This partnership is a complex example of a demand-driven, multi-employer, incumbent worker training program that involves prime aerospace manufacturers, supplier firms, local unions and a labor intermediary organization. The purpose of the partnership is to improve supplier performance in the aerospace industry. It is not a typical workforce development program in that its focus is to improve its supplier capabilities, performance and competitiveness by providing performance consulting services, trainers, training materials, and sources of funding to participating companies. The Supplier Excellence Alliance (SEA) Lean Enterprise System (LES) is a unified, industry-wide approach that avoids duplication of efforts and provides a set process for achieving operational excellence. The LES approach emphasizes leadership and culture, workforce development and operational excellence improvements in its supplier firms.

A key component of this model is to ensure that workers have the technical and participatory skills necessary to identify and implement activities to achieve the desired operational excellence improvements. The goal of the workforce development component is to prepare the supplier to plan and implement job skills training with the involvement of their employees that will result in improved processes, cross-training and job skills certification.

The Supplier Excellence Alliance (SEA) is a California-based, non-profit, 501c3 organization created by the leading aerospace companies. Union involvement to date is through the UAW LETC program and the local unions at each company. The UAW Labor Employment Training Corporation was created in 1984 in California under the auspices of the UAW Region 5. UAW Region 5 includes all of the Western and Southwestern states. LETC subsequently expanded nationally and currently operates programs in Kentucky, Missouri, Utah and New Jersey in addition to those states listed above. The mission of LETC is to serve the education and training needs of the workforce in participating states. As part of that mission, LETC helps small employers design and administer programs to meet their training needs and enhance their competitiveness. In its role with the SEA, LETC is also responsible for the outreach activities to the unions and their SEA signatory employers. LETC’s relationship to the unions and signatory employers is key to achieving union support for the program.

To understand how the model works at a particular supplier, the case study focuses on one supplier – Hitco Carbon Composites, Inc., and its unionized workforce – GMP Local 19 – which, together, have been engaged in the SEA process for the past two years.

Workforce Challenge

Responding to small and medium size firms’ and/or facilities’ (those with less than 500 employees) recruitment and training needs: In recent years, large, formerly vertically integrated firms have aggressively embraced the outsourcing and subcontracting of many of their component parts. In the process, they have made their own operations leaner and meaner, while pushing significant parts of the production process to firms that are typically smaller. These smaller firms generally have fewer resources to commit to training and education programs and/or new employee recruitment. Many small and mid-sized firms have no full-time human resources managers, and their education and training programs often consist of tuition reimbursement policies, where individual workers must take the initiative to obtain additional education and training on their own. To promote cost-effective new worker recruitment and incumbent worker training within these smaller firms, initiatives that facilitate common training, assessment, screening, etc. for jobs at small and medium size manufacturers are especially important. Cross-employer skills training – while always desirable – can help ensure, in a cost-effective way, that workers in smaller firms get the skills they need to compete in the global economy. Training and education programs should link to economic development policies that respond to the needs of sectors, industries and local or regional economies.

Understanding the Demand and Meeting It

The SEA/LETC California Training Partnership is part of a larger effort to transform the supply chain in the U.S. aerospace industry into a more responsive, lower-cost provider of components. Faced with competition from abroad, and demands by the U.S. Defense Department and other major customers to produce better quality products at cheaper costs and shorter production times, the prime aerospace contractors are under tremendous pressure. The DOD has moved the industry from “cost plus” contracts to “firm, fixed price” contracts. Added to that pressure is the industry’s desire to change from vertically integrated manufacturing to a systems integration approach. The prime contractors have adopted a strategy to source approximately 80% of their future contracts for civilian and defense-related work to their suppliers. These orders will be for new aircraft or space systems. Thus, many firms in the chain will no longer deal directly with the prime contractors but with Tier 1 and Tier 2 suppliers. This strategy means that prime contractors such as Boeing, Lockheed Martin and Northrop Grumman will become “systems integrators,” in which they assemble components produced by suppliers, whereas before, they did most of the actual manufacturing with components provided by suppliers.

