Sprague Electric Company, Brown Street,
SAVING BROWN SREET
PART I INTRODUCTION
Sprague Electric’s Brown Street plant (renamed Commonwealth Sprague Capacitor, Inc.) was failing fast in 1989 when I became Vice-President-General Manager. Over the next 5 years, my changes streamlined the business, dramatically improved productivity, gave birth to new technology. Sales doubled. Profitability went from loss to excellent. This post will tell describe the business, the people, the problems and their solutions.
My background was a blue-collar home, a degree in Industrial Engineering, an Executive MBA, and solid experience in factory management.
PART II HISTORY OF THE BUSINESS
Circa 1925, R.C. Sprague set up his capacitor company in N. Adams, MA, a small city located in the Berkshire Mountains in the northwest corner of Massachusetts, bordering New York state and Vermont. The town sits in a bowl-shaped valley at the top of a high mountain. On my first drive there, I thought I was driving up to heaven it was so high. The Housatonic river flows though the town, and during the Industrial Revolution its flow powered water-wheel driven textile mills. As textiles moved away, Sprague’s manufacturing moved in to fill these mill buildings. By its peak during WWII, Sprague occupied 41 of these mill buildings and employed 6,000 people in a city of 25,000. Sprague was the leading capacitor maker in the US, with products ranging from tiny pill-sized capacitors used in space shuttles to refrigerator-size cabinet units used at electrical substations. Sprague’s design and manufacturing quality standards were the best in the industry. Sprague capacitors lasted for decades and often outwore the equipment they were installed in. Sprague’s scientists and engineers were the best in the industry. All product was life-tested and line-tested before going out.
Sprague’s competitors were General Electric, with its factories located nearby along the Hudson River and in Mexico; Aerovox, locate at the foot of Cape Cod, and Jard in Bennington, VT.
N. Adams was a one-industry town. Everyone worked for Sprague. They all belonged to a union, either the International Brotherhood of Electrical Workers (IBEW) or the Machinists union or the Office Workers union. Many lived close enough to walk to work. Managers generally lived a few miles away in the Williamstown, MA, or Bennington, VT, both classier college-towns.
The IBEW union contract was treated like a Bible in N. Adams. Isolated as they were in a one company town, its rules were all that they knew. They revered its many pages like the Old Testament, and similarly to the O.T., much of it no longer applied. Nonetheless, no one in N. Adams could think outside this Sacred Scroll.
Sprague operated profitably until 1986. Then, Reaganomics set in motion the takeover of manufacturing companies by financial manipulators. They used junk bonds to buy the companies then break up and sell off the pieces leveraged buyouts (LBOs). These LBO’s were saddled with heavy debt, requiring severe cost cutting. In most cases, these financiers had little understanding of manufacturing operations. Sprague Electric Brown Street operations plant was one of them.
PART III OPERATIONS OF THE BUSINESS
Sprague Brown Street had three product lines. First was motor run capacitors, each about the size of a cola can, used in air conditioners. They were sold mostly to air conditioner manufacturers in in the Midwest who were loyal, long term customers.
The next product line was called power-factor capacitors. They were custom engineered assemblies. They were in cabinets the size of a refrigerators and used in high-voltage power distribution. The product line was profitable and Sprague had a strong market share.
The third sales line was metallized-paper capacitors used in unusual, old-fashioned applications such as locomotive engines and military hardware dating back to WWII.
Sales for the Brown St operation in 1989 were $12,000,000 . Employment was 350 people during the summer time peak season .
The factory processes were:
-For motor run capacitors, electronic grade plastic film was metalized, slit to width, rolled into short cylinders, sprayed with zinc, assembled in to cans along an assembly line mostly of women, filled with dielectric oil under steam pressure, tested, shipped.
-Power factor capacitors were processed similarly then assembled into cabinets.
Assembling capacitors
-The metallized-paper capacitors required custom engineering and finicky assembly work. Only a few long-term employees knew how to make them.
Shipping from N. Adams was no treat. In the nineteenth century, N. Adams was a railroad hub; and transport by rail was easy. But by 1990, sitting at the top of a mountain in the snow was a major hindrance to business. Trains rolled by with lumber industry product, but Sprague relied on truckers. Those teamsters took their life in their hands getting to N. Adams over narrow mountain roads.
PART IV NEW OWNERS, NEW NAME, SAME OLD COMPANY
The new owners of Sprague’s Brown Street operation were George Baker and Dan Cavicchio. George had been a corporate executive and Dan had been a high-level business consultant. They formed Greenwich Venture Partners in order to get into the leveraged buyout business. Their home office was a three-room suite. in Greenwich, CT, 150 miles from the plant. In the first year of ownership, they practically lived at the plant. After that, they were there 4 days per month. Their plan was to re-structure this business to make it profitable, then repeat the same. This Sprague Brown St. plant was their first. Neither of them had had any shop floor work experience. It was quickly apparent that they needed some.
