AMERICAN MACHINIST's SURVEY OF MACHINE SHOPS PROVIDES tools that machine shops can use to gage their competitive positions and to systematically improve their operations to become more competitive. We used results of the survey to establish benchmarks—the practices that consistently lead to improved productivity and profitability for the U.S. machine tool industry. We presented a summary of the information last month, and identified 12 key indicators that leading machine shops excel in. This month we examine some of the tools and techniques that the best shops use to monitor and improve their performance.

The 2006 AMERICAN MACHINIST Benchmarking Survey provides an enormous amount of data on the state of U.S. machine shop operations. Some common traits emerged from an analysis of data from that survey, and those traits were reinforced in interviews conducted with benchmark shops.

The common features of the best shops—those with the highest growth and profit—are that they have developed an ability to attract and retain good employees and an ability to motivate their employees to take ownership of the work they do. Those shops also have made a successful transition to primarily short production runs while maintaining a strong focus on keeping their machine tools making chips.

However, several anomalies also appear within the benchmark data. For example, the median wage paid by benchmark shops is, on average, $0.77 lower than other shops and yet 62.7 percent of benchmark shops have their employees making operating decisions without supervisory approval. Meanwhile, only 45.3 percent of the other shops empower their employees to make decisions. How can shops that pay less demand, and apparently get, more effective work from their employees?

An analysis of results from the survey identifies several tools and techniques used to improve shop performance, but use of those tools is not standard, and depends on the individual characteristics of each shop.

In interviews with the benchmark shops that identified themselves in our survey, we found a great deal of individuality, but common themes. Here are several shared principles that emerged.

BEST SHOP TOOLS

Money is not the only motivator
All of the companies interviewed pay average or slightly above average wages for their area. Some have profit sharing and bonus plans, some don't. All provide health insurance for the employee, and usually for employees' dependents. But the way in which the employees are treated emerged as the most important motivator.

Most of the companies interviewed had some form of flextime implemented. One company worked 10 hours per day Monday through Thursday, and work on Friday or Saturday is overtime. Most companies were "flexible" about employees taking time off when they needed to and then making it up later. All of the companies emphasized that they treat their employees as responsible adults, and that is the way their people act.

"Just giving the employees more cash is not necessarily a strong motivator," said one shop owner. "Our guys can make $5 more per hour at the nearby aerospace company but they stay here because of the way they are treated here. We treat them with respect. When they have a suggestion or a complaint we listen to them and, if possible, we act on it. Communication is the key."

One shop gave each of their employees a $100 gas credit card to be used on their vacation. Most of the people interviewed said their company was a "fun place to work" not because of 'popcorn Fridays' or monthly barbeques, but because everyone was respected and treated as a valuable employee.

All of the benchmark shops interviewed have low labor turnover and most are in a sustained growth mode. One shop hires contract machinists for a few months and then either offers them a full-time job or replaces them with another candidate. Another shop always looks for fully qualified people and hires them whenever it can. Most shops hire people with little experience—from high school or trade school programs—then provide training on the job. "We like to find people who want to get into the field as a trade and we'll train them up," a shop vice president said. More than one shop owner has found that by paying $4 or $5 above what McDonald's pays they can get the 'pick of the litter' from the local labor pool.

Top 20% Other Shops
Median wage for shop floor personnel $14.75 $15.52
Median wage for set-up personnel $18.00 $18.00
Shop-paid medical benefits 86.3 % 67.7 %
Annual review and raise program 86.3 % 66.2 %
Employee training program 80.4 % 52.8 %
Education reimbursement 76.5 % 53.3 %
Leader/supervisor development 52.9 % 27.2 %
Bonus plan

49.0%

36.4 %
Profit or revenue-sharing plan 43.1 % 31.3 %

HEALTH CARE COVERAGE PAYS DIVIDENDS PART
"Our health care costs were going up every year so I planned to start charging the employees 50 percent of the cost to cover dependents. Some of the guys I had trained over the years called me into a room and said the best people we have are the married guys. They always come to work on time ready to do their jobs where the single guys don't always show up on time and sometimes we have other issues with them. So now you're going to penalize our best guys with an increase in their health care because they have families? We went back to full coverage on the dependents and the hundred dollars or so it costs us per employee is money well spent."
—President of a medium-sized machine shop.

