How to develop and keep top employees at Top Plants
The three winners of Plant Engineering’s 2006 Top Plant awards sat down for a panel discussion at the Manufacturing Summit on what makes a Top Plant click. One major area discussed by panelists Jamie McDonald from Square D, Duncan Seaman from BMW and Roger Wallin from Toyota was the issues of finding, training and retaining skilled workers. The discussion, moderated by editor Bob Vavra, touched on issues of unions, wages and competition:
VAVRA: You were all very gracious last night in talking about what this means to the individual facilities. But as you look at that kind of a designation, how do you take that forward to your people and make it be real for them? Talk a little bit about the experience down in Spartanburg.
SEAMAN: I think, as you said, maybe it’s a chance to take a short breath, and I think that for us, certainly, we need to recognize some of the programs that got us to this point. Continuous improvement has been stressed yesterday. I think as an integral part of that, we have a lot of different programs that are really focused on continuous improvement both driven from the company level but also, I think very importantly, driven from the associate level, where the associates really have a chance to express their ideas and kind of get those on the table because I think some of the best ideas really come from the associates.
So I think in a lot of ways, it’s a chance to reinforce those types of programs, to listen to the people on the floor, the people that are involved in the programs, and to listen to their ideas because really, that’s where I think some of the best opportunities come from. I think for us, some of our biggest successes haven’t necessarily been the huge multimillion dollar programs that have come in, but they’ve been the incremental, day-by-day type things that happen on a regular basis.
VAVRA: Jamie, we’ve talked a little bit about those incremental changes. Part of the challenge is both knowing where to look for them and empowering the rest of your people, both on the floor and at the manager level, to look for those kind of improvements. What’s that process like for you guys?
McDONALD: In Lincoln — well, we did recognize everybody there, and it is important to have Top Plant recognition as a proud point for everybody. When we rolled that out initially, even before our celebration, in talking to the employees, we talked about, you know, we have been named Top Plant, but we know where we’ve got just a lot of opportunities in this operation.
So we’ve kind of taken that with our whole team in concept, which has continued to be revised over the last couple of years. We’re out kind of recruiting the right people for the teams, the right skill set to mix the skilled trades with the operator, with the appropriate manufacturing engineer.
We’ve done a good job of driving Lean in the operation. We haven’t done necessarily a great job of implementing some of the Six Sigma tools, so that’s kind of our next phase, the training piece of that, as to what the tools are, getting the workforce involved.
We talked about execution systems yesterday. We’ve got, I think, a great manufacturing execution system. So we’ve got a lot of data, and we’re pretty good at using that data.
VAVRA: Roger, Toyota is legendary for inventing Lean. But for your organization, it’s all about continuous improvement, and it has been for a long time, and that’s one of the hallmarks of success as a large international corporation. How do you get that across to the plant level, who may not know or really understand, walking through the door, all that the Toyota way is about?
WALLIN: Certainly, it’s a never-ending process within Toyota. In the discussions have been taking place, I think we all realize how the marketplace is so dynamic and the competition is so great in this and any manufacturing industry, so we continue to push internally. We have had special focus on trying to get back to the basics and the Toyota way.
I think one of the things with Toyota, we’re in a time period of tremendous growth right now. We’re doing extremely well in the market, so we have to be careful within that growth that we don’t lose that basic foundation or that basic concept. So we do a lot of things internally in the training of our team members and specifically going back to the Toyota way and the Toyota processes to ensure that our people don’t lose that. As we have new people come in and turnover, we have to ensure that that foundation is set.
So it’s certainly a challenge and, again, particularly with the growth that we’re in now, it’s something of particular focus that we have to keep in mind and continue to work forward to make sure that we don’t lose that foundation. It’s kind of like Duncan said, what got us to where we are today, we have to continue to hope that to keep that value true.
VAVRA: One of the things that I think is common across all three of the Top Plants this year is that this is very much a bottom-up process, both in terms of the people that you bring into the organization initially as well as the people already working at that level who bring in the new people and say, “This is how we do our job.” It doesn’t have to be management. It is very much ingrained throughout your organization.
VAVRA: How do you work with those people, and how do you incentivize them and celebrate those people on your floor who are providing that kind of leadership for you?
SEAMAN: Well, I think maybe one example from our side is a program that we implemented a couple of years ago called Total Productive Maintenance, TPM, and I’m sure many of you have heard of TPM.
We recognized back in 2003 that we really needed to take our maintenance programs to the next level, and we went through an effort with Marshall Institute. Some of you may know them. We did a gap analysis, looking at world-class benchmarks with our maintenance indicators and really started a bottom-up program with our maintenance effort.
