Improving productivity earns Dalton Foundries Senate award.
When Dalton Foundries began its productivity push in the mid-1980s, having its efforts publicly recognized was not foremost in the company's thinking, Rather, for the 121 management and clerical staff who purchased the gray iron foundry in 1985 through a leveraged employee stock owner-ship plan (ESOP), it was a matter of survival and profitability. They bet their jobs and retirements on the ESOP and knew they had a lot to lose if the buyout failed. They also realized they had much more to gain if it worked.
And work it has, perhaps even better than anyone could have guessed. By next year, the company will have paid off its debt and own the foundry free and clear. And its efforts didn't go unnoticed. At a ceremony held last fall, the Warsaw, indiana, foundry was presented' the United States Senate's highest honor, its Productivity Award, by Senator Richard G. Lugar (R-IN).
The award recognizes organizations that are using a particularly effective productivity improvement technique, practice or process that can be adopted by other organizations as a means of improving national productivity. Defining Productivity
The term "productivity" has been bandied about for years as the key to business competitiveness. Along with product quality, critics have charged that in order to compete in the global market, manufacturing in America will need to become more productive. Like many buzz words, productivity may be the most overused and least understood of them all.
For the purpose of the Senate Productivity Award, the term productivity is broadly interpreted to mean 'an organization's most efficient and effective use of the resources available to it to produce a high-quality product or perform a high-quality service at lowest cost. These resources include employee knowledge and labor, modern technology, raw materials, energy, plant and equipment, money and time."
Dalton takes a more formalized approach in clarifying the term. Larry Cohen, vice-president operations, explains: "Productivity is a measure of outputs to inputs. Inputs are converted into a product by customer demand in an environment structured by sociotechnical factors, market for the outputs, markets supplying inputs, and corporate strategies by means of a production process.'
The most important differences between the two definitions is the emphasis Dalton gives to customer needs, employee involvement and community relations. Today, the foundly's management believes, these are co-equal factors in the productivity and quality equation with technology and cost cutting. This is because they understood that simply investing in new equipment or slashing costs would not provide the long-term stability it was looking for. It would take a sincere desire to serve customers, an interest in employees and an understanding of the role the foundry played in the community.
Impetus for Change
Nearly everyone on the Dalton Foundries' management team can remember some less-than-positive instance that led the company to rethink its philosophies and attitudes toward employees, customers and the community. Cohen, for-example, recalls the bitter strike in 1979 that he says 'really hurt the company."
In trying to resolve the dispute, 10 management people and the local union officials made a trip to the United Steel Workers headquarters in Pennsylvania. 'Our whole purpose in making that trip was to ask Can we tear down the wall between management and labor? 'We came away with a commitment from both parties to work toward that end. That was the beginning of our employee involvement programs."
On the customer side, Ken Davidson, Dalton Foundries' president, retains a memory from many years ago when a couple of the company's representatives returned from settling a dispute with a customer and claimed victory. "Their attitude was We showed them!' We sure did," says Davidson. "We showed them to the point to where we lost all their business! It was obvious, we needed a new perspective when it came to dealing with our customers."
The neighborhood where the foundry is located presented another set of challenges. Founded in 1910, Dalton Foundries, like so many other older manufacturing concerns, watched the local community literally grow up around it. Kosciusko County, where the foundry is located, has become a resort area with beautiful lakes and attractive homes. The last things the foundry's Warsaw neighbors wanted were the noise or the "distinctive aroma" of a foundry. Cohen recalls that in 1984 "a group of citizens actually banded together to shut us down."
So when the Dalton family, decided to sell the company in 1985, they were approached about buying through the ESOP concept. And despite coming on the heels of one of the deepest manufacturing recessions in U.S. history, the business was profitable and its customer base stable. The risk of a leveraged buyout were obvious, but so were the benefits.
Almost as soon as the deal was struck, the new management team set out to develop a five-year plan centered directly on customer needs and in-house productivity.
A Strategy of Commitment
Dalton's management team knew going in that for the ESOP to succeed it would have to commit itself totally to developing a globally competitive organization. Explains Pete Dudchenko, director of sales and marketing, "We have a vested interest in the success of this organization. Our company retirement program is based on the value of the company's stock. All of us as stockholders understand and do everything we can to satisfy our customers."
But management's commitment alone would not be enough. They had to demonstrate that Dalton Foundries was a class organization to do business with and to work for, they needed the commitment of their employees as well.
While from time to time Dalton had considered getting into ductile iron, it was determined that the best way to serve their customers was to specialize only in highly cored gray iron castings. Production today concentrates on medium to high-volume parts in the 5-700 lb range produced on their cope and drag lines using shell and cold box cores. The foundry's goal is to utilize its total 100,000 ton annual melting capacity.
Dalton's major markets include air conditioning, refrigeration, truck transmissions and diesel and marine engines. To assure the best customer service, the foundry has purposely maintained a narrow customer base.
Confident that its' quality can compete with anyone, the company uses service to differentiate itself from competing foundries. "We are customer driven," says Dudchenko. "We have a special department of technical engineers called Customer Service. On a scheduled basis, they regularly visit every one of our customers. Their goal is to prevent problems, not react to them. Our philosophy in doing this is to please the man on the shop floor by making his job easier.
"We maintain a narrow customer base to make sure that everyone in it gets enough attention," Dudchenko adds. "We also make sure that our shop people know who our customers are and every effort is made to get our people into customers' plants and the customers into ours to develop the kind of rapport that we want and need."