SOMETIMES BLUNT WORKS
"We had a lot of shops going out of business in our area. I saved all the auction notices from their bankruptcies for about 6 months and then at a regular employee meeting I dumped them on the table and told the people that I need their help to keep our name out of that pile. They got the message."
—President of a medium-sized machine shop.

IT'S BETTER THAN JUST MONEY
"Every quarter we have a luncheon and if we made our goals we give everybody a certificate they can use to take their wife out to a nice restaurant for dinner. I found that provides more incentive than just giving somebody money. You take your wife out to dinner on the company and what do you think she is going to be talking about to her friends for the next few months?"
—President of a 34-person job shop.

Getting the most from good employees
62.7 percent of benchmark shops have more than 25 percent of their employees making operating decisions without supervisor approval. Meanwhile, only 45.3 percent of other companies do.

Motivating employees to take ownership of the work they do was a recurrent theme in the survey. All of the people interviewed agreed that most of their success comes from getting the people who do the work to take pride of ownership in the finished product. Once you accomplish that sense of empowerment it becomes possible to realize substantial productivity gains on a regular basis.

All of the people interviewed said good communication was critical to their success, and said they have regularly scheduled meetings to exchange ideas, air complaints, talk about the work they just finished and the work that was coming up and, in general, get everyone working on the same page. Some shops use extensive work tracking systems, some do not.

The transition to short-run/lean production
Without exception, all of the shops interviewed deliberately made the transition from long production runs to short runs. Where runs of 1,000 or more pieces were normal 10 years ago, today almost all of their production runs are less than 100 pieces, and runs of 5 to 20 parts are the most common. This transition was embraced as being necessary to meet changing market demands, and has become the central focus around which all operational processes are developed.

Top 20% Other Shops
Lean Manufacturing methods used 88.2% 41.1%
Formal continuous-improvement program 51.0% 27.4%
Environmental management techniques 43.1 % 23.2 %
Total Quality management methods 41.7 % 16.8 %

IT'S THE ENVIRONMENT
"The biggest thing we maintain is a good environment in the shop. We're a family-owned business and once a month the owner cooks a dinner for everybody in the shop. We have a 1-hour dinner meeting and tell everybody what is going on with the business. During the month the owner and I spend a lot of time on the floor talking to the operators. Our number one control is being on the floor and listening to the operators. They are the ones that know what's going on, where we have problems and where we have opportunities"
— Plant manager of an OEM operation

IT'S ALWAYS CHAOS
"It's always chaos on the shop floor but if you have the tools in place to identify what is really important, what's happening, what's going on, then you can work within that chaos to identify problems and look for solutions."
—Engineering manager for a 40-person OEM machine shop

THINK
"One of the keys is to be open and thinking outside the box because someone might turn you on to a good idea that can really make a difference. If you have good employees then they want to do a good job. Make them aware of what the costs are and where they come from, and then listen to them when they come up with an idea."
—Owner of a 5-person machine shop

Almost all of the shops interviewed use practices common to Lean Manufacturing to make the transition from long to short production runs, but most of them do not use the normal Lean Manufacturing terms. "If you start using the Lean Manufacturing terms to the average American machinist, he'll look at you like you were nuts," said one manufacturing vice president. "A lot of us have been through a lot of Lean Manufacturing training, but we don't use the traditional Japanese words. We have used the concepts and express them in our own language so that we can get everybody on the same page. It used to be that a good machinist was part mechanic, part artist who used a little bit of magic and a lot of talent to make a part. Lean Manufacturing is all about standardization to know where you are and to know when things are going wrong. The challenge is that it's hard to be disciplined and to do things in a standard way but when the guys actually do that then it becomes easy for someone to suggest a new way of doing things and we can try it out for a day or so to find out if the new idea really is an improvement."