There’s a lot of different focus areas of TPM, but one of the most critical things is taking the maintenance program and putting it in the hands of the maintenance workers. This is their program. They have an opportunity to influence it, to say, “Well, wait a minute. I have been doing this service, I have been checking this thing for five years. It’s never been out of alignment. It’s never been out of adjustment. I need to quit checking this every week, every month, whatever it may be, and I need to look at this other thing that every time I go in, I notice that I have to adjust it, but it’s not part of the regular maintenance.”
And really putting that program in their hands to let them take it over, to form it; and I think more than anything, the sense of buy-in that they have in the program, the sense of ownership is extremely important, and you can’t get that with a top-down program. You can’t go to them with a management edict to do something like that.
But when it comes up from the bottom, they’re involved with it, they’re bought into it, they can shape it, they can form it, and they can really make it an outstanding program for the company.
I think it’s really part of the success with our maintenance effort of really moving toward predictive maintenance, we heard about that yesterday; and really, that’s where we really need to be moving.
VAVRA: Do you celebrate that in the same way that you would other achievements in the organization, and how do you do that? How do you raise up those kind of achievements in the maintenance area, for example?
SEAMAN: When people have ideas, for example, they’re certainly brought before senior management. We review them. We kind of recognize the team. There’s been a lot of good work going in there. Even through our idea program, which we call I-Power, if somebody comes up with an idea, there’s actually a financial reward where they can participate in the savings of the specific item.
VAVRA: That’s great. Jamie, what about Square D?
McDONALD: For us, I’ll go to our team approach, a small group of people. They would basically be challenged with a business problem, and we provide the feedback. That gives them ownership into the issue. And then, that feedback tells them how they’re doing. We recognize that, and it’s as simple as a “thank you” for us.
All the way up to team of the quarter, we have those types of things in place as well. But it means an awful lot to them to get a pat on the back from the supervisor or the manager. And every week an in my staff meeting, I ask these guys, “Okay, who deserves a thank you,” “Who do I need to go see,” and they give me that feedback as well.
VAVRA: How much of what we’re talking about is technological, and how much of it is human? How do you find the right balance between bringing in a system that is going to help you do some things for your people better or having your people do some things that are going to drive your system? Is there a balance, or is it dependent on what you’re finding out there?
WALLIN: Well, I’m just going to say a little bit, too, about the Toyota communications standpoint, kind of backing up to that for just a second. It’s a little bit difficult for us, when you’ve got a facility as large as we have there at Georgetown. We’ve got 7,000 team members, so it’s really, basically, like a small city so communication is a challenge, at best.
We do a lot of corporate-type communication, a lot of internal mailings. We have an internal television system, TNN, where we communicate and send a lot of information out to our team members. Then we also do a lot as far as the development of our team members, like with Quality Circles. It’s something that our folks are very involved in.
So, again, it’s difficult from a larger scope. But if you have these smaller groups that are working together and they’re experienced in their knowledge and they’re using that to try to make their process or their equipment, or whatever the case may be, better, that’s been a success for us to do that.
Then from a recognition standpoint, we try to do a lot of things with maybe luncheons or special departmental-type ceremonies where we bring our folks in and congratulate them on the job that they’ve done. I think that’s very important. We talked about that in another seminar discussion yesterday, about the human factor and how it’s so important to recognize your people for the job that they do. I think that’s very important.
VAVRA: Are you looking to bring in technology at this point, or is it just really trying to find those incremental improvements in the program with your people at this point?
WALLIN: Well, I think you have to continue to look at it from a technology standpoint. I mean, that’s something that we all have to do. I think we’re out on the cutting edge. Toyota is a very conservative company, so I think at times, maybe, we have a tendency to kind of stand back a little bit and watch and wait and see that we don’t step into some things a little bit early before the technology proves out because there’s a lot of things that come out that don’t always work out.
So I think from that standpoint, we’re very conservative, and I think that’s been beneficial for us. Sometimes it may put you a little bit behind the curve also. But we continue to look for new ideas and new technology to bring in, to train our people, and to keep them in focus with what’s going on out in the industry. We have to do that to survive.
VAVRA: It’s not necessarily the first to market, but best to market?
WALLIN: Hopefully best. That’s your goal, yeah.
VAVRA: Jamie, I know you’ve put a number of different systems in there to try and automate the process of circuit breakers. Where do you find that balance between a highly-automated facility and one that is very dependent on the skill of your employees?
McDONALD: We’ve definitely got the technology in place, but I think that is a subset of the skill level of the employees. We’ve got some guys that have been around pre-lockout/tagout, so we’re trying to bring some of those skill levels up. We haven’t necessarily hired a lot of people externally. We’re starting that process, and I think we’re going to get to that discussion.
