And the approach began to pay off.
During fiscal 1984, Xaloy's sales were up 70%, while employment rose only slightly. Part of the increase in productivity was due to new computerized numerically controlled equipment, and to other innovations, but JIT had played a major, perhaps predominant, role. Work-in-process inventory had been cut by an estimated 75%; all inventories had dropped some 33%, at a time when, because of stepped-up production, they might more reasonably have been expected to increase. Overall inventory turnover had doubled from four to eight turns per year. "If the inventory turns had stayed constant, we'd now have $2.5 million tied up in inventory," notes Cox. The entire cost of implementing JIT programs, including Heard's fee, amounted to $75,000, according to Cox, while the actual savings totaled "at least $500,000 and possibly as much as $750,000." That, he points out, "is not a bad return on investment."
The increased productivity was reflected directly in Xaloy's market position and profitability. Despite an increasingly strong dollar, which worked to the company's disadvantage, the company was able to recover its market share, which now stands at about 60%. It also moved from a loss position to solidly profitable circumstances. "JIT enabled us to improve our margins without increasing prices," Cox says. Somewhat less readily, he admits that it facilitated price reductions in some of its product line. On the subject of Xaloy's profits, he will confirm only that they are now substantially in excess of 10% of sales.
"Now," he says, "we're able to put money back into the plant. We've got another $400,000 in state-of-the-art machine tools coming in, and our cash position is so strong that we can either pay cash or finance it at the very best rates."
Ironically, this very success of JIT created yet another source of tension. "The year before -- a loss year, the worst year in Xaloy's history, a year in which there'd been little, if any, improvement in productivity -- workers had received a 50?-anhour increase," explains Heard."This year -- one of the best years in the company's history, and the year of its greatest jump in productivity -- they got 35?." Management justified its decision by pointing out that labor costs as a percentage of sales had not decreased, implying that workers had not, in fact, become more productive. "They didn't tell them that the reason that was true was because the benefits had been passed along in terms of lower prices," indicates Heard.
In any case, the work force didn't buy the explanation. "At Xaloy," notes Heard, "the product is very visible -- big units and relatively small volume; they can literally count what goes out the back door." So the employees felt they were being lied to, even as they were being asked for JIT suggestions. "You're depending on them, and what's in it for them?" asks Heard.
Cox explains Xaloy's thinking: Its workers were already the second-highest paid in Pulaski County; it was worried about building in overhead that might work to its disadvantage in a downturn, possibly necessitating layoffs; and it was disturbed by the dollar's growing strength. He points out that workers received a $600 bonus -- the first in a number of years -- paid for by JIT savings. But regarding their bitter disappointment, he shakes his head with honest concern. "Basically, they're all correct," he says.
"Sometimes," Heard observes ruefully, "I think that the phrase 'enlightened management' is an oxymoron."
Evan as Cox took the heat for the wage decision, though, the managerial drama that began unfolding with the advent of Just in Time was entering its final act. To many of the men on the floor, it was management -- any management -- that was the chief obstacle; to Arehart, it was the "old hands" who found it difficult to change. But to Cox and Ed Heard, it was Arehart, and now the board was coming to agree. The mixed signals, the factions, the fact that the new system championed by Cox was so obviously paying off -- it was hard for the board to ignore the need for a change at the top. The owners sought out Arehart and offered him a generous retirement package if, at age 52, he would yield his job to Cox.
Late last year, the day finally came. Arehart came out of his office shortly after noon and, with little show and no formality, called together the men working on the floor. Neither angry nor apologietic, he said simply that he had taken the company as far as he could; now the time had come for a change, and he was stepping down, retiring, effective five o'clock that very afternoon. The "power play," as Cox had characterized it, was over.
With Arehart gone, the change at Xaloy continued. Heard met with his three quality circles and discussed new JIT projects. They were working on a new method to dispose of metal chips and waste oil, a simplified "go/no-go" gauging system for measuring counterbore dimensions, and a program for eliminating blueprint problems. They were also searching for a way to avoid nicks and dents on a cylinder's surface. "A little nibbling here, a little nibbling there," is the way that Heard describes it.
Depending on who you talk to, this ongoing transformation of the company's operations has engendered mixed feelings -- of relief, of regret, of enthusiasm for a future that will in all likelihood be quite different from the past. No one doubts that, in the competitive environment faced by American industries like Xaloy, change is necessary. But neither does anyone doubt that change -- particularly when it is a change as thorough as Just in Time -- has its costs.