They hired Bob C. who had managed factories, albeit larger and in Europe. Bob bought a small percentage of the business to make himself an owner, too. Bob was a competent manufacturing executive, but the wrong one for this business at this time. It happens that way sometimes. They were mired in problems He was applying solutions that had worked for him in Europe, but they did not work here..
PART V THE PROBLEMS
The problems at the end of 1989 included the following:
Shipments of air conditioner capacitors were 6 to 8 weeks overdue. Customers were screaming. Sales of air conditioner capacitors surged every springtime and the customer production lines might have to be shutdown for lack of capacitors. At Brown Street, Bob and his production managers agonized over how to get their own production lines up to speed, but it only got worse.
Union work rules were a reason for much of the production bog downs. Increasing production required workers to be quickly and routinely reassigned to different jobs along the production line. But the union had a rule called “Job Ownership” that required job bidding based on seniority to make these changes. The result was job “bumping” that kept everyone playing “musical chairs” with their work stations. Managers had no control over who worked where on the assembly line. This “bumping” was crippling output.
Power Factor capacitors orders were sold with long lead-time for delivery, but were likewise weeks and even months overdue. The senior managers had meetings, ate sandwiches, and wrung their hands trying to figure out why. Sales people blamed the production supervisors, who weren’t in room to defend themselves, not that that would have helped. John K. had been the Production Manager but failed at that, so he was moved to being Sales Manager. He explained the problem as the factory being like a “WWII bomber flying with 3 engines shot out.” His metaphor didn’t solve the problem, but it humored the owners.
In Quality Control, no one would admit to being the QC Manager. Sprague quality procedures continued with 100% testing before packing, so product going out was good, but the failure rate in test was skyrocketing. This level of defect had never occurred before.. Instead of throwing them away the defective capacitors, the defects were kept in “Inventory” to making them look like assets on the Balance Sheet. If anybody had realized what they were doing, it would have been called bank fraud.
Surging Inventory levels tied up Working Capital. The defective capacitors were one factor. Another was a stockpile of pre-built components intended to smooth over production delays. It did not, and just added to the Inventory problem. There was also a huge stockpile of expensive capacitor-grade film from Japan. They thought that a shortage of it was going to happen. It did not. Also inflating the inventory were hundreds of thousands of obsolete capacitors made years earlier for the Nabvy, but never shipped. They stored in an outbuilding. With all this money tied up in inventory, the Owners were nearly exhausted their line of credit. The banks could take over the business..
This excess inventory raised labor costs by necessitating hundreds of manhours counting and re-counting it. They were applying the wrong solution to this problem.
The Production Control manager did not understand factory assembly line work. His suggestion was to implement a multi-million-dollar software program called to MRP to figure it out. In the meantime, he sided with Sales in saying the it was all the fault of the production supervisors for not rallying the workers to push product through.
In hopes of figuring it out, all the managers were reading books on factory management, but the wrong ones. They dreamily read World Class Manufacturing, which they were not, and it only confused the issue. John K. kept telling the supervisors to exhort workers on the assembly line to make greater effort as if they were a Chinese Army attacking up Pork Chop Hill. Exhortations were not working.
Overhead labor costs were excessive. Overhead factory support jobs include clerical, maintenance, material handling, inspection, and office personnel. These jobs had been set up back when the requirements were very different. No one could conceive of doing anything differently now.. Dan Cavicchio, the chairman, tried to implement a practice called Overhead Value Analysis (OVA) that he had used as a consultant to reduce overhead costs. No progress on it was amde. The management management team railed against the process. They called Dan an egghead and blew raspberries at him behind his back. They ignored his entreaties to apply it and cut back on non-production workers .
Maintenance costs were excessive. The plant engineer, a holdover from Sprague days, was an alcoholic with questionable ethics. He paid extraordinarily prices for maintenance supplies and services. He conned the owners into buying a new fire alarm system that was not necessary. He ordered the deluxe version for this old building. The chief engineer, Bill, was competent and always hepful.
Many union work rules in addition to “job ownership” slowed down production and wasted hundreds of hours of paid time. The union president, Bass, was irascible and wily. He had signs of being mentally unbalanced. My predecessor as General Manager, Bob, often worked late at night in the office. Bass would come in 3rd floor office at night work to see Bob and make special deals with him. The GM thought he was outwitting this union president, but most of the time it was the other way around. The most harmful deal was allowing workers to take their vacation one day at a time without any prior notice. Supervisors could never know who would show up for work so that they could staff the assembly line.