So we have got some guys that have transitioned from the factories of the ’70s and the ’80s to the fully-automated facility we have today and the skills that go along with it, so our challenge is really to bring those skill levels up.
VAVRA: Duncan, you took your facility down to studs, really, and rebuilt it. One of the most impressive things about that process is that while you were physically rebuilding the assembly line, you were also retraining all of the people involved so that when day one hit, you had an assembly line that was manned by skilled tradesmen and people who knew what they were doing.
Talk a little bit about that process because if you haven’t seen the video on the BMW Web site, watching the process of this plant go down and back up is remarkable in seven minutes. But talk a little bit about the human element that we didn’t see on the side.
SEAMAN: Of course, the products that we make at our facility are the Z4, which is a convertible and also a coupe, and the X5. These two products are totally different, night and day. They were made on two separate assembly lines in about a million and-a-half square foot facility.
So last Thanksgiving, we basically, as we finished up production, as the cars were going down the line, behind them, we were disassembling all the stations. And then, in the next six weeks, we basically gutted the entire assembly line.
So you can imagine this facility the nature of the work, a lot of steel being demolished, everything from the trusses down to the floor level, massive, 24 hours a day, seven days a week operation, to basically take our assembly line and put it into what’s known as a one-line system, where you’ve got one line that can produce both cars, one right after another.
Really, this was seen as being key to the flexibility of our plant in the future. The major advantage is that rather than producing a fixed volume on each of the two lines, you basically can vary the model mix, if you will, to produce whatever the customer demand is, and that’s constantly changing. The old system had a lot of constraints to it.
We typically have two one-week shutdowns per year, one in the summer and one in the winter, very typical for automotive. We consolidated all those shutdowns around our Christmas holiday period. But very important was, we basically had to retrain everybody in our entire assembly shop for new work content. This was extremely intensive. They basically had to be trained and certified on all of these new workstations because when they came back right after the first of the year in 2006, it was a totally new work environment. So there was a tremendous amount of work. Obviously, we had to ramp up in our production as they came back to pace everybody, to make sure that they were able to maintain.
We also introduced some new product at the same time. We had what’s called the facelift of the Z4, so we had lots of things going on, but it was an intense challenge.
The team training and certification was extremely important, and that pretty much went on 24/7 as well.
VAVRA: We’ve talked a lot the last day or so about ROI. That’s a tremendous investment in a facility that’s not making anything for six weeks. Are you seeing the return on that, both in terms of people and in terms of product?
SEAMAN: Yeah, absolutely. Absolutely. I think the ROI is a good point. There’s intense competition among all of our plants for the limited investment dollars. All of the projects are looked very heavily at what’s the ROI, when are we going to break even, and how much profit is this product going to be able to bring back to the group. So there’s intense scrutiny.
It was three years’ worth of planning that went into it. But ROI is heavily looked at, again, to build flexibility into the plant.
One thing that we have seen recently, our Chairman of our Board at a shareholders conference just a couple weeks ago announced a new product that’s going to
be built at our plant. It’s called the X6. It’s going to be a crossover vehicle. So we really see that that investment that was made in the plant is setting the stage for giving us the flexibility to respond to market demands, and specifically by integrating new product into our factory.
VAVRA: You’re all in very competitive businesses. But also, I think one of the things that’s interesting in hearing all of these stories is the internal competition within each organization.
Jamie, talk a little bit about Lincoln and its competitive nature just within Schneider Electric and Square D.
McDONALD: Within Schneider, we have a low-cost facility in Tijuana, Mexico. It’s been there since 1987. I’ll tell you, when I came to Lincoln and we started tearing down the product costs and compared our Pacifico operation with Lincoln, I came out and said, you know, “They’re our competition,” I thought I said something wrong because the workforce said, “Well, management has never said that exactly like that.” So, you know, they are our friendly competition. It’s a good benchmark for us. We’ve got a pretty good idea how we stack up externally.
But internally, they make a lot of breakers down there. It’s been a good eye-opener for our workforce to understand. We know we’re not going to compete on wages, but we can compete on product cost, and that’s where the game is at for us. If they understand the components of our product cost, how we match up, we get better buy-in to reducing some of those categories.
VAVRA: One of the issues that is increasingly growing that I hear a lot about is this total cost of manufacturing; that it’s not wages, it’s not materials. There are things that you can do both in terms of reducing costs within your facility and driving as much efficiency and effectiveness out of your workforce.
Roger, Toyota is one of those companies that has tremendous internal competition at a time where you’re growing in North America as a manufacturer as well as globally.
WALLIN: Well, early on, of course, when TMMK, Georgetown, started up, the benchmarking always occurred with Japan, and we looked at our sister plant, the Tsutsumi Plant, and continued the benchmark back and forth of how we were doing against them. All of the business quantifiers were, of course, particularly quality and cost.
