reading the articles and answers question

1

The Case of the Screw Machine Mutiny Adopted from Bruce Chew / HBR

"You can't be serious!" Mike Trail, the president and fourth-generation owner of Trail Manufacturing, stared at five older men standing uncomfortably in his small office.

“I’m afraid we are, Mike." Sandy Mulder, the most senior of the five, was polite but firm. "We won't switch over to the new equipment. We want to continue to work on the screw machines."

"But we've already bought the equipment." Trail's voice rose, caught somewhere between pleading and outrage. "You're due to start training in three weeks. You knew you'd be switching over; we've talked about this for months."

"We won't do it," Malcolm Thierry, another member of the group, stated more forcefully. "We'll quit first."

"Is that a threat?" "No," Sandy answered quickly. "At least

it's not meant as one. Hell, Mike, I've been here longer than you have. But we just can't switch over to the new equipment."

Trail Manufacturing was a small midwestern manufacturer trying to define itself in a new world of competition. It built cable crane componentspulleys, hooks, bins, and other integral parts of crane systemson aging, general-purpose screw machines in the Benton Harbor, Michigan plant it had occupied since its founding in 1903. The company's broad product line and willingness to customize led to success in selling into the heavy materials handling market, where overhead systems unloaded rail cars or moved steel coils through large factories.

Mike Trail grew up working in the factory, but in the early 1970s he headed for Chicago to work as an engineering

consultant. In 1983, at age 36, he returned to take over as president of Trail Manufacturing. The company had foundered during the recession of the early 1980s. Factory construction in the United States virtually disappeared, and Trail found itself almost exclusively in the replacement parts business. To make matters worse, small suppliers in other industries, also hit by recession, began looking for new outlets for products made on their aging screw machines. Several of them entered the materials-handling components business, making a bad situation worse. Trail's volume fell by 40% and profits virtually disappeared.

Mike Trail slashed factory and office jobs and sought new markets to capitalize on Trail's machining capabilities. He was forced to lowball prices to win business, but with labor and administration cut to the bone, the company survived. When the recession ended, Trail's business revived. As sales rose, many in the company argued in favor of jettisoning the small orders that had come into the plant during hard times. Mike, however, saw potential in that diverse set of low volume-jobs. The bigger the company's portfolio of customer industries, he reasoned, the more recession-proof its sales.

But Trail Manufacturing faced a dilemma. Its equipment lent itself to the high-volume, stable products it traditionally made; the long setup times on its six-spindle screw machines meant the company needed big production runs to achieve economic order quantities. Yet Trail lacked any distinctive competence in this high-volume market. Lots of companies had general-purpose screw machines, and some were much better maintained. In small-volume markets or in

2

markets with rapid product change, Trail simply could not compete.

Mike decided that new technology would make it possible to pursue new markets effectively. He decided to refit the factory with flexible manufacturing technology that offered economies of scope as well as scale. To help him refine his vision, he turned to Marco Duncan, his chief engineer. Marco had joined Trail after several years at a major auto company. Soon after he signed on, he single-handedly converted Trail's engineering staff from a traditional sketch- by-engineer and blueprint-by-draftsperson operation to a computer-aided-design (CAD) process. He accomplished this in the face of opposition from design engineers, draftspeople, and, to some extent, Mike himself.

Marco plunged into the flexible technology project with enthusiasm; he considered the factory an anachronism. Mike and Marco spent several months touring other plants, talking with vendors, and meeting with consultants. At a nearby suite of offices, away from the day-to-day headaches of the company, the two hammered out the vision that was to take Trail Manufacturing into the next century.

At the heart of that vision were eight numerically controlled machining centers, each with its own materials-handling robot. The eight flexible machining cells would replace Trail's 28 six-spindle screw ma- chines. This move was not as radical as it might sound. The 11 oldest screw machines could no longer hold the necessary tolerances. They would need replacing even if Trail did not move to a new technology.

Nor did the plan represent an unreasonable financial gamble. The flexible machining cells cost over $400,000 each. With the necessary mainframe computer and support equipment, the project's total cost exceeded $4 millionmore than twice the net book value of the company's property, plant, and

equipment. But Trail's conservative financial structure made it very creditworthy. Attractive loan terms from local banks and training subsidies from local government moderated the financial risks even more. The troubles of the U.S. auto industry taught Michigan's banks and politicians the importance of making healthy companies healthier.