When this strategy is fully implemented, companies that cannot adapt to this alignment of the supply chain may go out of business. That pressure is intensified because of the tremendous variation in the capacity of current supply chain companies: Some are small family-owned companies that specialize in one product; others are larger firms that produce multiple components. Many of these companies must learn to team with others to produce components or whole systems for the prime manufacturers and Tier 1suppliers in order to reduce costs and compete with foreign suppliers. As suppliers take on new roles, they take on new responsibilities in design and more risks in creating value added production capabilities. These new roles also require them to improve their ability to partner with other firms in the supply chain so that they can operate in new “demand-driven”, collaborative supplier networks. These firms must do all this while providing close to 99% on-time delivery on low “ship set” volumes of parts and kits that are ready to use at a given point in the production process. The key characteristics of the new system are:

Design for performance
Low inventory and capital requirements across the entire chain
Dependency on very short lead times with near perfect on-time delivery.

Underlying the SEA approach is the belief that many of the smaller suppliers lacked the organizational maturity to participate in such advanced, demand-driven networks and the capacity to meet cost reduction goals without assistance. While some suppliers have so far been successful in making improvements, it is estimated that many cannot keep up with the pace of change and competition from abroad without comprehensive and standardized assistance from the prime contractors. The industry average rate of 80% on-time delivery will not suffice in the near future. The anticipated need of providing assistance to suppliers to make these changes led the prime aerospace companies to form the SEA. Founding members of the SEA include many of the top aerospace firms in the country (see program partner section below).

At the same time, many aerospace production workers found themselves in jobs in the industry that, although highly skilled, have no formal industry-wide recognized certification. The industry also saw a need to develop commonality in skills learned on the job and certifications for them. As suppliers begin partnering, the need for standard work processes and cross-training also becomes necessary. The shared needs for a leaner aerospace supply chain to improve employment security and industry-recognized certification for the industry’s workers led to union support for the SEA-sponsored training and operational improvements.

The SEA began its work in California because that is where 50% of its suppliers are located. The supply chain contains both union and non-union employers. Among unionized employers who decided to participate in 2004, were firms represented by locals of the International Association of Machinists (IAMAW), the International Brotherhood of Teamsters (IBT), the United Automobile and Aerospace Workers (UAW), the International Union of Painters and Allied Trades – District Council (IUPAT) and the Glass, Molders, Plastics and Pottery Workers Union (GMP). To recruit employers, SEA holds Executive Forums and invites management from suppliers to attend. Suppliers then decide whether they want to participate in the program. The LETC solicits the participation or approval of the local unions who represent participating supplier firms. LETC also administers the training funds for all firms involved in the ETP funded program.

Program Partners

The Supplier Excellence Alliance (SEA) is a California-based, non-profit, 501c3 organization created by the leading aerospace companies. The founding members include: BAE Systems; the Boeing Company; Bombardier; Cessna; Hamilton Sundstrand; JPL-NASA; Lockheed Martin; Northrop Grumman; Parker Aerospace; Pratt & Whitney; Rockwell Collins; Sikorsky; Textron, United Technologies, and HITCO Carbon Composites, Inc., a division of the SGL Carbon Group. Many smaller companies are also part of the alliance.

The SEA/LETC California Training Partnership is subset of this larger effort to transform the supply chain in the U.S. aerospace industry. Union involvement in the partnership is obtained through the UAW Labor and Employment and Training Corporation (LETC).

The aerospace supply chain contains both union and non-union employers. Among unionized employers who decided to participate in 2004, were firms represented by locals of the International Association of Machinists (IAMAW), the International Brotherhood of Teamsters (IBT), the United Automobile and Aerospace Workers (UAW), the International Union of Painters and Allied Trades – District Council (IUPAT) and the Glass, Molders, Plastics and Pottery Workers Union (GMP).

This case features a specific partnership at HITCO Carbon Composites Inc, where the union is the Glass, Molders, Pottery, Plastics and Allied Workers International Union (GMP) Local 19.

