Profit And Loss

Xaloy's new manufacturing system resorted the company's competitive edge -- and turned the shop floor into a battleground.

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Inside a a 96,000-square-foot manufacturing plant nestled in the Blue Ridge Mountains of southwest Virginia, Hunter J. Arehart looks out the windows of his office, contemplating the drizzly Pulaski County view. Until today, Arehart had been vice-president and general manager -- the boss, for all intents and purposes -- of Xaloy Inc., a producer of glistening steel-and-alloy cylinders used to extrude plastics and other materials. Now Arehart is winding up his tenure, tying up loose ends, preparing for a departure that can't help but be awkward. His heir designate, chief financial officer Walter G. Cox, busies himself meanwhile with a reporter's questions and with the daily demands of the organization. But Cox, too, is visibly preoccupied with the events of the day. Speaking of his company's employees, he voices what must be on their minds as well as on his own: "They wish to hell," he says, "we'd get the power play over with."

There is no small irony in this transition. When Arehart joined the company in 1968, Xaloy (pronounced Exaloy) was operating out of a plant half the size of the current one; it had 65 employees and annual revenues of only $2.5 million. Arehart became manager in 1972, and by 1980 he had built it into a 255-employee, $11-million enterprise that controlled some 70% of the world market for bimetallic cylinders. A year later, six Chicago-based investors purchased the company in a $4.3-million leveraged buyout. Then times turned hard. Xaloy had always tried to avoid layoffs, even utilizing staggered workweeks in previous downturns, but it was so hard hit by the recession of the early 1980s that it cut 100 employees from the work force. Worse, foreign competitors, boosted by the growing strength of the dollar, were chipping away at its dominance in the marketplace. By the fiscal year ending June 30, 1983, revenues were down to $8.5 million, and the company was operating at a loss.

Xaloy fought back. It invested heavily in new equipment and technology, much of it manufactured in Japan. It experimented with innovative marketing approaches. Most significantly, it began to implement the top-to-bottom reform of manufacturing operations that goes under the name Just in Time. JIT, more than anything else, made the difference. Under its new system, Xaloy nearly doubled its sales while increasing its work force less than 10%, and moved from the red into the black.

But JIT also became a battleground, a source of tension between workers and managers, and a bone of contention between old management and new. As the new system was implemented -- and as output began to soar -- the excitement of getting the company moving again was perpetually tempered by uncertainty, and the enthusiasm by discontent. Factions appeared; lines of authority grew fuzzy. In the end, it was probably JIT that cost Hunter Arehart his job.

The story began almost a year and a half ago, in November 1983. Looking for ways to stimulate output, plant manager Kelley V. Nunley and then-production controller (now materials manager) Danny R. Porter went to a meeting in nearby Blacksburg, Va., sponsored by the American Production and Inventory Control Society. There they listened, enrapt, to an evangelistic sermon on the virtues of Just in Time preached by a professor-turned-consultant named Ed Heard.

Heard is a tall, genial man with an expansive manner and a waistline to match, the legacy of a life lived largely on the road. He has a doctorate in production management, and worked for Rockwell Manufacturing Co., in Statesboro, Ga., later becoming a full professor at the University of South Carolina. Learning about Just in Time while still in academia, he decided to turn his hand to consulting, and so far has had no cause to regret it. Today he is believed to be the only independent consultant in the country who focuses exclusively on JIT; he styles himself the "guru" of the movement. He wears expensive suits, smokes expensive cigars, and estimates that his income has quadrupled since he became a consultant.

Heard's message was, and is, simple enough. The best criterion for gauging the effectiveness of a manufacturing operation is inventory; if you have a lot of it sitting on the floor, you are probably not doing as good a job as you could be. "Inventory is simply the best indicator of manufacturing performance that we have," he says. "There is no problem, no screwup, that doesn't show up in the inventory number." Both raw materials and work in process are supposed to be where they are needed just in time -- not before, and not after.

The Xaloy delegation's reaction to this message was equally simple. "It sounded great to us," recalls Porter. A month after his Blacksburg address, Heard, who is based in Columbia, S.C., was asked to visit Xaloy and assess the possibilities for JIT.

The visit, Hard remembers, was an eye-opener. "The place scared me to death," he says. Giant logs of steel -- up to 30 feet long, and weighing up to five tons -- hung precariously from Wright cranes. "If one of those things fell, and someone was near it, it would just be goodbye," he grimaces. His other impressions: clutter, lack of organization, and an apparent history of growth by expediency. Huge piles of cylinders stacked among the boring machines and lathes suggested that Xaloy stood to gain a great deal from the implementation of JIT.

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