Mike and Marco recognized that the conversion of machining would be a huge change for the organization, so they moved to deal with rumors and employee concerns as quickly as possible. Mike reserved a nearby auditorium and unveiled the plan before virtually the entire company. He explained that when the new technology arrived the company would begin a new era. Time clocks would be eliminated, all employees would be salaried, and each would be given ten shares of the company's privately held stock. (Total employee ownership would represent only 6% of outstanding shares, but Mike believed it served an important symbolic purpose.)

Following the presentation there was a question-and-answer session that lasted into the night. Most of the questions came from the hourly work force, whose greatest concern was job security. Mike sought to reassure them. "We lost a lot of good people when business went sour. This plan is designed to protect jobs, not replace them. No one will hit the streets because of the new equipment. But we're going to need significant changes in the nature of work and attitudes from both hourly people and managers."

Still, the reception was not enthusiastic. Marco later recalled that if there had been a vote it would have been 124 against change and 2 in favor. "But one of the two has his name on the building," he quipped.

Mike and Marco pressed on. They worked with a local community college to develop a training plan to teach employees

3

computer programming and the operation of the new equipment and robotics. The entire work force went through introductory ses- sions. Marco then asked for volunteers to form the first three teams of five members each. The volunteer teams tended to consist of younger employees with some computer experience. Once the equipment for a machining center began arriving, the designated work team received advanced training. When the training was complete, and the equipment installed, the team became responsible for the 24-hour, 7-day- a-week operation of the machining center.

Marco anticipated startup problems, and he was right. The first flexible machining cell did not produce a shippable product until the end of its third week of operation. When Team One shipped its first complete order, 29 days after startup, the screw- machine operators presented a bottle of champagne to the team. "It got to be embarrassing," a member of Team One recalled. "We were busting our humps with the whole plant watching, and we were still turning out garbage. I think even Mike was starting to sweat. Thank God we finally began shipping product and they started up Cell No. 2. That finally took the heat off of us."

Six months after the first equipment arrived, four cells were up and running, Team Five was in training, and things seemed to be going smoothly. At least that's what Mike thought before Team Six showed up in his office.

"What's this all about?" Mike, genuinely puzzled, asked the men. "Why don't you want to operate the new equipment?"

"There's no reason for us to operate it," Malcolm shot back. "We've shut down all the old junk; now we're running only the newer screw machines. They work great. They take a long time to set up, but who cares? We're only using them for the high-volume jobs. The low-volume stuff is

already on the new machines. I think it's probably best for everybody if we just stay where we are."

"We can't stay where we are," Mike rebutted. "You guys are well aware of the plan. What's really going on? Is it the hours? The weekends? Is this about higher pay?"

"It's not any of that stuff," Sandy replied. "We're not thrilled to work longer shifts and weekends, but four days on, three days off will be OK. And the pay is fine. If it was just money, I'd have left here years ago.

Mike knew that was true. Sandy was a highly skilled operator who had received offers from other companies in the past. He had been hired by Mike's father and had trained most of the people in the plant, including Mike when he was a teenager.

"I still don't see the problem," Mike insisted. "The new equipment will make your job so much better."

It's like this, Mike," Sandy said haltingly, searching for words to express his point of view, "I'm a screw-machine guy. That's what I do, and I'm good at it."

"Of course you are, Sandy; nobody's arguing with that.”

'Well, I'm not so sure I'll be as good a computer operator. Bernie's got two, three times my experience with computers, and he and his team barely got the first cell running in a month."

"Sandy, we've got training to help you out."

Yeah, yeah. I know there's training, but me and some of the guys are a little old for school. We're a good team now. We pull together and we cover for each other. If you spread us around nights and week-ends, we can't do that anymore."

"We've been through all this before," Mike answered testily. "We can't afford to have this new equipment sit idle for 16 hours a day. It has to be run around-the-

4

clock. Sandy, if you're worried about your ability to run the new equipment..."

"I didn't say I couldn't learn to do it, OK? I'm just saying maybe I don't want to. I like my job. That's not such a bad thing. When the union came sniffing around here two years ago I told them I liked my job and I told the other guys that we didn't need anybody else in our plant. I told them you understood the plant and you'd be square. Well, we're telling you now, we won't switch. Maybe we're wrong. Maybe we're just old and stubborn," Sandy grinned. "Or maybe you're just young and stubborn."

That night Mike Trail met with Marco Duncan, shop manager Darrell Montgomery, and Bob Block, the company's CFO and treasurer.