As the additional North American plants came on line, then they gave us more opportunities to do benchmarking internally. I used the term last night, kind of jokingly, we beat up more on ourselves internally, trying to do better and to be more cost-effective and build a better quality product because to Duncan’s point, it does have a lot to do, from the corporate standpoint, how well your plant, of course, is physically doing in terms of what types of models that you get into your plant, so that is very, very important.
So not only do we benchmark against externally, but we do that internally, and we try to be very aggressive about that and try to continue to strive to do better and to try to outperform our internal plants in North America and also Japan.
VAVRA: You talk about the idea of limited resources within your own organizations for R&D. The better-performing plants are naturally going to be the first places that corporate is going to look to reinvest. You want to reinvest good money in good facilities.
WALLIN: Absolutely. So whoever is building the car more efficiently from a cost standpoint certainly is the plant that’s going to be looked at for new models to be built.
VAVRA: Each of you are in relatively remote locations. Jamie, you’ve got a university there and a state capitol, but it’s the middle of Nebraska. We’re talking the middle of South rolina, the middle of Kentucky. You’ve got a fairly contained workforce.
But as we talked about, and as Tony mentioned during his remarks earlier, one of the biggest challenges as your workforce ages and continues toward retirement is how do you get that next generation. What are the processes that you’re all undertaking now, and how far back has that gone, to both recognize the problem and to start to work on a solution? Duncan?
SEAMAN: Well, I guess we’re a relatively young facility compared with Square D. We’re just coming up on 14 years old, so we don’t quite see some of the same types of issues that they’re having.
But workforce development is extremely important and the hiring and selection process. I think also, the retention of those people is extremely important. Our attrition rate is very low. It’s just a couple of percent.
I think one thing that we really focus on, we have an associate evaluation program for management, just like I’m sure all of you do. But it’s not just focusing on how they do the job, but it’s how are they prepared to take the next step, and how do they fit into the organization, what are the types of jobs that they need to better prepare them to take that next step.
The evaluation process within BMW is something that’s been developed over many years, and it’s a little bit painful at times. But there’s a lot of benefit that comes out of it, really, in providing that personal development for the associate in being able to step up into those roles as those positions become open.
VAVRA: Jamie, I know one of the things that we talked about was, you’re now actually starting to see third generation coming through the Lincoln facility. That’s a great legacy to have. But you’re still looking to develop that next generation?
McDONALD: Our employees are our best recruiters, without a doubt, and we are hitting the third generation. We started out in 1970-’71. In three years, we’ve got 60% of the workforce that can retire — not to say that they will %%MDASSML%% but they can. A lot of them will, and we’ve got a significant gap with our skilled trades, so recognizing that — and the level of skill that we’re looking for has been upgraded.
VAVRA: And it’s a different market out there today than it was 30 years ago.
McDONALD: It absolutely is. So what we have looked at is what our job descriptions are, maybe a consolidation of electricians and mechanics. We kicked around putting technicians in place in salaried positions.
So we’re looking at apprenticeships, frankly. We haven’t had those since the ’80s, when they were big in the facility. We had training programs. Really, the ’90s and 2000s — we haven’t had the need. We’re starting to try to figure out what this apprenticeship program means, so we can go to some of the tech schools, pick the kids out of college and train them. Then, we believe they’re going to be Square D employees for life.
VAVRA: Roger, is it the same situation for you guys?
WALLIN: It’s something that’s looming in the very near future for us because our plant has just celebrated its 20th anniversary. With our retirement process, our folks are eligible for retirement at 25 years.
So as most of you know, you normally bring into your facilities skilled team members, of course, very, very early on in your plant construction. So we have a lot of folks within our organization that will be eligible for retirement within the next four to five years. It’s something that we have been looking at for quite some time.
Of course, we continually try to train and improve our workforce. We want to try to give people internally an opportunity to get into skilled trades, so we have a program called the Skilled Trades Development Program. There’s some extensive testing that takes place, but this basically gives an opportunity for production team members that are out on the line that may have some experience in maintenance from prior jobs or prior work history an opportunity to take that test.
It started out as a three-year, but now it’s a two-year program. But those folks are able to come into a focused training program where they have classroom study and they also have departmental assignments, so they’re studying from a training standpoint, the educational standpoint, but they also do a rotation across the different shops.
We were talking a little bit last night, in our plant, each shop has their own maintenance force. So the body weld, stamping, plastics, assembly, powertrain, they have their internal maintenance groups. So these Skilled Trades Development folks, they go through on a certain rotation level across all the different departments, including our department, facilities control, and then they are eventually assigned within a department. So that’s a program that we have used internally to try to give people an opportunity, again, to get in skilled trades.