Bass vowed to go to arbitration to protect any employee who was fired for any reason. That encouraged trouble makers to shirk work and create trouble in the lines.
The office workers union was as much a problem as the shop union, but they were nicer and more subtle. The owners became familiar with them in the office, so the owners never questioned their delays, wasted time, or collusion to steal time. The owners were being royally screwed all by these sweet little ladies and guys, all of whom were protected by their managers.
Engineering problems went unsolved. All the Sprague engineers and scientists had been terminated and then rehired back as “retiree-consultants”. Their productivity went to zero. They acted like zombies.. Their co-workers now treated them as eunuchs. The Owners would sit and browbeat them for hours, like Chinese water-torture, to wring ideas out of them.
The HR manager, Woody, an ex-union president, wanted to show that he was doing something useful. So, he started a fistfight with the union president. Woody was fired. His replacement, a young woman, was brighter and more professional, but she saw herself as a representative of the employees, not the company. The employees already had their representatives: the unions.
The “piece-work” Incentive System was the key to hourly productivity. Output literally doubled when work was put on piece-work. The system, call WorkFactor, was basically in good shape, the workers liked it because they could earn more per hour. A review of the time standards was in progress when I arrived to tighten the standards. Both Bob the Gen. Mgr and Bass the union president assumed that tightening the standards would result in lowering worker take-home pay. Work standards were part of my training. I knew that might not case.
Sales levels remained strong, despite lack of attention and the customer pain. J.K. the sales manager spent his time holed up in his office and whining. His contribution as sales manager was to develop a new expense account form.
Security was poor. The office door was left open and anybody could roam the offices weekends or nights, use the copier, read mail, steal supplies. The weekend guard was a coward who quit at the first challenge during the strike.
The accounting manager, Tom, joined with the others complaining about the Owners. He hinted that they were tinkering with the 401K plan. When they were in the office, he was obsequious. He explained that he couldn’t get his job done because he was studying to be a volunteer fireman.
The general manager, Bob, was competent, seasoned, and dedicated, but in this case, he was the not the right person for this particular situation.
The Owners could have avoided these problems if at the time that they took over they had announced that it was a new company and totally renounced the Sprague history and all its traditions, and started with an entirely new slate.
Sprague had an environmental liability from use of PCB’s, a serious hazardous material, and asbestos. The liability did not affect day-to-day operation. However, PCB’s have an orange aroma that hung ominously in the air throughout the plant. Sprague had buried their PCB’s in barrels at the rear of the property and was digging them back up. GE emptied theirs in to the Hudson River where they still are. Likewise Aervox had emptied theirs in to the bay where they still sit there. The EPA warns not to eat shellfish from those locations.
There were some bright spots in 1989. The engineering manager (Bill T), purchasing manager (Clyde K) and the Power Factor sales manager were competent and often tried to be helpful. The much maligned production floor supervisors were making as much effort as possible and just needed support.
VII THE SOLUTIONS-
After joining the company as Operations Manager., my first step was to take firm control. Upon my arrival, some managers had accessed my personnel file and broadcast my salary information. That created dissension. I made clear that their behavior was unacceptable, unprofessional, and would not be tolerated. The Sales Manager complained that I was intimidating. Well, maybe, but it worked. The grumbling stopped.
After learning the factory floor, I became VP & General Manager and moved in to the top floor corner office. Changes then made included replacing supervisors and managers in production, production control, engineering, plant maintenance, accounting, and sales.. Working closely with the owners, instead of resisting them as the others had, my factory team launched into making changes in to turning around the business.
Because the factory mindset was fixated on the past, the overall solution was to “turn back the clock” and re-institute the old rules. The turnback started with a minor but symbolic action. The managers asked to have assigned parking restored in the parking lot. I did so swiftly, hiring an off-duty police officer to enforce the parking rules. The point was made. It, restored a sense of authority and dignity to the supervisors and managers. Thus re-empowered, they were ready to tackle the real problems.
The production bottlenecks were systematically eliminated with good industrial engineering. Within weeks, shipments were again going out on time. New peaks in shipping dollars were achieved. The keys to increased production were in keeping the assembly line fully manned and putting every job on the “piece work” system Also key was empowering supervisors take control back from the union and keep union stewards on the job, not running around roughshod.
The engineers and supervisors who were there as “retiree-consultants” were replaced with real professionals who had the energy to get the job done.