"I'm open to suggestions," Mike announced after recounting the scene that had taken place in his office earlier that day.

"Amazing," Darrell answered. "I knew they weren't enthusiastic about the switch, but I had no idea they'd pull anything like this!"

"Were there any warning signs?" Mike wondered.

"None." Darrell thought back over the past few weeks. "I mean, there was some complaining, but all the nonvolunteer teams kicked a little bit before the switch. And the startup problems left a bad taste in everyone's mouth. But once the switch is done, the teams have been OK. Team Four's working fine now, and I expect Team Five will too."

"That's all water under the bridge anyway," Marco interjected. "What we have to decide is how to respond. We can't permit the screw machines to remain in operation. That defeats the whole plan."

"Let's just take a minute on this," Darrell said. "What if we do keep the newer screw machines? They still hold the tolerances."

"That's not the issue," Marco shot back. He began to pace back and forth, much as he

had when he and Mike originally created the technology plan. "The problem wasn't just old machines. The problem wasand isthe whole company. We have been an inflexible company with inflexible machines and inflexible people. This whole fiasco just reinforces that. We need a clean break with the past.

"Last week's a good example," he continued. "I'm talking with Rockwell's aerospace people about contract machining. On these jobs, we wouldn't even purchase materials. We'd be a machining center for them, like part of their own process. High-tech stuff that uses our expertise: prototypes now, then ramping up with them. We'd practically be partners. In the middle of this, Stan's all excited because he's sold a job making lawnmower spindles: one-shot deal, low margins, no engineering, huge volume so it would tie up two or three cells for a couple of months. That's not the kind of business we want. If the screw machines are there, the salespeople will still sell the old way to fill them up. Over time, the whole plan could unravel."

"What should I do?" Mike asked. "I can't imagine firing Sandy."

"You can't," Darrell spoke up quickly before Marco could answer. "Mike, you know what Sandy means to this place. If it weren't for Sandy and Malcolm and a couple of others, we never would have survived the startup. They bailed us out. I told you that it was going to be tough to teach the operators to write and modify software. Half of the guys are scared to touch the programs and the other half won't quit tinkering with the programs we've got. Some of the guys who are good at software still go to Sandy when they're writing a tricky job to talk about speeds and cutting sequences. We need him. Just give me some time on this. Now that I know how they feel, we can bring Sandy and the guys around."

5

"That hasn't worked out so well in the past," Marco countered. "When engineering didn't want to go to CAD we waited and waited. They never came around. We had to eliminate the draftspeople to get them to make the effort to learn CAD."

"Waiting's got other problems," noted Bob, weighing in for the first time. "It's taken me six months to find a buyer for the screw machines. I finally found a guy in Canada, but he's in a rush. If we don't sell them to him it could be a year before I find another taker. There are a lot of screw machines on the market. And with four million bucks in this project, we could use the cash."

"We can't have the old machines in the plant for another year," Marco said flatly.

"But let me take a different cut at this," said Bob, shifting gears. "Mike, after we talked this afternoon I pulled together some of the numbers on sales by department. With half the new cells up, the screw machines are running a lot fewer jobs. But they still account for over half our sales and even more of our profits."

"That's not true," Marco interrupted. "The CNC jobs have much higher margins."

"Those are your projections, Marco, not reality," Bob corrected. "Those margins reflect sales increases we haven't had yet and a much higher utilization rate than we have now. The operators are still working on the software, and we haven't seen the

productivity numbers you had figured on either. The CNC operators are producing at about the same parts-per-hour rate they were on the screw machines."

"But that's just a better reason to switch over the remaining volume," Marco insisted. "They're long-run jobs. They'd raise utilization and free up the operators to work more on their software skills."

"Hold on. We aren't switching anything for a while," Darrell announced. "The software's not written for those jobs yet."

"That's supposed to be done," Marco protested,

"Well, I doubt we can get it ready for the scheduled switch-over next month. We could go outside and stay on schedule, but it would cost a bundle. And I'm not so sure we could get the quality we need."

"Do Sandy and the guys know this?" Bob wondered.

"I don't know. It's no secret, if that's what you mean."

"So maybe the guys are right about keeping a few of the screw machines running," Bob suggested. "But I sure don't like the way they've gone about it. I feel like we're being blackmailed."

"Not me," Mike spoke up at last. "I feel like Columbus on the verge of discovering America, and my crew is announcing that the world is flat after all and we're going back to Spain.