Of course, you also have to look at new hires, bringing people in off the street. I think that’s something that’s very important, too, because as an organization gets older and time passes, you want to be able to bring in — we use the term “new blood,” a new way of looking at things, different backgrounds, different experiences. As a company gets older, for Toyota, talking about turnover, ours are very, very low. So our folks come, and they stay. So it’s good to be able to bring new folks in and not get complacent in the way that we look at things.
Toyota has also worked very closely with state and local governments. We work with the state of Kentucky as far as the educational hiring process. We work with the University of Kentucky, and we have a great relationship with a local community college, Bluegrass Community & Technical College. We’ve also done some co-op programs through the community college to bring folks in. So we want to try to do a mixture of things to get some type of balance of the type of knowledge and experience and workforce we bring in.
But it’s certainly something, again, that’s very looming for us because we have to find a way to be able to maintain that knowledge base and/or transfer that knowledge base as our more experienced skilled labor folks now have that opportunity, if they decide to, to move on.
VAVRA: Increasingly, it’s not just putting out a shingle and saying “Help Wanted.” It’s recruitment, it’s training and it’s increasingly a tremendous amount of outreach into the
SEAMAN: Just another point on that. I mean, one thing that’s happened in our
factory is that the level of automation has increased dramatically, so training has to be continuous. We recently did a conversion from Allen-Bradley to Siemens PLCs that was integrated in all of our production processes. PLCs are everywhere, and the transition that it takes, going from a more manual workforce to a more automated workforce, again, requires continual training. They’re basically computer programmers.
I think to be competitive, it’s going to take more and more of that. That also brings in a higher reliance on our external electrical providers, our local power companies, getting into factory power quality, which is a very critical issue for us. You really need more reliability and quality, and I think this whole thing really gets back to the point that training has to be continuous to keep up the pace with automation in today’s workplace.
AUDIENCE: It’s to Duncan. When you did the refurbishing of the plant, in dollar value, I assume the cost was probably millions. And then, after you took that period of being down, I’m sure you had a backlog. I’m just wondering, what was the quantity of cars and then the dollar value of that backlog, and how long did it take you to catch up?
SEAMAN: The total conversion, I don’t know the exact number, but I’d say it would be in excess of $100 million. As far as the backlog, we really didn’t have a backlog because what we did was, we built ahead. Before we shut down, we actually produced additional cars to put those cars in the pipeline, if you will, because we knew that this shutdown period was coming and that we needed to account for it. I’m sure, just like many of you, when you have a shutdown coming, you build a little extra inventory to kind of keep that buffer in the system. So we really didn’t have any makeup that we needed to do. So I guess that would eliminate the third question.
AUDIENCE: Okay, yes. Yes, it would. But the idea of the flexibility is tremendous. But it’s a fact that you have to build up inventory that the people want at the time; and then, months later, they don’t want. So the flexibility of doing two different models is, obviously, a great idea.
AUDIENCE: Jamie, can you explain the analysis you do of running a plant in Mexico versus Lincoln, Nebraska and how you deal with union versus non-union and how you do a cost analysis of what it takes to produce a profitable product off the assembly line?
McDONALD: I’ll start with the cost challenges in Mexico versus the U.S. I worked in Advanced Manufacturing for a couple of years before I took this position. So in that position, I got to see all of our internal cost information I knew what an hourly wage was in Puebla versus Lincoln and did some competitive teardowns on our internal products to make sure that internally, we were in the right location for certain technologies fabrication.
So I had the inside track on what our costs were and took that into consideration. When I got into Lincoln, the first thing we did was looked at the product costs. It’s something that the finance and the accountants do on an annual basis, and even more frequently. But we hadn’t put that information in front of the workforce.
So we split out every penny of what a QO Breaker costs and compared that with the costs in Mexico and where their cost budgets ended up and took a look at where we had opportunities, and that became, really, the basis for our plan.
One of the biggest takeaways for me was, our work comp costs in Lincoln were significant. So 2-1/2 cents out of every product was work comp costs. We reduced that to less than a penny in four years. So
those are freebies, right? The workforce is safer, they are healthier, the cost comes out of your product, and it didn’t come out of anybody. Nobody lost a job because of that. So we really — that’s how we did it, just looked at the competitive teardown.
AUDIENCE: Your union made concessions, right, because you did an analysis, and they came down on hourly
McDONALD: Yeah, they did. The ’05 negotiation was a tough one. We had some built-in bonuses that were basically guarantees, and we negotiated those away. With all the automation we put in Lincoln, we found that we still had some opportunities with our labor costs. Part of that was to drive more volume through the facility and then allocate those costs.