One company has an extensive production-tracking system and uses it to reduce costs, not track them. "We can look at an operator's production or a machining center's production hourly, every few hours, daily, weekly, or in any other way we want to," said the company's senior engineer. "We use that information to identify problems almost as soon as they start so that we can focus on correcting them before they get too far down the road. We definitely look at production rates, and if we see something, good or bad, we go in and try to figure out why. If an operator is struggling with a job, we try to figure out why and fix it. If we see something that a guy is doing better than expected, we try to incorporate that into the operator instructions so that everyone gets that improvement." That company also has regular meetings to discuss ways to reduce costs and has a system where anyone on the shop floor who is not happy with the way a process they are working on, or who has an idea on a way to improve a process, can communicate that to management, and management always responds to those ideas.

Another shop looks primarily at two simple measurements: cost of scrap as a percentage of sales and amount of overtime. "If either of those figures gets higher than projected, we immediately try to find out why," said the company's president. "We budget for some overtime and expect some scrap, but when those costs go outside the budget lines, we know that we are having a serious problem somewhere and need to take corrective action."

Most of the smaller shops—one-to five-person operations—do less formal tracking in part because they are dealing with smaller quantities than the larger shops, and in part simply because the shops operate more informally. Labor turnover rate is usually much lower in smaller shop so everyone gets to know everyone else very well. They know each other's strengths and weakness and they know that if they don't do a good job it will hurt the company more than if they were working in a larger operation. But even in smaller operations, good communication and a regular process for doing jobs better is critical to success.

"It used to be that all the ideas for improvements came from me," said the owner of one small shop in the benchmark group. "Now my guys are coming up with ideas for jigs and fixtures to improve our productivity. They have gotten into the habit of looking for ways to save money and do our work more efficiently. They have real pride of ownership in what we make, and we have not had a part returned or rejected in the last 10 years. We are all looking for ways to do the job better."

JOB COSTING? WHAT JOB COSTING?
"We used to have a full-blown, complete job costing and scheduling system and what we found as we got more and more lean, and doing smaller and smaller batches, that the information was more and more out of date. So we developed new tools internally. Our scheduling system is now an Excel spreadsheet. Every work cell has its own schedule, and we have a computer in each cell with an Excel spreadsheet controlled by a master sheet. This gives everyone full visibility, allows us to make changes if needed and still stay on time. If a rush job comes in, we can tell the customer down to the hour when it will come off the machine."
—Vice president of a 90-person machine shop

LABOR IS A FIXED COST
"You need to think of your people as a fixed cost, not variable labor. We're going to pay people to be here for forty hours or more a week, so we need to find a way to keep them occupied productively for that time. Companies usually don't think of labor as a fixed cost and so they spend a whole bunch of time tracking it for no good reason."
— Vice president of a large machine shop

It's not how old a machine is but how well it's used.
The types of equipment that benchmark shops use vary from manual machines to the latest CNC machines. The oldest machine in one shop was only four years old, and the newest machine in another shop was already more than eight years old. Regardless of machine type and age, all of the companies paid close attention to machine uptime and use. 74.5 percent of benchmark shops maximize machine cutting and use tooling presets, while only 39.8 percent of other shops maximize cutting and only 38.7 percent use tooling presets.

"The last couple of years we've gone to barfeed operations instead of loading single parts," said a plant manager. "Stick a big machine with a barfeeder in a work cell and there are no additional labor costs, but you have to balance the cycle times among the machines in the cell to get the most out of it. Most shops seem to be in a big rush to do everything faster but the trick is to think the whole process through and balance the cycle times."

"We have a lot of old equipment and didn't have a planning department, so part designs went to the floor and the operator was responsible for figuring everything out, coming up with fixtures, doing the programming, assembling all the tools and material," said a vice president of manufacturing. "There was a lot of wasted time, so we started a manufacturing engineering department equipped with Solid-Works and GibbsCam and those people handle everything. They do the programming, make the fixtures, work up the procedures and tooling and deliver everything to the operator on the floor as a total package. Then they walk the operator through the process the first time to debug it and make sure everything works the way it should. That has not only improved our machine use but also cut down on scrap.

