, that number balloons to $5.13tr.
On top of that, the Fed reported that those same corporations had $8.4tr in outstanding debt at the end of the third quarter of 2012 – a $136bn increase from the previous quarter, and more than half a trillion dollars higher than a year earlier.
What are businesses planning to do with all that money? They’re not hiring in droves, notwithstanding the gradually improving unemployment rate. Some are hunkering down, waiting for signs of lasting economic recovery, or a final resolution of the fiscal cliff debacle. Others are plotting mergers or acquisitions. Far-seeing companies are sinking money into new-product development.
Here’s another idea: How about spending some of that cash on supplier development?
Under the old way of thinking, the only kind of spending that a company would contemplate on the supplier side would be for the product or service being offered. Everything else was a cost that degraded procurement’s ability to deliver on its primary mission: save the company money, year after year.
The recent spate of natural disasters and other types of supply chain disruptions, coupled with fiercer competition and the challenge of emerging markets, has caused business executives to take a new attitude toward strategic sourcing. They might even consider throwing a little money at a struggling supplier, or working with a trusted vendor to enhance its capabilities.
Discovering who those vendors are is a key step toward enlightenment. First, though, companies need to examine their product strategies as far as 10 years into the future, says Mickey North Rizza, vice president of strategic services with BravoSolution. After that, they must determine precisely what differentiates them from the competition. Is it price? Quality? Uniqueness of product? Or, just possibly, the excellence of one’s supplier base?
A given supplier might be a superior performer in quality, responsiveness, or, yes, cost. Often it needs a little help from its buyer to reach that state. Brand owners and original equipment manufacturers should be thinking about what they can do to create optimum conditions at the supplier’s site. Such efforts might involve development and enforcement of quality specs, maintenance of fair labor conditions or aid toward reaching sustainability goals.
All three areas are crucial to the maintenance of brand reputation. Just look at the recent mess at Foxconn’s manufacturing facilities in China, to see how poor oversight can damage a brand owner’s image. Or the tainted products that can actually cause harm to consumers.
“Often suppliers don’t have enough money to bring it out to the next level,” says Rizza. A smart buyer can come to the aid of a valued partner in exchange for more volume and preferred treatment.
Up to now, she acknowledges, manufacturers have focused on price as the main if not sole criterion for selecting suppliers. But in a world of increasing product commoditization, that’s no longer a tenable approach. Product quality and trust in one’s vendors must also be factored into the mix.
When it comes to emerging markets, tradition-bound companies need to get creative. Take the case of Brazil, host to the 2016 Summer Olympics. Rizza sees a big opportunity for business to capitalize on a surge in spending and customer demand in that country. There’s also the chance for new supplier partnerships. But manufacturers need to be careful about whom they choose for their supplier base – perhaps to the extent of merging with a Brazilian entity, or calling on a local partner for its expertise. Price alone won’t cut it.
Companies are finally beginning realize to that a workable risk-management strategy has to include procurement. You can’t know the exact nature of the next disaster, but you can minimize its impact through strong relations with suppliers. Frequently that effort involves drawing on multiple sources for key components or finished goods, even if it costs more up front.
“For too long,” Rizza says, “procurement has been done in a box.” The function has to integrate with the company at large, with all departments working to satisfy “top-line strategies.” Key performance indicators need to be put in place in order to ensure that the common goal – whether it’s penetration of new markets or the introduction of new products – is being met.
A company might even go so far as to buy a supplier outright, either to lock up a limited source of product or ensure the quality of a component. The Boeing Co., whose troubles with the 787 Dreamliner just won’t go away, did just that when it spent $1bn to buy out the South Carolina plant of Vought Industries, a maker of parts for the aircraft’s fuselage.
Such a move strikes no one as the most cost-effective strategy for managing suppliers, especially in the era of outsourcing. It does show that companies are starting to view procurement and strategic sourcing as more than a game of numbers. Whether they’ll dip into their bursting coffers to ensure a solid supplier base is another matter. But it beats bonusing the CEO.
Next: What’s it take to be a 21st-Century chief procurement officer?
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Keywords: supply chain, supply chain management, inventory management, inventory control, supply chain planning, sourcing solutions, supply chain risk management
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Barry Neighbors has extensive experience working with OEM's and A&D Suppliers on Supply Chain issues. Focused on developing a more efficient supply chain, or helping suppliers in their business development efforts.