Now, the other piece of it was, we didn’t want to be the top-top paying plant,
quite frankly, in some of the wage grades. What we found was our skilled trades, we paid them well, very competitive for the area, the top one or two companies. But the no-skill positions, we paid maybe 15% less than our skilled trades. So that’s where we needed to make an adjustment. So we had a reduction in the bonus, and then we put in place a two-tier wage system.
So now, all of our new hires are paid competitively, and we basically had a reset on our wages. As those people retire, we have got somewhat of a guarantee that our labor costs are going to see deflation over the next ten years in Lincoln, and that’s helped us with our competitive situation.
VAVRA: But that’s a competitive negotiation based on all of the information
on the table in front of management and labor, and you were able to come together in a negotiation based on everybody seeing all
the data sitting out there?
VAVRA: That’s a critical issue, and that doesn’t happen very often.
AUDIENCE: So it’s quality, it’s cost control, about shipping costs, about getting a product to market quicker?
McDONALD: I think (Schneidxer Electric president and CEO and Summit Keynote Dave Petratis) said it last night when he said landed product costs, that’s the first piece of it. If you pass that hurdle, then you get into what is our inventory situation, some of those other things. So, yeah, that
challenge is always there. We look at those. We’re in 190 countries in the world, and Schneider knows what it costs per hour in all of those countries, and we’ve got to be able to compete.
We also had the French Industrial
group come into our facility — you know, they’re looking at French jobs, too, and can
they compete in France versus their low-cost countries very close to them and looking at the products we can build in an hour with our equipment. So they benchmark us, and we benchmark them, and there is quite a bit of analysis going on globally as well. So it’s not only Mexico. It’s a global challenge.
I know you called it benchmarking. I call it the internal competitiveness.
WALLIN: I think the key thing, too, Jamie, to your point, it’s so critical, I think, from a communications standpoint to really get that type of information down to the folks that are working on the line. I think in maybe a lot of traditional business senses, you had the bean counters in the back room that was doing all the financials, and the folks out on the floor
really didn’t understand that. But we’re living in such a global market,
and there’s so much competitiveness, and that’s something we’re doing more and more of. We’re getting that down to the team members that are on the line so they understand what the impact is and understand how critical it is for us to be able to offset costs and to remain competitive in the marketplace.
With the rising cost of utilities from a facilities standpoint, the costs there, you look at the wage and benefit packages that we put out two times a year. Every time those come out, we tell our team members, “This is how much this wage and benefit package costs Toyota. Now, what are we going to do to offset that cost?”
And then, we immediately start looking for ways to be more efficient and to cut costs, in whatever method or means it may be, because if we don’t do that and the cost of our car continues to go up, of course, we will put ourselves of the price of the market.
So I like that point. I mean, I think that’s very critical from a manufacturing standpoint. That information does need to get down to the people that’s really going to make the difference that’s out there on the line and look at what they can do to improve their process and cut costs and offset the increased costs of business.
AUDIENCE: I guess I want to direct this at Roger and to Jamie a little more because you guys talked specifically about your workforce development issues and holding onto the knowledge. I assume you’re using some kind of measuring program on the plant floor or something similar to that. I’m just curious as to, you know, how you manage that and how do you measure results.
WALLIN: Now, that’s really, from a cost standpoint, that’s another one that’s very difficult because we’ve looked at a lot of different ways of trying to, again, offset that knowledge and experience that we may lose in that 25-year timeline. There again, from a cost standpoint, it’s very difficult. You can’t really effectively double up on your head count because that’s a great expense in wage and benefits.
So that’s where, again, we look at those programs like our STDP program so that we’re taking folks that are already on the payroll — it’s not doubling up or an additional head count — and trying to build their knowledge and experience of our methods and our processes across the different shops. So that’s one of the reasons why we use that. We had a lot of discussion about that, could we go up on our head count, but we just really don’t feel comfortable doing that, again, because of costs.
So we continue training — even though we know we have folks that may be beginning to go out in, like I said, a four- or five-year period, we continue to coach and we continue to train, whether internal or external. We even have a training facility on our own site that we use, so we continue to do that. We continue the internal program to get folks ready to take those spots.
But I think that is — it’s a very difficult thing to do. How do you transition that knowledge base? I don’t know that we’re exactly where we need to be. We’re still in the middle of that, trying to determine what’s the best way to do that and not lose that because if you have that, for lack of a better term, a mass exodus of all of that knowledge base and it leaves, what’s that going to do to your business? That’s something that we’re looking into and very concerned about.