"We do everything we can to keep our machines up and working. Every hour a machine is not making chips is an hour we lost that can never be gotten back," said another president. "When we schedule a job we take into account the jobs that come before and after that job. We try to schedule jobs so that we don't have to change tools in the machine between jobs. Ideally, each job will use the same tools as the last one, or at least only use the tools that are initially loaded to the tool carousel. Every time you have to put a wrench to a machine you are losing money."

One company usually makes complex parts that require as much as three hours to inspect before production can begin. "The part takes about two hours to make, but that three-hour inspection time is killing us because we can't begin production before we are absolutely sure everything is right," said the company's president. That means at least three hours of down time on every run. So we just bought a new CMM machine that will cut our inspection time down to about 30 minutes and save us a ton of time."

"We document all of our setups," said one shop owner. "It's a lot more paperwork, but it results in a lot less scrap and a lot more productivity. Most of the benchmark shops interviewed document their setups to reduce setup time and scrap.

Median values for:

Top 20% Other Shops
Machine cycle time (hrs) 0.2 0.6
Set-up time (hrs) 1.3 1.5

Customer order lead time (days)

15.0 20.0
On-time completion rate 95 percent 90 percent
First pass quality yield 98 percent 97 percent
Scrap and rework percent of sales 1.6 percent 3.0 percent
A CRISIS IS ALSO AN OPPORTUNITY
"In 1999 and 2000 we had a severe energy crisis here in California and everybody was putting surcharges on for energy. Our energy costs doubled but since energy is only about one percent of our total costs we figured that if we went to a second shift we could cover the cost increase and even save our customers some money. We went to our customers, told them what we wanted to do, asked for more business and got so buried with work that we went to three shifts and haven't stopped since."
—President of a California job shop
CHINA AIN'T SO TOUGH
"Most companies outsource to China because of the cheap labor. We found that it costs about 25 percent of a part's total cost to bring it in from China, so we figured that if we could get our labor costs down to about 25 percent of our total costs then it didn't matter how low China's labor costs were because by the time they got the part over here it would cost the same or more than our labor rate."
— President of a 50-person machine shop.

Scheduled downtime is better than broken down
Only 40 percent of benchmark shops' machine maintenance is reactive, while 50 percent of other shops' maintenance is.

"We can schedule preventative maintenance so that it does not cost us too much time," said one president, "but when a machine breaks down it can wreak havoc on our production plan. It used to be that we had a lot of machines scattered throughout several departments, so if a machine broke down, we could usually find another to take up the slack while we fixed the broken machine. But now that we have gone to work cells, if a lathe or other machine in a work cell breaks down then that whole cell is down while we do repairs. That is why we do a lot of preventative maintenance and have a strong maintenance staff."

"In the last year and a half we have implemented a very extensive preventative maintenance program but still need to do more training in maintenance to keep our machines up," said one vice president. "We'd rather schedule down time than have broke schedule our time."

Thinking outside of the box is more than a clichè.
Thinking "outside of the box" has become a clichè, but that is exactly the type of thinking all of the people interviewed are doing, and it is not just shop owners and managers. The benchmark shops have found ways to motivate their employees to do the same type of thinking.

"Your people have to be the ones to embrace the lean concepts and motivations that we need to survive and grow in this marketplace," said a president who's company is one of the top performers in the benchmark group. That same company would have been near the bottom of the survey respondents just three years ago—high employee turnover, very little idea of where the problems were, let alone how to correct them, and operating in desperate survival mode instead of the growth mode they are in today.

That company, and several of the others interviewed, proves that it is possible for U.S. machine shops to go from near-bankruptcy survival mode to solid performers with strong and promising futures. The key seems to be to get a clear idea of where you are today, decide where you want to be tomorrow, and then develop a plan on how to get from today to that promising tomorrow.