Program Activities and Methods

The SEA approach was to “create a unified version and a collaborative, industry-wide approach to supplier development that eliminates duplication and aligns existing resources to lead the deployment of lean manufacturing throughout its supply chain.” The approach is called the SEA Lean Enterprise System and was developed by a team of experts with input from 25 prime manufacturing companies; it was further refined with the feedback of the 34 supplier manufacturing companies that participated in the pilot program. The strategy is designed to address four key realities in the aerospace supply chain:

The prime contractors have adopted strategies to source more of their production and design functions to supplier firms.

Progress in achieving lean operations in the supply chain is slower than desirable.

Suppliers are having problems developing value added capabilities to improve services and reduce costs.

The cost of time is becoming more valuable, driving procurement decisions to the most reliable and capable suppliers who can meet on-time delivery and quality requirements, as opposed to those that are cheaper or nearer.

Thus, the goal is to assist these suppliers to, “become part of this new integrated supply chain that is capable of combining its resources in new models that can support kitting, point-of-use delivery and rapid, small-batch deliveries.” It is believed that this “mass customization” model can help entire supply chains work together to remain competitive in the global marketplace.

The SEA Lean Enterprise System focuses on three tracks: leadership and culture, workforce development, and operational excellence. The Alliance promotes the process through its Supplier Outreach Program that consists of executive briefings and management workshops. The Supplier Executive Briefings are two-hour workshops that can involve as many as 20 companies and focus on explaining key changes in the industry and their potential impact on these suppliers. Generally, there are two sessions per day. These sessions are followed by one-day Lean Enterprise System Workshops for members of suppliers’ management teams to learn more about the SEA LES model and to develop plans for implementing it in their respective companies. If adopted, the SEA conversion plan is implemented through a series of 14 workshops that address the three tracks of leadership and culture, workforce development and operational excellence. This case study is focusing on the workforce development aspects of the change process, although it is important to note the interdependencies among the three aspects of the SEA program. To understand how the model works at a particular supplier, this case study will focus on HITCO Carbon Composites Inc.,a division of the SGL Carbon Group– and its unionized workforce – that has been engaged in the SEA process for the past two years.

SEA Workforce Development Model

In order to promote improved manufacturing processes, including the implementation and sustaining of lean production processes, standard work, and workforce flexibility, the work force development objectives of the SEA model focus on job skills, certification, and cross-training. The process for achieving these goals is defined in the SEA engagement process and consists of a series of workshops that cover the following activities: job skills assessments, training objectives, master trainer certification, advanced planning, and training materials development. The job skills assessment workshop employs cross-functional teams to: develop consensus on key processes; identify potential improvements and clarify known job skills training needs; identify key process owners, subject matter experts and trainers; and establish metrics for measurable results. The master trainer workshop is a three-day workshop that teaches trainers how to: plan and conduct effective job skills training; evaluate trainee knowledge and skills; implement standard work on any process; prepare visual work instructions; and help others reach standard work. The job skills advanced planning workshop is also a three-day workshop that enables participants to: examine the flow process and how to identify improvements to it; develop a master training plan; plan for cross-training where applicable; create a job skills curriculum; prepare a task analysis and training outlines; and identify trainees. The job skills training materials workshop involves trainers and subject matter experts to: document the process using visual work instructions; identify and/or create training materials; develop job skills certification tests; and develop job skills training aids.

SEA/LETC California Training Partnership in Action: HITCO Carbon Composites Inc. and the Glass, Molders, Pottery, Plastics and Allied Workers International Union (GMP) Local 19

Located in Gardena, California, HITCO is a major supplier of composite structural assemblies and high temperature materials to the aerospace industry. Founded in 1921, it is the oldest, continuously operating composites provider in the United States. It is also one of the largest integrated manufacturers of high-temperature materials including carbon/carbon and advanced engineered composite structures. HITCO designs, develops and manufactures a wide array of products, including nozzle components and assemblies for the Delta IV rocket, the Boeing C17 tail assembly, and fairings for the Boeing 767.

