General Motors Powertrain Group plant, Fredericksburg
Joe Hinrichs has been named the new manager of the General Motors Powertrain Group plant, Fredericksburg. This plant is responsible for the manufacture of Torque Converter Clutches, an essential part in the marriage
of automatic transmissions to automobile and truck engines. Hinrichs is a former engineer and recent graduate of the Harvard School of Business.
Hinrichs has been charged with implementing a new process improvement program, driven by a new carbon fiber friction pad technology. Hinrichs’s success at the Fredericksburg plant is based on his ability to gain buy-in from union leadership, supervisors and employees though his gradual introduction approach. Hinrichs does not attempt to “rock the boat” more than is necessary and seems to understand the unique relationship that exists in this union-shop.
One of the essential machines in the plant has broken, leaving Hinrichs with no other solution but to fix the broken machine. Three alternatives surface within minutes of Hinrichs’s discovery of a problem. One is to repair the machine, the second to replace the machine, and the third option to replace the die and either repair or replace the machine.
It is my recommendation that Hinrichs replace the machine with new parts, ensuring the longevity of the asset and creating a symbolic gesture of good will with the laborers. Development on the new die and process improvement should continue, though at the slower buy-in speed that’s been socially accepted by union leaders, supervisors and employees of the plant.
Background
Joe Hinrichs (29), the youngest plant manager at General Motors, has been assigned to the Fredericksburg, VA plant. A recent graduate of the Harvard School of Business (MBA), Hinrichs a former engineer, is eager to begin his work at Fredericksburg. This installation is responsible for producing all of the Torque Converter Clutches (TCC) used to manufacture automatic transmissions for GM.
In 1996 Hinrichs took-over the management of the Fredericksburg plant with a budget that he believed under funded based upon the necessity of expense at Fredericksburg. Based on an analysis of the prior year’s figures (1995), Hinrichs believed that he could possible be over budget in the current fiscal year (1996).
The Fredericksburg plant build in 1970 by Westinghouse, then sold to GM’s Delco in 1978, is one of the smallest plants in the Company (average plant size is 2,400; Fredericksburg has 307). Though it’s small it has a crucial role in supplying TCCs to four Michigan plants and one French plant.
Hinrichs has been charged with revamping the way in which the plant produces TCCs. The traditional model of assembly line work, where one worker added a piece to the final product, is being phased out in favor of worker cells. These cells are designed to make the production assembler responsible for the entire process, not just one piece of the final product. Test groups have shown that productivity increases, while quality also improves. These increases in productivity and decrease in rejects directly relates to the reduced need for laborers.
Fredericksburg became part of the Powertrain Group in 1993, an initiative to bring out the synergies amongst the plants which produce the critical engine and transmission components for General Motors. The plant is capable of producing 22,000 TCCs of 26 different models each day, over three shifts.
The implementation of the worker cells has been shown to be effective with laborers and union leaders accepting the new work without must resistance.
Assessment of Change Implemented
It is my opinion that Hinrichs has done an excellent job of engaging the work force in his plans to revamp the way in which the Fredericksburg plant produces its product. I applaud his technique of using the strike to reduce overtime from the employee’s pay, while offering them something that no other plant manager would have done: a job when they should be laid-off. This single act is the reason why Hinrich has been so successful in building trust and establishing a respectful relationship with the laborers.
Hinrichs’s approach to engage union leadership, supervisors and workers in the change process in one that works well in this type of manufacturing setting. By slowly introducing new projects and processes, he allows all plant employees to voice their concerns and objections. This allows them to fell as though they are a part of the team and not just an outsider who’s being forced to comply with a new corporate mandate. I believe that the size of the Fredericksburg plant also has enabled Hinrichs to be successful in the implementation of his goals. From the information presented in the case, it appears that he has the support of the majority of the union leaders and senior workers. With this support, many of the younger laborers will respect their union leader and senior laborers opinion; thus, accept Hinrichs’s improvement suggestions. Hinrichs’s deployment technique presented in the case, in which he doesn’t favor any one area over the other, also helps to prevent departmental jealousy.
Much of the change by which Fredericksburg assembles TCCs was brought about by engineers and corporate officials looking to improve the performance of TCCs and the plant, itself. Hinrichs has basically been set as the facilitator of the change, though is capable of adapting the change as he sees fit. The major driving force behind the movement from traditional assembly to work cells was the development of a new carbon fiber material used to improve the performance of the TCC. The work cells are a more effective and efficient way to produce more of a higher-quality product though less inspection.
In addition to his normal operational budget, Hinrichs has been given a $30 million budget to invest in new equipment and tooling. According to Hinrichs, “the $30 million offered an opportunity not only to make the necessary changes for the carbon fiber, but also to make process improvements…we are able to incorporate job changes and quality improvements into the changeover process.”
One of the major points of potential failure that I believe Hinrichs has done an excellent job of managing is the union resistance to change and lay-offs. Rather than force employees and management to go through lay-off procedures, Hinrichs finds ways for existing employees to keep their jobs, while positively affecting plant performance. One instance of this is moving inspectors to producers. After the movement, the old inspectors commented on how great it was to actually control their own output and obviously increase productivity.
