Reliability = Competitive Advantage
Can you be LEAN if you are not reliable?
Presented 8/26/08
Charleston, SC
Carolina Chapter Kickoff
By: Paul Campbell
Alcoa South East Regional
President, Retired
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Rules of Education - Rule 1:
• “Education and intelligence are mutually exclusive”
• Some of the smartest people I have known have only a
high school education and some of the dumbest folks
have letters after their names
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Rules of Education - Rule 2:
• “Most of us are educated beyond the level of our
intelligence” (Another way of saying most of us are not
as smart as we think we are.)
• We need to listen more intently to others!
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Rules of Education - Rule 3:
• “Life is the best teacher – If you can afford the tuition”
• Fortunately, our companies have paid for most of our
tuition
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Rules of Bridges - Rule 1:
• “Don’t burn the ones in front of you”
• Common sense sometimes is not as common as it
should be
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Rules of Bridges - Rule 2:
• “Don’t burn the ones behind you”
• You never know “who will be on first” in the long termmergers, acquisitions, re-engineering, reorganizations, etc.
• Remember you may want to return as a consultant
someday
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Rules of Bridges - Rule 3:
• When things are going badly, when you are not getting
your results, when corporate is asking for more, better,
faster, get over it.
• This is called ‘life’. We don’t always get our way and
sometimes making money causes us troubles, but this
what we are paid to do.
DESPAIR
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Rules of People - Rule 1:
• “There are two types of people in the world-those that
look for reasons why something will not work and those
that find a way to make things work.”
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Rules of People - Rule 2:
• “In some cases, there are 3 types of people in the world,
those that make things happen, those that watch things
happen, and those that wonder what happen.”
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Rules of Holes
• “When you are in one, quit digging!”
• The worse thing about digging too deep is the hole caves
in around you. Stop while the pain to get out is not too
overbearing.
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Rules of Travel (includes career)
• “It does not cost anymore to go first class, you just can’t
stay as long”
• If something is worth your time and effort, do it right or
don’t do it. This is another way of saying ‘good enough
never is’.
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The Boss Rule
• “If you have to tell someone you are the boss, you are
not. It should go without saying”
• Remember, Boss spelled backwards is double SOB
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Alcoa’s Outlook
Snapshots
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Alcoa Mt. Holly
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Located in Goose Creek, SC (Charleston)
Started in 1980
Designed Capacity is 180,000 MT/Yr
Cost to build was $360,000,000 or $2000/MT
Present Capacity is 232,000 MT/Yr
Cost to add 52K MT was $10,000,000 or about $200/MT
(Non-Capital/Reliability)
• Replacement Cost is $1,000,000,000 or $4000/MT
• 600 employees
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Reliability = Productivity
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Only Non-Union Smelter in US
3.5 Work Hours/MT
Industry average >6 Work Hours/MT
Among the best in the world
Capacity increased without adding employees
Actually fewer employees today than ever
Productivity Incentive Comp
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Reliability = People
Advantage
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>40% Employees started plant
90% of those leaving are due to retirement
<2% per year leave Mt. Holly
Safety Advantage
Dollars invested in training stay at the plant
– Learning Center
– Skills
– Regulator Training
• >60 Hours Training per Year
• Pride in Mt. Holly
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Reliability = People
Advantage
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Flexible policies
Vacation by the hour
Shift schedules can be changed by crew or dept vote
Variable starting times
Variable day shift schedules
– 4-10 hr days, 3-9’s and a 4, 5-8 hr days
– Variable start times
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Reliability = People
Advantage
• No difference in benefits except for retirement
• Peer review for discipline
• Community involvement by employees
– Civic support
– Education support
– SC and local government involvement
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Reliability = Maintenance
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~90% Planned
~2% Breakdowns
~8% Trouble calls
Lower inventory comparatively: 0.4% of ARV
~5% OT
Only 4 mechanics and 2 electricians on back shifts and
weekends
• Technical skills maintained by extensive training
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Reliability = Plant
Performance
• Customer Retention
– Customer complaints <20/yr on ~10,000 shipments
– Direct connections to customers (>JIT)
• >98% On Time Deliveries
• Max on Value Added Products
– Worth $MM over commodity products
• Make Products Others Can’t or Won’t
• Process Efficiencies and Raw Materials Optimization
• Environmental Compliances against Toughest Stds.
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What’s it Worth?
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Job security
Safety performance
Environmental compliance
Recognitions
– A.T. Kearney
– Maintenance Technology Magazine
– CRU
– ISO’s Certifications
• Improvements are sustained and bettered
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What’s it Really Worth?
• Competitive advantage in commodity industry
• Profit and Cash Flow even with high energy costs
• Survival in US against foreign cost and structural
advantages
• Survival in US with high power costs
• Survival, survival, survival = Jobs, jobs, jobs
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How Did All This Happen?
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Mission
Vision
Strategic Planning
Reliability Excellence to Sustain
Continuous Improvement
Leadership, Leadership, Leadership
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How Did We Get Here?
• Not Over Night- Mission and Vision to Guide
• Total Involvement - Operations, Maintenance, Quality,
Engineering, etc. as a Team
• Leadership Made it Happen from ‘Day 1’
• Built a Foundation for Reliability
• Sustained the Gain
• Built on the Gain
• Do it Every Day - Discipline, Discipline
• Don’t Take Short Cuts
• In it for the Long Haul
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Alcoa’s Acquisition of
Alumax?
• Alumax Financial Performance
• Alumax Application of Alcoa Technology
– Alcoa Used Mt. Holly to Sell Technology
• Alumax Application of Reliability (Plant Tour)
• Alumax Casting and Fabrication Facilities
• Industry Consolidation
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Alcoa’s Reliability Decision
Our Largest Controllable Cost
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Alcoa’s Reliability Decision
• Reliability recognized as largest controllable cost
– Estimated opportunity >$300MM
– Presented to Executive Mgt
• Global Competition
– 1980-33 smelters in USA
– Today 13 smelters in USA
• Foundation for ABS/Lean
– Cannot sustain Lean with reliability foundation
• Non-capital solution for capacity increases
• Unit cost to compete with Global Competitors
– Commodity industry
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Market Survivor Model
Market
Price
Unit Cost =
Cost
Capacity
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Reliability Domains
Source: W. Ledet The Manufacturing Game; Kingwood, TX
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Cost Cut to Prosperity?
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Nice to Have But Not Necessary
Delay Necessary Capital Projects
Delay Necessary Maintenance Spend
Reduce People
Cut Necessary Costs
Spin Out of Control
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Spinning Out of Control
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Late on Orders/Deliveries
Cannot Take New Orders
Safety Going the Wrong Way
Environmental Non-Compliances
Losing the ‘Good’ People
Time to Change Management
Ultimate Cost Cut-Close the Plant
Is there Another Answer?
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Reduce Cost/Improve Revenue
• Have to Work Both Sides of the Equation!
• What is Largest Controllable Cost?
• What Improves Revenue:
– New capital additions but at what cost?
– More units with existing equipment lowers unit cost
and improves competitive position
• What gets me Both?
• What is the Foundation of Alcoa Lean Mfg System-ABS?
(Six Sigma, TQM, etc.)
• Reliability, Reliability, Reliability
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A Long Hard Look
• We took a long look in the mirror and asked:
– Who is really managing the operation?
– Who should be?
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AE/OEE and Loss Accounting
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Reliability - Business Case
• Primary Metals Smelters Global
Spend ~ US $480 M on R&M
• REX Goal
– Optimize Unit Costs
$ 50
– Improve Safety and Regulatory Million
Compliance
• Equipment Reliability and Process
• Stability are ABS Fundamentals,
• Enabling Maintenance and
Operations
• Cost Savings
Global Potential ~ $175 M
N.A. Potential Savings
Operations
Maintenance
Savings
$ 75
Million
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Alcoa Financials
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Alcoa Annual Revenue
– $26.2 Billion
• Alcoa Profit
– $2.1 Billion
• Primary Metals Annual Revenue
– $9.5 Billion
• Primary Metals Profit
– $822 Million
REX Business Case
• Potential Bottom Line for PM
– $175 Million
• Potential Bottom Line for Alcoa
– $475 Million!!!!!
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Re-evaluation of Approach
• Drive By Shooting Approach
• Inconsistent Approach-Plant to Plant
• Can We Do This Ourselves?
– Why Haven’t We Already Done This?
– We Don’t Have a Proven Process
– Do We Have the Resources?
• How Soon Can We Realize Savings?
• Realization We Needed Professional Help
• Realization We Needed Executive Participation
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Criteria for Selecting a Partner
• We Looked at Numerous Consultants
• Mission is Reliability
• Proven Processes in Place for:
– Change Management
– Program Management
– Technical Best Practices
• Utilizes Full Time Employees (Stability)
• Mature Reliability Education Series Exists
• Extensive Client and Benchmarking Experience
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Criteria for Selecting a Partner
• Must Work Well Both Up and Down chains of
management within our Organization
• Processes Facilitate our Folks Learning, Leading, and
Doing
• Processes are Sustainable by Alcoa
• Exit Strategy Exists
• Above All, Trust and Confidence in Success
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Alcoa Rx Initiative
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Primary Metals
Alumina Refining
Fabrication
Global
– Europe
– Australia
– Latin America
– Caribbean
– Canada
– North America
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Potential Maintenance Cost Savings
Related to Assessment Score
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Operational Cost Savings
• Operational Cost Savings are >3 times Maintenance Cost
Savings
• Operational Cost Savings Include:
– Quality
– Greater Process Times
– Less Scrap
– Greater Productivity (units/work hour)
• OEE is the Alcoa’s Measure of Success
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Alcoa’s Reliability Path
• 3 Wave
• Educational Path for Plant Leadership
– Maintenance and Production
• OEE Progress
• Assessment Score Progress
• Best Practice Sharing
– Facility to Facility
– BU to BU
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Reliability Excellence
3 Waves Approach
Source: Life Cycle Engineering, Charleston, SC
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Initial Assessment Scores
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Success Leader in Primary
Metals-Warrick
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3 plus years into reliability journey
Sustaining progress
Building on progress with Continuous Improvement
Bench Mark/Model with Alcoa
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Alcoa Warrick - Reliability
Excellence (Rx) Results
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Union Plant with Existing Lean Manufacturing Program Delivering Marginal
Benefits
Rx Implementation Q4 2003
Benefits Realized by Rx:
– Anode Capacity Increased
• 10%
– Aluminum Capacity Increased
• 4%
– Result of increased Cell amps
– Annual Maintenance Cost Reduction
• $10MM
– From $35 MM budget to $25 MM budget
– Annual Operations Cost Reduction
• $35MM
– Additional Revenue Generated
• $18MM
Bottom Line:
Rx Delivers
Sustainable
Results !
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Alcoa Warrick - Reliability
Excellence (Rx) Results
• Alcoa Committed to Investing >$400
MM to Upgrade
• Gives old technology smelter new
life
• Protects >2000 jobs at Warrick
Operations Sustainable Cultural
Change has Occurred and Benefits
Continue
Bottom Line:
Rx Delivers
Sustainable
Results !
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Summary and Conclusions
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Reliability is a Cornerstone for ABS/Lean
Reliability is Fact Based, not Finger Pointing
Reliability Adds Capacity
Reliability Reduces Cost
Reliability Requires Discipline - It is Hard to Do!!!
Reliability Must be Owned by Operations
Reliability Must be Delivered by Maintenance
Team Participation is Key
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Questions??
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