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<TITLE>Mr. David Manke...Restructuring to Improve Product Quality and
Strengthen Market Economies</TITLE>
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<CENTER><FONT SIZE="+4">Restructuring to Improve Product Quality and
Strengthen Market Economies</FONT></CENTER>
<CENTER><FONT SIZE="+3">Mr. David Manke </FONT></CENTER>
<CENTER><FONT SIZE="+2"><I>President</I> of <I>United Technologies
International</I></FONT></CENTER>
<P>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. </P>
<P>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. </P>
<P>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 </P>
<CENTER><B><FONT SIZE="+1">RESTRUCTURING TO INCREASE COMPETITIVENESS</FONT></B></CENTER>
<P>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. </P>
<P>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. </P>
<P>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. </P>
<CENTER><B><FONT SIZE="+1">The Technique of <I>Kai Zen</I></FONT></B></CENTER>
<P>To reduce our production time, we borrowed a Japanese method called <I>kai
zen</I>. It is simply a means of focusing on improving a process. In its
best form, <I>kai zen</I> works on improving office processes, such as
purchasing and engineering, as well as on manufacturing. </P>
<P><I>Kai zen</I> is actually written with two Japanese characters. The
first, <I>kai</I>, means take apart and make anew. The second, <I>zen</I>,
is a little more complicated, but it means think, make good the actions of
others, do good deeds, help each other. So <I>kai zen</I> 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. </P>
<P>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
<I>kai zen</I> 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 <I>kai
zen</I> event, the blade took 15 days to make and traveled only 900 feet.
Today, that plant is finishing up another <I>kai zen</I> 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%. </P>
<P>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. </P>
<P>For example, we used <I>kai zen</I> 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 <I>kai zen</I> 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. <I>Kai zen</I> is about listening to
people, to the employee, to the customer, and making improvements when
they are easy and inexpensive. </P>
<CENTER><B><FONT SIZE="+1">TAKING PART IN THE GLOBAL ECONOMY</FONT></B></CENTER>
<P>As we discuss how business can help maintain a strong defense industrial
base, let us remember that <I>kai zen</I> 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. <I>Kai zen</I>
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. </P>
<P>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. </P>
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