McDONALD: We’re trying to figure it out, too. Our new hires that we do bring in all have experience, so you can’t get in the building without a good basis of experience. We have hired some — really got some great people from the outside. We partner them with the tradespeople on first shift for anywhere from 60 to 120 days to make sure they’ve got it and feel like they’ve made it through the probation period, and they get a chance to work with the appropriate people.So that’s how we do it today, and then we monitor their performance when they do move to the off shift.
In the future, our idea is we want to start hiring some fresh-outs. We need a trainee program. We’re going to put a salaried person in place and try to come up with an accelerated training program. We’d like to see it at six months, but it’s probably more like a year that it’s going to take for them to work one-on-one with a salaried technician to bring their skill level up and the experience level up. They’ve got a good framework for skills in the education piece, but we need to train them on how to do work within the company. AUDIENCE: In your BMW plants, you make the Z4 and the SUV, so you ship this car all over the world?
AUDIENCE: So what cost analysis did BMW do to say that it’s more effective to make this car here than somewhere else and ship it? You’re not near major shipping out there, so do you load your cars on rail?
SEAMAN: Actually, we are. We have the Port of Charleston, and we have a major rail infrastructure that’s there. With the rail, basically, we can take the cars we produce and ship them to the port for export around the world. And then, we can also ship by rail back the imported cars that are made in our other factories that are going to be sold in the Southeast and the Central Region of the U.S.
I think it’s been mentioned before, the issue of basically building for the country that you’re in and kind of the plant being a natural hedge for currency inflation. Sometimes that works, sometimes it doesn’t. It takes a little bit of a crystal ball, but it is a way that a lot of companies can hedge against currency inflation.
The other thing that we do, there are a lot of countries — China, India, for example — that have pretty severe import restrictions. Basically, they have low local content requirements, so a certain percentage of the product has to actually be produced with local labor. So that’s why we have moved into a lot of countries. We’ve just opened our plant in Chennai, India. We also have a very successful joint venture with Brilliance Automotive in China.
But in the U.S., currently, our X5, about 60% of that product is currently exported. The waiting list for that in Europe is about six months to get it. That ratio is probably higher than we thought it was going to be initially. The U.S. is the largest market for BMW, so we really anticipated selling more of the X5s in the U.S., but we can be competitive by exporting the product. Even though there’s duties and fees that need to be paid, we can be competitive as a global producer from South Carolina.
AUDIENCE: I realize that none of you are running for public office, but how would you see a national healthcare policy affecting U.S. manufacturing’s competitiveness worldwide?
WALLIN: That’s very interesting because certainly, the healthcare cost, as everyone knows, it’s just a tremendous burden. Certainly, that’s one of the things that GM, Ford and Chrysler has dealt with, is the legacy costs. I know from our standpoint, particularly with Georgetown, as our employees get older, again, they get closer to retirement, that’s some of the things that we will have to deal with in the future.
I think, certainly, it can have an issue to look at from both sides of the fence, but it could certainly have a positive impact. I know, again, from our standpoint, we have a lot of programs and have done a lot of things within Toyota to try to offset healthcare costs.
One of the things that we’ve done has been, a few years ago, we physically have an on-site pharmacy for our team members to be able to purchase their prescription medication and over-the-counter medications. Most recently, in our new facility that we built in San Antonio, Texas, we built an on-site healthcare building and facility there. And there’s not only a general practitioner, but some specialty practices, and they’re going to vision, dental. So that’s some of the things that we are doing internally, again, because the healthcare cost is so burdensome.
So national healthcare could certainly have an effect. It could go either way, but it could certainly offset a lot of the costs, possibly, that occurs with any company.
SEAMAN: Let me just add, we also have an on-site pharmacy, and we’re in the process of looking at things in the future like an on-site medical clinic to basically try to control these escalating medical costs. It’s a huge component of our product costs.
I think like we’re talking about looking at this, we basically couldn’t sit back any more and take the medical inflation rate, which has been just absolutely out of control. So we have to take a proactive step to do that, and we’ve had great success with our on-site pharmacy. A lot of companies are really adopting this and really taking, kind of, matters into their own hands to try to get some of these costs under control.
McDONALD: I guess for us, healthcare is not a local negotiating point, it’s a national. Our union plants are all like Lincoln and Lexington, Kentucky. They have been around. So that’s the thing that the workforce is really going to be focused on and very sensitive to. So it will be interesting.
We’ve done some things in the ’05 negotiation to help spread that cost out, but I think Dave talked about it last night, the wellness piece. Putting the ownership on the individual to take care of themselves is kind of the direction we’re going. I think everybody needs to do that. You’ve still got the issue of escalating healthcare costs, so we’re trying to spread those costs out.
WALLIN: I know that’s one of the things, too, Bob, we’re doing in our facility. This is something more recently. As I say, we built the on-site facility down in Texas, but we’re doing well-care now also, where our team members can go to our internal medical services. But it’s that well-care thing, it’s really the preventative-type thing to keep your employees healthy.