Union resistance was squelched by my new, “creative” interpretation of the contract. No “special deals” were made. The concept of “Job Ownership” was replaced by the creation of the “multi-job” which in effect rolled all the jobs into one classification. That allowed supervisors to assign workers where needed as needed. The union threatened with grievances. We said write all you want, we didn’t time to read them.
The union officers were no longer allowed to run rampant. When the Union president strutted off his job at 7:30AM to “go on union time”, it was his last time. He was fired. and stayed fired, despite visits from union bosses, the threats of a wildcat strike, and a public outcry in the newspapers. An era ended, and labor harmony began. Some union workers even came to me quietly with suggestions of further improvements to make. The late R C Sprague would have rolled over in his grave to hear that.
Quality Control was restored. Many of the improvements were elegant in their simplicity, such as demarcation flags between similar components in the assembly line to prevent defects.. Another was a halt to “equal distribution of work”, which was a contract clause written to prevent supervisors from favoring their lovers. It contributed to mix-ups of components on the assembly line.
Yields were improved. by 20%, saving material, labor, and overhead costs. Yield is the ratio of started product to shipped product, and yield is the key to profitability.. The new Operations Manager had a science background and understood the physics of the process.
As turned out, a major reason for the delays was sales orders being bogged in the interoffice mail between floors. Putting Sales and Production Control together in one room solved the problem. Sometimes the solutions are so simple that no one can see them.
Another leap forward was cutting the assembly time for power factor capacitors from 6-weeks to amazingly just 3-days. Again, the problems were in the paperwork, not the shop floor. The entire office staff resisted these changes in procedures, but with nuckle-grinding effort, the 3-day lead time became a big success.
Tighter time standards on the piecework system were implemented. The union protested and took the grievance to arbitration. but lost, because they did not understand the science of work measurement, but I did and could explain to the arbitrator. In the end, workersincreased their hourly output stayed at the same piece-work pay level. The net effect was that now workers in N Adams were as productive dollar-for-dollar on labor cost as the GE workers in Mexico making the same product.
Inventory levels dropped sharply. Raw materials stocks moved faster through the plant. The build-up of defects stopped. All the tens of thousands of defective and obsolete capacitors in Inventory were sold to an odd-lots dealer I met at a trade show. The dealer probably re-sold then to China, where they don’t care what they make or if it works. This reduction freed up working capital, cut wasted manhours, freed-up management time, and created space in the factory for new product lines.
Underachievers were targeted to improve individual performance. Two lists were made. One was those who needed more training, as was provided. The other was the “Shit List” of troublemakers. Everyone on that list was terminated including some with 25 years seniority. No case went to labor arbitration, despite the union’s vow to do so.
Overhead costs dropped sharply. The owner’s Overhead Valuation Process (OVA) was put in to practice. The “OVA” process was simply traditional industril engineering technigue that Allan was trained in and practiced for 20 years already.Dozens of unnecessary jobs were eliminated.
Plant engineering costs dropped sharply because the plant engineer was replaced with a competent and honest one. The owners were pleased and surprised that maintenance costs went down by $100K per year.
The Human Resource department was streamlined. The new HR manager, Dennis, knew hada no-nonsense managerial style with the union, and additionally improved the cost and effectiveness of the insurance benefit package. He carefully screened new hires to avoid hiring potential Workers Comp cases.
The Owners gave the Sales Manager, JK. A bonus to cheer him up, since he was overwhelmed. He took a bonus, drew his vacation pay, walked out and quit. His departure opened up the position to hire a talented new sales professional and move ahead with growth of business.
The plant offices was secured simply by putting a padlock on the door to the office. The union no longer had access to the copiers and office supplies in the middle of the night. Some solutions are so obvious and simple.
The last management change was to bring in an accounting manager, Larry T., who had had Sprague Electric experience and understood the business. (I found Larry thrugh a referral at the breakfast counter in A Adams). Larry became the VP-General Manager after ArdisI left..
One result of all this improvement was freeing, money, management time, energy, and space to facilitate major expansion in to new product lines.
By 1994, sales had doubled. The plant was shipping twice the dollars using one-third as many people. As product lines continued to grow, employees were added back to the payroll.
Brown Street had been saved.
Credit is due to the many fine people who came in to the business to support my programs, and to the leadership of the Greenwich Venture Partners. They had many right ideas, they just needed someone who understood how to apply them.
I left Brown Street and returned to return to working in a Fortune 100 company until my retirement..
Foot Note: . Unions created the Middle Class in America and I am personally sympathetic with them for that reason. They just need to be managed, for, as they say at the end of every meeting “For the Good of the Union”
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