Ellwood City Forge

In 1992 Ellwood City Forge was a company in trouble. Despite the fact that the company had a "working" MRP system, a good standard cost accounting capability, and a reputation for good quality products, its market was down and they had just lost a major customer that accounted for 15% of its business. The internal reject rate was an expensive 3.1%, lead time to customers averaged 20 to 35 days (it took seven to 10 days just to respond to a quote), and their on-time shipment record stood at a dismal 40%. Ellwood City Forge was losing money.

But 1992 was also a significant year for a more positive reason, in 1992 the company president discovered The Goal and the Theory of Constraints (TOC). Inspired by this landmark novel and the powerful ideas behind TOC, he attended a class at the Goldratt Institute and began the transformation at Ellwood City Forge.

TOC is centered on the idea that constraining resources (bottlenecks) control the throughput of the entire plant. If you can manage (and maximize the flow of work through the bottlenecks, then the other resources are far less important as long as they don't interfere with the throughput at the constraints. The management at Ellwood had a pretty good idea of where their constraints were, so they set the queue for the constraint work centers at zero, and set a buffer for the entire process (at shipping) to cover for the inevitable problems, such as when a forging fails the metallurgical tests and has to be heat treated a second time.

The plant expediter became the DBR coordinator (Drum-Buffer-Rope - the three components of TOC as implemented in the factory) or gatekeeper. It became his job to limit commitments through the sales department to the capacity of the constrains. He was not happy with this new assignment. As expediter, he could be a hero on a daily basis. By manipulating the schedule, he could give preferential treatment to any customer, speeding their order through the plant. As gatekeeper, he often had to say "no" to requested shipment dates. He also had serious doubts about whether this TOC thing would really work.

In addition to the above, Ellwood City Forge re-directed their Quality Improvement Program to focus on improving performance at the constraints and followed the TOC steps as outlined in The Goal and at the Goldratt Institute classes. Things began to turn around. But it was not all sunshine and roses. When throughput began to improve and the company got a better handle on capacity and capabilities, they over-committed on promises to customers. As a result, lead times did not shrink as much or as fast as they could have. Despite these "growing pains", Ellwood continued to apply TOC and the Thinking Processes until the company transformed itself into a tough competitor and a market leader.

By 1995, the internal rejection rate was down to 2.4%, on-time shipments were at 75% and climbing (the target, 85% or better, would put them ahead of leading competitors), and WIP inventory was down substantially. Lead-times now averaged 12 to 18 days, considerably better than the average for their industry, and inventory turns were up to nine as compared to 6.5 three years earlier. Revenue per employee had climbed from $85,000 per employee in 1992 to $115,000 only three years later.

Customer survey results dramatically illustrate the changes that came about at Ellwood City Forge after implementing TOC. Customers rating on-time performance above average rose from 22% to 67%. Above average lead-time performance went from 8% to 44%. Now 62% of customers rate the company's competitiveness above average.

Not happy with just internal changes, Ellwood City Forge decided to apply the Thinking Processes to sales and customer service. After analyzing customer needs and company strengths and capabilities, the company developed plans for major customers that elevated the relationship to provide exceptional value for the customer. By segmenting the market and creating new value propositions, they have been able to increase prices where they are able to provide more value. They also now understand how they can exploit transitory market opportunities by selling excess capacity at a discount - maximizing throughput and truly getting the most out of their available resources.

Ellwood City Forge is still a high-quality producer with good cost controls. In addition, they can now guarantee a lead-time that is shorter than the competitors', they deliver on-time, and they are making a profit.

© 1998 Midrange ERP

A representative of Ellwood City Forge presented the company's story at the Jonah Upgrade Workshop in March 1996. That presentation is available on video (JWW-4).