VAVRA: And very often, it’s not just your employees, it’s their families as well. If you have to take time off of work to take care of a sick child or a sick parent, you lose as much productivity out of that worker as you would if the employee is gone themselves. So this concept of 24/7 healthcare and wellness care for not just the individual, but the families, is an increasing hot button for a lot of companies. They’re starting to see that the opportunity to provide wellness for the entire family is a benefit for the employee, and it’s a benefit for the company, and it can really drive some productivity.
AUDIENCE: As our company has started to look at that is, there is a significant number of issues about the people who do the work and the processing and the development of those products for any one location. Are you seeing a move or are you already in more of a centralized support engineering service so that regardless of whether the individual is in the States or Europe or South America or China, they understand the manufacturing engineering type processes and tools and can go almost to any of those sites without maybe even possibly a language barrier, be able to step right in and perform; or are you much more individualized, and we do it this way in the States, and we do it another way? We may still build the same car, but after that, an individual going into another location, you might as well ask somebody at a BMW factory to hire somebody from Ford and train them rather than bring an individual from another location.
SEAMAN: Well, I think our processes are fairly standard. I think a lot of the process design of the — let’s say the line layout of a body shop or an assembly shop, whatever it may be, we certainly have a center of competence for those in our headquarters in Munich, and they collect there basically the lessons learned and the best practices from all facilities and so that the next one we do is a little bit better. So there’s a lot of commonality of equipment in the facilities and in the processes. So that’s the technical side of it.
The human side, though, is as important because, obviously, you can’t take a couple thousand people from South Carolina and move them to India or China, so the local labor has to be there. There’s a strong cross-training component of basically training the trainer — or the “meisters,” as they’re called in the German factories — that you take contingents of people from the local country, you bring them to your factory or other factories, train them in the methods and techniques, and then basically, they bring that back to their local factories along with some of the experts coming to come into the factory to help them make that transition so that ultimately, they can stand on their own two feet. It’s not going to happen from day one, but that human component of that transition is extremely important.
And there’s maybe another small addition to your question, and that’s building the product at multiple locations or one location. That’s something that we get into a lot of discussion about because a lot of the tooling costs, if you have multiple locations, you have to have multiple presses or dyes or whatever, and there’s huge costs in some of those products, in some of those tools and equipment. So that all has to be evaluated from a financial standpoint to figure what the best approach is going to be.
And maybe, Jamie, with the strong international presence of Schneider, maybe you’ve got some comments as well.
McDONALD: Well, we do the same thing. We will have one location that’s basically the feeder spot for the rest of the world in components. We also have some pretty aggressive localization efforts in China and India. We’ve got development centers in India, China, Mexico, Europe and the U.S. It’s kind of a centralized/decentralized approach. Grenoble really owns the designs, and they control, to a great extent, the rest of the design centers and influence them and provide a lot of the experience and knowledge to those design centers and really oversee to make sure that the product in China is the same product as it is coming out of Europe.
WALLIN: From Toyota’s standpoint, of course, that’s our focus, is to build the product where it’s sold. So early on, I guess our emphasis as far as Toyota’s direct involvement on plant manufacturing in North America, when we started in Georgetown, the trainers and the experts from Toyota had to come from Japan and train our people. We had Japanese trainers that worked with our folks and basically instilled the processes and the standardization of the Toyota way, and they were there for some time and worked with us and then went back to Japan.
As Toyota has grown and built more plants in North America, we are becoming more self-sufficient within North America. So as we build new plants — I think maybe the term “ceding” would be a good thing. We also send people in pilot teams and experts that now go and support those new facilities. So for myself, when we built the plant down in San Antonio, I went down there and was involved — I basically was responsible for construction project management for all the on-site supplier plants that we built down there. We had folks that come from all the different shops that came in and supported the start-up.
So to your point of standardization, that’s where that standardization comes in. So for us, Toyota Motor Corporation of Japan is still the overall foundation, and that’s distributed out worldwide. But, again, as we’re becoming more “build it where it’s sold,” we’re becoming more self-sufficient in all the different countries.
We had people that went from Georgetown to San Antonio. We had people go from Georgetown to Indiana. With the new plant that we’re building in Mississippi, it will be very similar. We will have folks who will go down there on dispatch assignments and may work one to two years to help get them started and build those foundations and get them up and going, and then we will have folks who will stay there and continue their career at the new facility.
VAVRA: Again, congratulations to our Top Plant winners this year from BMW, Square D and Toyota. We’re very appreciative of the kind words we’ve received from all of you on the award, but Plant Engineering magazine is very proud to be able to honor three facilities like yours.