United Technologies (UTC) is a $23 billion company with an identity crisis. Many in the defense industry are familiar with some of our companies Pratt & Whitney, Sikorsky but we also own Otis Elevator, Carrier Air Conditioning, and a large automotive company. Having such different operations gives us an interesting perspective on doing business. For example, Otis (the largest elevator company in the world) and Carrier (the largest air conditioning company) choose not to do business with the U.S. government because it is too difficult.
While 1989 was a very significant year for the countries of Central Europe and their economies, it was also the beginning of the transformation of the largest economy in the world, that of the United States. In 1989, the U.S. was headed for recession, and beginning a $500 billion bailout of our savings and loan industry. The Dow Jones average was at 2,500. A decade of mergers and leveraged buyouts had left many U.S. companies with dangerously high levels of debt. The U.S. was ranked third in the global competitiveness index; Japan was ranked number one.
Where is the U.S. today Corporate profits are rising at double digit rates. We have low inflation, steady growth, and strong job creation. We have an unemployment rate less than half that of Western Europe, and we are the number one source of foreign direct investment in the world as well as the number one host for foreign direct investment. For the third year in a row, the U.S. has been the most competitive country in the world. What brought about this change
While SACEUR and his Major Subordinate Commanders have described the three Rs that made deployment in Bosnia successful, I would like to discuss another three Rs: restructuring, refinancing, and refocusing. These three Rs brought about the great change in our economy, but I will concentrate on restructuring.
Of course, the word "restructuring" has a number of connotations, of which some are rather pejorative. "Restructuring" often suggests that a corporation intends to throw many workers out into the street and stop investing in new products in order to make its shareholders and top executives rich in the short run. Restructuring can cause people to lose their jobs, but, when it is done correctly, it also assures that many more people will be able to keep their jobs in the face of fierce and growing global competition. Restructuring also takes different forms in different companies, but because UTC is a manufacturing company, I will focus on how UTC's restructuring has been implemented in our factories.
The goal of our restructuring was to become a world class manufacturer by delivering products that meet the needs of our customers. And our customers' needs are quite simple: they want the product fast, at the lowest possible cost, and with zero defects. Interestingly enough, when we started working to meet these three needs, we found that by working on speed, cost and quality actually followed.
To reduce our production time, we borrowed a Japanese method called kai zen. It is simply a means of focusing on improving a process. In its best form, kai zen works on improving office processes, such as purchasing and engineering, as well as on manufacturing.
Kai zen is actually written with two Japanese characters. The first, kai, means take apart and make anew. The second, zen, is a little more complicated, but it means think, make good the actions of others, do good deeds, help each other. So kai zen means make other people's jobs easier by taking them apart, studying them, and improving them. This is literally what we do. We go into a section of a factory or the entire factory. We stop work in the factory and have all levels of employees, from machine operators to design engineers to the factory manager, roll up their sleeves, look at a particular process, and think about it. Involving and empowering these different people is very important, because inevitably our best recommendations come from the people on the shop floor who actually make the product.
When you empower people, they start to do amazing things: they unbolt machines from the floor, they even knock down walls. For example, in one of our plants we make turbine blades for jet engines. In 1993, we held a kai zen event there to improve the process of making the blades. Since a good measure of efficiency is how far a product travels during production, it is significant that each blade initially took 27 days to make and traveled 3,000 feet during the course of its completion. In 1995, after putting into effect some of the changes that resulted from the kai zen event, the blade took 15 days to make and traveled only 900 feet. Today, that plant is finishing up another kai zen event, and the result of that will be that each blade will take 2.5 days to make and will travel only 500 feet. As we increased production speed, defects were reduced by 30%.
Now, much of this improvement can be translated to work with our governments. The U.S. government can help by giving us enough flexibility and Under Secretary of Defense Paul Kaminski is helping so that we can empower our people to make changes in the production lines where we make government products.
For example, we used kai zen on part of the F-22, the new generation fighter in the U.S. Air Force for which we make the engine. We decided to have the kai zen event before we actually made the engine, because it is easier to change things then. In particular, we looked at the engine's externals with people from Boeing and Lockheed, the two air frame partners; the U.S. Air Force; some Pratt engineers; and several master sergeant mechanics who would actually work on the engine. We sat everyone down with the externals and asked, "Well, what are the problems " Reasonably enough, the mechanics said, "It seems that we need too many wrenches and sockets 14 wrenches and 28 sockets to work on the externals of these engines." So we changed the size of some of the nuts; we did not let our engineers decide the size, but we let the mechanics do it. And now we are down to four wrenches and five sockets. We no longer have lock wires, and we have flexible hoses for plumbing. We also made the replaceable line units one deep, so they are much easier to get at. Now the replacement time for any of these lines on the externals is only 18 minutes. Kai zen is about listening to people, to the employee, to the customer, and making improvements when they are easy and inexpensive.
As we discuss how business can help maintain a strong defense industrial base, let us remember that kai zen can be used around the world, not just with U.S. products. In fact, we have already used it at our joint venture factory, which is located just outside Prague. Kai zen events there have been very productive, and we think they have helped to make this factory one of the lowest cost, most efficient propeller factories in the world today.
In Poland, we are also taking part in a joint venture in which we make parts for some of our turbo prop engines. Those parts travel all over the world. Some go on to Montreal, where they're placed in PT-6s. Then those PT-6s get placed in a container and end up in China, where they're placed in Y-12s. So Poland and Central Europe are working within the global economy. And with ISO 9000 certification and additional joint ventures we will continue to have such cross country acquisition. While there may be some short term issues with Europe and the Eastern European Union, we should be able to send a lot of Central European products to Asia, and that is a very good market indeed.
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