Business Model Winner: Athena Controls, Inc.

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Posted on Jun 09, 2006

Not long ago, Athena Controls Inc. was feeling the heat and, by all appearances, about to vaporize. The small maker of digital and analog temperature control instruments used by process manufacturers had thrived for most of its 36 years by putting out a high-quality product and catering to customers. By 2001, however, the Plymouth Meeting, PA, company had lost its way. Order-to-delivery cycle times were ballooning, and customers were jumping to competitors with alarming frequency. In just a few years, annual sales fell from $12 million to about $7 million. "It was clear that there was a great need to change the organization if it was to prosper in the future," says Brian Maskell, a consultant and principal at BMA Inc. (Cherry Hill, NJ) who worked with Athena. "It was clear that they couldn't keep going the way they were." Managers at Athena decided to launch a lean transformation project intended to help the company reduce costs, improve quality, and repair relationships with customers. Like many lean initiatives, the project at Athena has run hot and cold, clicking right away in some areas of the enterprise and running into major resistance in others. The company, however, has persisted along the lean path, reaping major payoffs along the way. The lean initiative, for example, resulted in a major reorganization at Athena that eliminated many of the barriers between traditional business functions that stood in the way of serving customers. As a result, the company has been able to reduce manufacturing cycle times from nine weeks to two days and trim customer delivery lead times from three weeks to just a few days while cutting labor costs from 17% of sales to 11% of sales. As a result of the slashed cycle times, customers are coming back. The company, which is privately owned by legendary industrialist Henry Rowan, saw revenues last year grow to $9 million, and Athena expects $10 million in sales this year. "The lean initiative has helped us transform into a much more customer-focused business, and that's enabled us to survive and grow again," says Sal Runfola, Athena's former vice president of operations and order fulfillment value stream manager, who has since become operations director at another company. "It's been a lot of hard work, but it's paying off." Persistence Pays Because of the persistence Athena showed in sticking with its lean transformation, and the results it has achieved, the company has earned the Managing Automation Progressive Manufacturing Award for Business Model Mastery for 2006. The award honors a company that has been able to rethink and transform major parts of its business in order to enhance its competitiveness. Many of Athena's pre-lean problems, Runfola says, can be traced back to production methods that didn't match up with market realities and to the company's traditional, highly stove-piped organizational structure. On the manufacturing front, while customers were increasingly pushing for quick turnarounds, Athena was clinging to a traditional make-to-stock approach that emphasized equipment utilization over customer service. Sales orders were translated into work orders which were translated into part kits which moved through stock room storage areas before finally being assembled into the final product. On average, the process took nine weeks. Plant floor employees were treated like artisans, Runfola says, and most were trained to work on only one production line. "If someone was absent from work, that product would probably not be built that day." The situation was only made worse by Athena's stove-piped organization. Like most manufacturers, Athena was broken up into several functional groups -- sales and marketing, engineering, manufacturing, accounting, purchasing, and HR -- each with an executive reporting to the company's president. Often, Runfola says, these groups focused only on accomplishing a subset of tasks needed to fulfill a customer order. Handoffs of information and deliverables between functions were often clumsy and time-consuming, and no one was concerned with speeding up the end-to-end order-to-fulfillment process. "Sales and marketing would say, 'We booked the order, it's your job to get it out.' Manufacturing would say, 'How can I produce this? I'm already oversubscribed on my capacity?'" Runfola recalls. "And the purchasing guy would say, 'I can't get the parts on this schedule.' Nobody was working on creating value for the customer." In 2001, Rowan hired Runfola to help reduce waste, cut costs, and improve customer service at Athena. Runfola, who had been involved in a successful lean initiative at electrical power supplies manufacturer Lambda EMI Inc. (Neptune, NJ) before joining Athena, recommended that Athena transform using lean principles. As a start, he pushed for lean training, current process mapping, and kaizen sessions across all of the company's functional groups. He gave workers six months to come up with process changes that would substantially reduce waste and cycle times. At the outset, however, Runfola and the lean transformation initiative ran into resistance. Managers in some parts of the business, he says, did not understand or believe in lean principles, and their skepticism filtered down to subordinates. Even the company's then-president resisted lean changes if they meant sacrifices for allies or their organizations. So Runfola and his team decided to focus first on implementing lean on the manufacturing floor. They conducted a major production area housecleaning, created dedicated lean work cells, and eliminated work orders, kits, and stock room storage. Sales orders were used as authorization to build. Visual schedule boards were posted, and customer-focused teams were organized. Runfola and his team cross-trained production employees to work in both the sensors and controls-building areas. The team also streamlined the process for changing the parts that were being made on the component insertion machines on the plant floor. And, to support the lean initiative, Athena deployed a new enterprise resource planning system, WinMan ERP from TTW Services Ltd. (Leesburg, VA). With features such as point-of-use inventory control and manufacturing backflush processing, the WinMan ERP system supported Athena's new lean processes with a minimum of customization, Runfola says. As a result of these changes, Athena was able to reduce manufacturing cycle times from an average of nine weeks to two days. Manufacturing floor space utilization improved by 30%. And, by eliminating work orders and building to specific customer orders, manufacturing virtually eliminated work-in-progress and finished-goods inventory. Total inventory was cut by 68%. Lean Expands As impressive as those results are, the big business process change at Athena came two years ago when a new president, Joe Sroka, took over. Inspired in part by the lean progress in the company's manufacturing area, Sroka ordered a major restructuring of Athena. Sroka replaced Athena's old stove-pipe organization with a much simpler structure based on what it calls two value streams. One, the Order Fulfillment Value Stream, includes all the roles necessary to deliver products and invoices to customers once a purchase order is received. The second, the New Opportunity Value Stream, includes roles that are responsible for finding new opportunities at existing customer companies, finding new customers, and developing new products. Each value stream has its own profit-and-loss responsibility, and each reports through a single value stream manager who, in turn, reports to Sroka. The new organization structure means that functions that used to battle one another are now motivated to cooperate. Customer delivery lead times have been cut from an average of two or three weeks to just days. "Athena's breakthrough came when they organized by value streams and moved away from a departmental approach," says consultant Maskell. "They organized themselves to match the flow of their business, and that's helped them become much more customer-centric." In fact, Runfola says, the lean transformation has helped Athena create better relationships with its customers. