IW Best Plants Profile - 1998

Stryker Corp. Allendale, N.J.ByWeld Royal Three guys from New Jersey thought they just might lose their jobs. In January 1992 orthopedic-implant and surgical-instrument manufacturer Stryker Osteonics Corp.s Jack Czajkowski, Dan Ruggiero, and Ned Lipes faced angry distributors. Lipes, Osteonics president, remembers speaking to a group of them at a Florida conference: "Everything was a mess. Our back orders were getting worse. Those distributors would have thrown something at me if they could have. We were hurting their business." Weekly the board chairman or another executive at Kalamazoo, Mich.-based Stryker Corp., which bought Osteonics in 1978, would fly to Allendale, N.J., to meet with Lipes, Czajkowski, and Ruggiero to review line by line every back order. After all, Stryker had a reputation to maintain -- 20% annual profit growth since 1977. No one ever promised radical surgery would be easy. In November 1991, two months before Lipes confronted the frustrated distributors, Czajkowski and Ruggiero began demolishing walls at the 125,000-sq-ft Osteonics factory. They wanted to adopt cellular manufacturing and put the companys production employees, who worked in two shifts, into teams. This involved eliminating cinder-block partitions that separated departments, but also taking away titles, offices, and comfort zones. Czajkowski and Ruggiero would reduce seven layers of reporting hierarchy to three. Teams would run as individual businesses with profit-and-loss responsibility. Members would be compensated with cash bonuses when they met certain goals. Today Czajkowski and Ruggiero, with the help of Lipes and a few other executives, have accomplished much of what they set out to do in 1991. Sixteen cells, made up of 280 employees, run the Osteonics factory. For labor-intensive tasks and to keep costs down, robots are replacing team members, who are being trained for jobs that require more skills. Charts reflecting sales, productivity, safety, and other goals hang on bulletin boards outside every cells space. Many manufacturing workers can look up from their stations through walls of clear plastic to see their colleagues in marketing. The cellular approach was so successful among production employees that Osteonics organized its marketing and product-development employees into eight teams. The company then redrew the floor plan so manufacturing and marketing teams working on the same instrument were placed close together to promote collaboration on new products and problem solving without supervisors. Within the Stryker organization, Osteonics serves as a model factory. Like missionaries, its team members fly to different parts of the world to promote cell-based manufacturing when Stryker acquires a new unit. When Stryker bought a trauma-device maker in Selzach, Switzerland, an Osteonics team helped indoctrinate its employees. "Its one of the more unusual companies Ive seen, both from an organizational standpoint and in terms of attitude. People there are just so gung-ho about their work," remarks Edward W. Davis, a professor at the University of Virginias Graduate School of Business Administration who developed a case study around the Osteonics factory process. Osteonics is the most profitable of Strykers nine medical divisions. In 1991 some 70% of customers who called the manufacturer requesting same-day product shipment were turned down. Today 98% of Osteonics customers can count on same-day shipment. Costs have been reduced by 10% annually since 1992, while sales per employee have more than doubled. From the start, Osteonics -- founded in 1976 as a precision cast vendor -- had struggled to meet demand. In 1979 it launched hip and knee implants. Senior citizens, athletes, and victims of accidents and illness began clamoring for the cobalt, chrome, titanium, and plastic parts. Former First Lady Barbara Bush has Osteonics hip replacements. A former Arizona Cardinals quarterback walks with an Osteonics knee. Orders grew as baby boomers in two large Osteonics markets -- the U.S. and Japan -- neared the age when human bones and joints start giving out. Some customers proved very demanding. Frustrated with back orders that held up operations, orthopedic surgeons threatened to turn to Osteonics competitors such as Biomet Inc. Others complained about Osteonics long leadtimes for new products. Health-maintenance organizations wanted lower prices. Just before the complaints reached a crisis pitch, change agents at Osteonics began talking about cellular manufacturing. "We thought the organization should take the form of teams reporting to teams," remembers Czajkowski. The first step was to create a steering team, which would report to the president and supervise the cells. "I was hired as a quality-control manager and had 25 inspectors reporting to me, but we were just sorters. We had to do something differently," says Ruggiero, a founding member of the steering team. Ruggiero helped to assign his inspectors into teams ranging in size from six to 50. Czajkowski joined the steering team from manufacturing engineering and helped to break up his own department and others. Hourly workers in the nonunion shop used to one task such as hand finishing would learn cleaning, heat treating, even purchasing. These team members would report to a team leader who had his or her own responsibilities to master including planning and overseeing budgets of between $2.8 and $5.5 million. Teams could hire, discipline, and fire employees. The steering team implemented a skill-based pay system. Team members would be encouraged to complete two sets of skills yearly -- which worked out to approximately 12 days of training -- for which they would receive a 4% pay increase plus bonus. Meeting cost-reduction goals (which Lipes set at 10% annually), service level objectives, and quality objectives would earn team members another 6% in pay increases. Solid measurements served as the foundation of cellular manufacturing. Everybody knew who was succeeding and who wasnt thanks to the daily charts that team members changed every morning outside each station. When someone failed to meet an objective, the steering committee favored face-to-face communication rather than warnings by memo or e-mail. "We have a lot of young people here. How are we going to teach them leadership on e-mail?" asks Ruggiero. Initial results of the radical changes proved disappointing. Some $3 million in back orders prompted visits from the parent company in Kalamazoo. "For maybe six months, we were probably very close to losing our jobs," admits Czajkowski. Along with the steering teams bold ambitions came a couple of bad mistakes. Team leaders didnt understand that their goals should reflect customer priorities, so they developed feel-good plans such as working on team dynamics or communication. Ruggiero responded by tearing up pages of early plans and asking team leaders to come up with objectives that would address the factorys back orders and poor service levels. Worse, several months into the process, the steering team realized a few cell leaders couldnt handle their new responsibilities. Well-educated engineers and others with solid manufacturing experience foundered when asked to grow beyond their area of expertise. A few leaders failed to grasp the people side of team management. Others, such as Domenica Doktor, succeeded despite a lack of managerial experience. Before Osteonics organ-ized itself into cells, Doktor spent 12 years as the factorys purchasing agent. Then the steering team asked her to lead its largest cell, the 50-person packaging group. Doktor quickly mastered the technical aspects of running the cell, but took longer to figure out how to motivate her team. When she took over the cell, Doktor saw people she had known for years change. Employees who used to complain about the way materials were wasted and that packages took too long to go out became silent. "They lacked confidence to put forth their ideas. They just wanted someone to tell them what to do," Doktor says. The former purchasing agent worked with her team for more than a year, cajoling them to start making observations again. When a member offered a good suggestion, Doktor made an example of that person to show others how they could effect change. Slowly the cells members realized that they knew their jobs better than anyone else. Sometimes Doktor neglected to see early signs of trouble. Even when the packaging group appeared to run smoothly, Czajkowski or Ruggiero would walk by with a question or observation. When Ruggiero questioned Doktor about the packages waiting to enter her cell, Doktor assumed none existed because she didnt see any. Ruggiero asked her if she had measured the number by polling other cells to learn how many they had ready. "I found out we had a six-day queue," says Doktor, who worked with her team to shave five days off that line. Today, the Osteonics factory still struggles with cost containment, employee performance, and other problems, but cellular manufacturing makes them easier to solve. Results of a recent survey conducted annually by the Gallup Organization revealed employees overwhelmingly believed in the quality of Osteonics products. Those on the dirtiest -- and perhaps toughest -- team, the foundry, were the most satisfied. Some team members complained that they didnt understand how patients used Osteonics medical implants, so the steering committee replaced a portion of the plants skill-based pay with a system to compensate employees for learning about products. Despite a five-year cost-cutting stretch, the factory has never laid off an employee. The steering team -- now composed of Czajkowski, Ruggiero, and Hal Jungerheld, who spent several years as a manufacturing consultant -- manages like Zen masters would advise disciples. Employees come to them with questions, and the steering team answers pleas for assistance with more questions that lead to the answer. Sometimes employees attempt to pit one steering team member against another, but the threesome usually works out their own differences before answering teams or individual employees. "Probably our biggest challenge is deciding when we should get involved and when we should let them struggle to find the answer," explains Ruggiero. Individual teams have intentionally stayed small to help them meet cost-reduction goals. Since Osteonics implemented cell manufacturing, only 60 production employees have been added. When a cell or the steering team does decide to hire, it promotes cell-based manufacturing during interviews. Osteonics avoids certain types of professionals -- specialists and big-company veterans -- who in the past have failed in its unusual environment. "We tell people in interviews, If your idea of a career is a desk, a phone, and a secretary, dont come here. But if you want someday to run your own business, well teach you all the elements," explains Jungerheld. In addition to converting other parts of Osteonics and Stryker acquisitions to cell-based manufacturing, the Osteonics manufacturing group also has used the system to help suppliers. When negotiating contracts with vendors, Osteonics requests a 10% price reduction upfront. When one supplier said he couldnt shave his costs, Osteonics offered to send a team to his facility for a day with a guarantee: a 20% cost reduction. "At the end of the day, our people handed the supplier a list of process improvements, and he gave us a 10% discount," says Czajkowski. At A Glance

• Five years of 10% cost reduction.
• Service level (measuring same-day order shipping) improved from less than 30% six years ago to 98% in 1997.
• Unit output per square foot of shop floor increased 78% since 1993.
• In-house inventory is down by 49% since 1992.
• Productivity per employee up 53% since 1992.
• Domestic market share for primary product line up 15% since 1993.
• Most profitable division in Stryker Corp., which itself has achieved 20% annual profit growth since 1977.