So far, this part of Dalton's plan has worked well. The foundry is currently a certified supplier to Caterpillar Tractor, Copeland Corp., Borg-Warner Automotive and the Carlyle Div. of Carrier Corp. While they don't yet produce any castings for them, Dudchenko says that, to his knowledge, Dalton is the only U.S. foundry to pass audits by Volkswagen and Audi. In addition, Dalton now ships castings to the U.K., Germany, France, Belgium, Japan, South America and Mexico.
The rapport with its customers that Dalton Foundries has worked so hard to develop is paying off, Dudchenko adds. Most of our customers consider us their casting department, and we have long-term contracts with them. In some cases we have 'evergreen' agreements. These offer advantages for both of us. We know we've got the business so we can plan schedules and capital investments. The customer has price stability over the long-term.
"I guess the buzzword is "strategic alliance.' We feel the customer deserves the highest quality product at a fair price, when he wants it. What we've really tried to do," explains Dudchenko, 'is to give them a reason not to look somewhere else."
Dudchenko also sees some significant changes in how customers view price. The more sophisticated and progressive customers now talk about price on a total cost basis. They're not just thinking about the price of the casting, but the cost of putting the part through the entire manufacturing process. They realize that a cheap casting doesn't necessarily mean they can lower the cost of the final product if the casting is not easily machined or assembled. What we offer is the opportunity to eliminate initial machining and lower scrap rates, which allows the customer to optimize the use of his machine tools and assembly processes."
Quality also is being redefined in the marketplace, Dudchenko adds. Quality now is going beyond just the integrity of the casting. We are seeing more and more demands put on things like the cosmetics of the parts. Whether the cosmetics of the part affects its functionality is not the question for us. If the customer wants it, our job is to give it to them."
Dalton's entire management team points to people as the single most important ingredient in the success the foundry has achieved with customers, productivity and quality. They cite two milestones in the turnaround of relations between management and labor: the 1979 strike and the management buyout of the company in 1985.
Following the 1979 strike and the commitment to tear down the wall between the two groups, the company got involved in Quality Circles. These were formalized groups where minutes were taken at the meetings," says Cohen. "but they never really took hold. Most of the meetings turned into gripe sessions and rarely progressed past that. Our people then were not ready nor was management prepared to lead groups of employees in a problem-solving situation."
In the early '80s, John Daffara joined the company as director of human resources. Though he left Dalton last fall to become a vice president of BorgWarner, Cohen says he left a significant mark on the company. "John was a proponent of employee training and started a mass improvement in our education programs. We began offering our employees the opportunities to study everything from basic English to technical problem solving to statistical process control to business administration on the graduate level. Prior to 1985 we were not spending much on training at all."
Management's commitment to investing in employee training was dramatic and played an integral role in Dalton's U.S. Senate Productivity Award. Between 1985-91, foundry employees completed 5650 at a cost of $900 000. The program included a variety of in-house programs, courses at local universities and at the AFS Cast Metals Institute. A tuition reimbursement program also is part of the education and training program at Dalton.
In conjunction with the efforts to raise the skill and knowledge levels of the work force, many of the old work groups formed in the early 1980s began reforming.
Today, we have a number of groups that meet on a regular basis," explains Cohen. "Also, as a given problem is identified, a supervisor or superintendent, acting as a facilitator, will ask for volunteers. They'll have meetings, gather facts, propose solutions and then disband. Many hourly people love these sessions and we pay them for their time."
On the other hand, Cohen points out, "Often, they will meet on their own time to address problems that might arise from an employee complaint or just someone looking for a better way to do a job. Many of our new supervisors and managers come from these groups. These are the people who are usually more people-oriented and show initiative."
One of the side benefits that came with the growing investment in training and employee involvement programs is improved management-labor relations. Proof of this came in 1987 when Dalton signed an unprecedented five-year labor agreement with United Steel Workers Union which represents the foundry's nearly 500 hourly employees.
Putting into perspective his feelings on the importance of people, Cohen explains: Investment in new equipment, technology and training are important in maintaining our competitive position, but any good foundry makes similar investments. Breakthroughs in technology in our small industry are usually short-lived, but we really feel that the work force at Dalton foundry is the one asset our competitors can't copy.
Acceptance in the community is extremely important to Dalton. "All of us live and are raising our families here," says Cohen, "so it's important that we fit in as good neighbors."
Since 1984 the foundry has held annual neighborhood meetings to allow the community to voice its concerns and to resolve problems. One year, the foundry went so far as to put perfume into some materials to mask the odors that neighbors found objectionable. "They came to us and asked us to stop," laughs Cohen. "They didn't like the foundry smell, but they hated the perfume even more."
Since 1985 Dalton has invested a minimum of one-third of its capital budget into particulate, fume and odor reduction, and vibration avoidance equipment.
At the most recent neighborhood meeting, says Cohen, "our neighbors agreed that we were better than we were five years ago. That's not necessarily good enough. We intend to continue investing even more to avoid any problems."
The Future is Now
Despite having been highly leveraged, Dalton Foundries has continued to make-significant-capital investments. The most recent was the installation of a new cope and drag molding line which will allow the foundly to expand the current casting size and weight range capability.
"We can do this," says Davidson, "because of our increased productivity and the long-term agreements with our customers. Because we knew we had the business, we were able to make intelligent decisions about capital investments.
"Our objective is not to get price increases," he explains. "Our goal is to be the low-cost, high-margin producer of the products we make. So, anyone trying to get their foot in our customer's door is going to have a tough time of it."
As Davidson says, "We are laying the groundwork now for our future. We have gone beyond simply responding to our markets-we are creating new markets through the strength of our commitment to our customers."
Add the strength of the mutual commitment that management and labor at Dalton have and you have the answer to how this Indiana foundry was accorded the U.S. Senate's Productivity Award.
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|Author:||Kanicki, David P.|
|Date:||Jan 1, 1992|
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