HITCO has over 335 hourly and salaried employees who engineer, fabricate, assemble and inspect aerospace composites. The average tenure of its employees is 10 years. The workforce is approximately a 50/50 mix of hourly and salaried employees. Hourly workers represented by GMP Local 19 earn an average of $17.00 per hour plus benefits. Many of its technical salaried employees have college and advanced degrees.

Workforce Development Activities

The workforce development activities at HITCO Composites were focused on training and involving front-line employees in the operational improvements listed below. Employees participated in train the trainer activities and the development of training materials and assessment and evaluation tools. The process for making composite materials is labor intensive and involves a great deal of hand lay-up work. Therefore, the process can vary according to the individual performing the work. The business has grown at a 5-10% rate over the past few years, and thus there is a need to train new workers and identify the most effective lay-up techniques. In as much as the process depends on individual techniques, the company was eager to capture the best practices of its workers in making specific parts, in order to be able replicate them in the shop and to teach them to new hires. Hourly workers volunteered to become part of teams that would develop strategies to standardize hand lay-up procedures using composite materials, which in turn, would reduce scrap and identify the best techniques to be taught to other employees. The company targeted areas or departments for improvements and asked for hourly volunteers.

Work teams also examined these techniques for process capabilities and replicability. The improvements were designed around the team, the process, and the product line. Before engaging in this work, the participants received training in problem-solving, statistical process control, Pareto analysis, cause and effect diagramming, and standard work definition. Other improvements focused on improving the cutting operations for carbon ply materials to eliminate the need for lay-up operators to trim those materials before making the parts.

Operational Excellence Improvement Activities

Operational Excellence Improvement activities were centered on five Kaizen events in the first year. The Kaizen 1 Receiving Event involved 10 employees in three sub-teams, who identified material receiving, and inside and outside material inspection issues for action. They developed strategies to reduce the backlog of materials in receiving, modify and standardize the receiving process, including procedures and reports and improving its process for expediting priority materials. The Kaizen 2 Shipping Event involved 13 employees in three sub-teams over four days that focused on scheduling/planning and program flow down requirements. The result of this event was the creation of an improved, dedicated workspace with all necessary equipment for the source inspectors; this has significantly reduced the amount of time that the documentation staff has to spend with source inspectors. The Kaizen 3 Machining Process was a four-day event held with 10 employees to focus on the machining process as it relates to customer demand and bottlenecks in the overall process. The goals of the event were to eliminate queues, reduce set-up time, and provide a better flow into and out of machining to improve productivity. As a result, work boards showing work priorities were created, which allows workers to begin set-up for the next job while the machines are still operating, thereby reducing set-up time. Kaizen 4 Atlas Fairing focused on the Atlas V fairing process and involved 12 employees to improve the core forming process and reduce cycle time. The Kaizen QA Lab Event 5 also involved 12 employees and focused on eliminating roadblocks in the process: reducing or eliminating queues, improving the flow of parts, and improving documentation procedures and the prioritization of work.

Connections to the Public Workforce and Economic Development Systems

SEA/LETC California Training Partnership is connected to both the public workforce and economic development systems. Because of its emphasis on training incumbent workers, the State of California’s Employment Training Panel (ETP), a state training fund financed by employer contributions, granted the SEA $1,598.500 to improve the skills of 1,150 employees of small aerospace firms that supply the major prime contractors who comprise the SEA. The ETA dollars were used by HITCO to help fund its improvement activities.

Program Funding Sources

The SEA approach is to match public funds with contributions from the prime contractors and investments from the supplier firms to fund the conversion programs. Supplier firms are expected to also invest time in learning and implementing the Lean Enterprise System. California’s Employment Training Panel contributed $1,598.500; that was matched by investments of over $2,200,000 by participating aerospace companies and suppliers. SEA and LETC are also considering other sources of funding for their work. They may apply for statewide Workforce Investment Act incumbent worker training dollars, for example. They are also considering embarking on a new employee recruitment and training program for their participant companies. If they do so, they will pursue Workforce Investment Act funding, more likely at the local level, for those activities as well. The SEA also hopes to replicate the California example in additional states with a significant aerospace presence. Those states may not have a training fund similar to the California ETP, making WIA funding more critical. In May, the Governor of Connecticut announced a two million dollar, two-year initiative that will strengthen the state’s aerospace and defense industry supplier base by using lean manufacturing techniques to boost productivity and efficiency.