Main Problem
Affecting the future success and continued process improvement at the Fredericksburg plant, the main press responsible for stamping and boring of the TCC shell ceased to function. Hinrichs knew that this press could potentially be a problem and as a result ordered the plant to keep an extra day’s worth of TCCs housing on hand, should the machine quit working. Hinrichs now is faced with several costly decisions that must be made about the repair and/or replacement of the new machine.
Possible Solutions to Problem
Option One:
This is the most cost-effective option ($75,000) and enables the plant to become fully operational again within twenty-four hours. This option would allow the plant to maintain its full production schedule by using the internal supply of TCCs while the press is repaired. There are negative connotations associated with this option, however. In order to repair the press within the twenty-four hour window, it would be necessary to hire an outside vendor. Union officials would see this as an attempt to take away internal union jobs and could potentially lodge a protest.
Option Two:
This option would repair the existing press with new parts, essentially making it a brand-new press. This option is more costly than option one both in terms of material cost and temporary production costs. The cost to replace the parts is estimated to be $210,000. Additionally, because there is only enough stock of TCC shells to last one day, three days of TCC shell production would have to be out-sourced at a premium of $2 per TCC. Based on the information presented in the case, demand is 22,200 units per day. The calculation below attempts to estimate the increase in cost that Hinrichs must account for. Adding this to the parts estimates makes the total cost of option two approximately $343,200. Additionally, Hinrichs believes that he will be able to reduce a full-time job devoted to the maintenance of the old press. Using the estimates from the case, the average employee makes $74,000 per year in pay and benefits.
22,200 x 3 = 66,600 x $2 = $133,200 (Cost to Outsource For Three Days)
Option Three:
Regardless of wither or not the press is repaired or replaced with new parts, a third option presents itself. A group of engineers and production staff have been working on a die that would cut down the amount of extra work required for the shell of the TCC. The goal of the group was to produce a die that could not only stamp and bore the TCC but also make the necessary holes for the rivets at the same time. This drill out rivets? [chrome] ?would change the current process from: stamp/bore [chrome]. It’s been suggested that this process?to: stamp/bore/rivet improvement would illuminate 3 jobs on each of the three shifts that had previously been dedicated to drilling the holes for the rivets. There is a great deal of uncertainty as to how well this process improvement would work and how long it would take to fine-tune the die. In addition to the costs associated with option one or two, an additional capital investment of $250,000 would be required to have the die manufactured. Additionally, $577,200 would be incurred in outsourcing costs for the thirteen day period that the plant would be without shells while the die was being made.
Recommended Solution to Problem
Due to the possibility of a backlash with the union leadership and members, I do not believe that opinion one should even be considered. After all of the work that Hinrichs has made to strengthen management/union relations, I fell that it would all be lost if he were to hire an outside firm to repair the old press.
Option number two represents the most effective solution, to me. This option would not hinder relations with the union as badly as option number one. In fact, Hinrichs could make this press a symbolic gesture to the employees showing his commitment to the plant and its people. The cost associated with this item would not completely be $334,200. In this case, we would be able to take a portion of the $74,000 off the top, because an employee would no longer be required to work maintenance, he or she would be able to move to a value-added area of the plant and generate revenue. As presented in the case, it’s not possible to fire people when there is no work for them, though through the movement of one employee to a revenue generating department, I estimate a 60% savings in wage (74000 * .6 = $44,400) which can be taken off the total cost to implement. This makes this project cost $289,800. This option would be the easiest on Hinrichs long-term budget and also on union relations as only one employee would be asked to relocate to another position within the plant.
I do not believe that option number three would be a viable solution for Hinrichs at the present time. It is in my opinion that this is a better long-range solution to the press-problem, though it has yet to be proven an effective technology. There has been time spent by both the engineering and production staff with the old press to resolve the problems related to this new die, though it is still an experimental technology and should be treaded as such. A large capital investment ($250,000) would only be recommended if the process were ready for production. Based on the information presented in the case, this technology has yet to be proven. Furthermore, Hinrichs would encounter major union and labor resistance if he were to suggest that nine laborers (three from each shift) were going to have to be displaced into another area of the plant without giving them proper time to buy-into the idea. It is important to note here that there is a potential for salary savings when the nine employees are moved from the rivet drilling unit to a work cell. Because they’re already adding value to the final product, I’ll estimate their benefit at a lower rate (30%). Using the example from option number two, the total cost for option number three could be discounted by $199,800. With this savings, it still cannot be justified to make the capital investment in the new die.
Hinrichs must approach this press problem in a much more expedient manner than he approaches the rest of the process improvement. However, it is important not to overlook the relationships that he’s been working so diligently to build with the union leaders and laborers. Hinrichs must consult a few of the most influential plant leaders about what they would suggest doing about the broken press. In order for the solution to be accepted by union leaders, supervisors and employees, buy-in must occur.
Hinrichs should approve the second option, only after he has gained significant buy-in. Work to improve the press operation should also be undertaken. The die solution appears to be viable. First, the bugs must be worked out of the current die and secondly, the issue of what to do with the nine displaced workers must be resolved. The die project should continue and be evaluated again within six months time. While engineers and production are working on the problem, buy-in to the project should be a priority for union leadership and the rivet operators. Convincing the rivet operators over a period of time that their skills could be better used in a work cell would be an effective way to gain union buy-in. Additionally, it appears that Hinrichs is most effective when he’s able to give implementation of a decision longer than twenty-four hours. Finally, the new die should be tested during the Christmas holiday down-time and installed.