Barriers Overcome

The prime contractors knew where they wanted to take the U.S. supply chain, but getting it there was another matter. The aerospace industry is comprised of thousands of suppliers that range from small, family owned businesses to subsidiaries of larger companies; this traditional structure would not meet future needs in the face of demands for cheaper, faster, better products. As a result of these pressures, it is estimated that California lost 65% of its aerospace jobs in the past 12 years to other states and offshore producers – even though the prime manufacturers were individually demanding that their suppliers adapt lean manufacturing techniques in order to improve efficiency. Many of these supplier companies had already attempted to respond to the process improvement demands of the prime companies. However, each prime was demanding that suppliers adopt what turned out to be multiple approaches to lean manufacturing that were costly and complicated for the suppliers. In addition, many of the smaller suppliers lacked the resources to implement these changes. As a result, although many initiatives were implemented, they were not resulting in the desired efficiencies and on-time delivery goals. Many suppliers sought a more unified, consistent approach. The prime contractors sought methods that would transfer the necessary training to achieve the desired improvements in a quicker time frame. Developing such a unified method was the first barrier. SEA responded by creating the SEA Lean Enterprise System. SEA brought together experts from 25 prime manufacturers to develop an approach that incorporates best practices from those firms into a unified, three-part approach that focuses on leadership and culture, operational excellence, and workforce development. This approach contains a process for conversion into the Lean Enterprise System. The system also encourages suppliers to partner with others in the supply chain to meet results unachievable on their own. Getting suppliers to buy in and participate is an ongoing process. SEA began in California with a small number of suppliers and is rapidly expanding from there. SEA has an ambitious schedule and seeks to expand into a number of states by the end of 2006. It held workshops throughout the country in 2005. Participating companies are expected to commit to the entire process, lasting from six to 36 months. The process requires the successful completion of each phase before moving on. Companies are also expected to invest an average of $120,000 of their own funds into the program. These have been significant barriers that must be overcome in order to promote the program. Union locals had to understand and support the training program for their members and send a letter to LETC indicating that support.

Program Results and Returns to Stakeholders/Partners

Benefits to Employers:

As indicated above, we are focusing on one unionized employer’s experience with the SEA/LETC California Training Partnership’s Lean Enterprise System. Most of the reported outcomes are related to that company’s experience. However, in the first six months of the California program, the following improvements listed by four suppliers provide an overview of the early results of the SEA/LETC program.

A connection supplier with 265 employers reported a 46% reduction in set-up time and a 50% reduction in tooling change.
An aircraft cabin refurbishing company with 190 employees reported a 95% reduction in re-work, a 25% reduction in the number of past due orders and an 18% improvement in upfront response time.
An electro-mechanical switch supplier with 100 employees reported a 36% improvement in on-time delivery, a 63% improvement in inventory turns and a 100% reduction in the number of past due units.

Benefits to the Company:

The HITCO management team launched its Lean Enterprise planning in 2003 and set its operational excellence goals as: improving its receiving inspection process; improving its shipping reports accuracy; and improving its manufacturing processes for brake machining and Atlas V nose fairing, in order to improve response time throughout the factory and reduce the past due backlog and costs. In 2004, the company held 5 Kaizen improvement events directed at achieving those goals. The anticipated results of the five Kaizen Events over a two-year period were: a 48% reduction in dock to stock cycle time; a 64% reduction in customer past due backlog; a 20% reduction in cycle time; and a 10% reduction in yearly inventory carrying costs. Partial results to date have been impressive. Sales increases at HITCO are in the range of 15 to 20% since engaging in SEA. While the program cannot attribute a direct cause-and-effect relationship to the increase, managers assert that SEA is a key success factor.

At HITCO, the effects on the employees who participated in the training and the ongoing process improvement activities were immediately noticed. A company spokesman reported: “this program has had a significant impact on employee morale. The empowerment to change the work environment for the better and to see the change implemented has been highly motivating.”
As previously mentioned, one of the goals of the SEA engagement process is to change the company culture into one that consistently seeks to enhance the knowledge and skills of the workforce while involving them in specific process improvements so that each participant is considered an owner of the change process and will help lead the process. HITCO’s projects for 2004 focused on improving individual processes in receiving inspection, shipping, and manufacturing machining, and reduction in labor hours. The focus for 2005 was to improve integrated business functions, such as resource planning systems, shop metrics, job estimating, and process flow for the C-17 tail cone.

The Company also notes longer-term, positive cumulative effects of the program:

Overhead rates (per product) have dropped from 330% to 240% and continue downward.
Unit production costs and defect rates have dropped significantly – more than 15% in many cases.
HITCO reported its best financial performance since 1998 in 2005, and SEA is a key factor.

Benefits to the Unions:

SEA/LETC is all about retaining work and thus retaining jobs. There is no higher priority for a U.S. manufacturing union. This program enables union members to participate in designing solutions to real-world manufacturing problems. That in turn enables signatory employers to lower costs and increase productivity, thus increasing competitiveness vis-à-vis global competitors. Any effort, which encourages competitiveness on something other than labor costs, is a win for manufacturing unions. Another benefit to the union is that the industry-recognized certification of training and increased skills of its members as a result of participating in the program is directly attributable to the union’s engagement with SEA/LETC. A union staff representative said the he was in favor of any training that would increase the skills of his members and enhance their long-term job security.

HITCO has avoided layoffs and uses slow times to provide cross-training to hourly employees. The business is growing and the workforce has grown proportionately at a rate of 5-10% a year.

Benefits to the Participants:

The employees gain important skills that enable them to do their jobs, better perform their jobs, and to have a say in how they do their jobs. At HITCO, employees learn new skills in lamination, assembly, teamwork, shop metrics, lean manufacturing, statistical process control, and 6 Sigma. In addition, the participants achieve a skills certification at the end of each of the three phases of the Lean Enterprise System. This certification will be recognized by all of the SEA participating prime contractors and suppliers throughout the industry. The industry in general is seeking greater commonality in the way it does business, and there is an initiative to create common certifications across the aerospace industry. LETC and HITCO are also interested in incorporating the Manufacturing Skill Standards Council Assessments into the program. HITCO is working to achieve community college credit for the SEA certifications. HITCO will be partnering with a local community college to offer for-credit courses in composite subjects for structure laminators and assemblers. Wage gains are realized when employees complete the required “skills sets” for their positions. Each skill set completion results in incremental increases to their hourly wage.

Benefits to Other Stakeholders:

Among the major stakeholders in this program are the prime contractors themselves, who benefit from a more efficient, cost effective and reliable supply chain. Those firms who cannot adapt are likely to go out of business or be bought out by more successful competitors. As a result, the communities in which the suppliers are located are indirect stakeholders who stand to benefit if the participating employers survive or expand their businesses during this transformation.

Next Steps for the Program and/or the Partnership

Expanding the California program to a national one is crucial to the long-term success of the SEA program. SEA has an ambitious schedule to expand to approximately 22 states and to engage 2,000 suppliers by the end of the year 2006. In order to accomplish this, SEA will need to – among other tasks – promote the awareness of, and support for, the program among the major unions representing aerospace workers. In California, the UAW LETC program was able to do the necessary outreach and gain approval of the local unions representing interested suppliers. However, there is a need to involve staff from the international unions and leaders and staff from the various districts and regions where SEA hopes to expand. LETC is not in a position to facilitate such buy-in or administer grants in all of the targeted states. Thus, there is a need to expand the number of labor unions and intermediary organizations who are aware of, and support, the program in the targeted areas, in order to build local capacity to support and administer the programs.

For more information, contact Tom Gannon at tgannon@workingforamerica.org or info@workingforamerica.org.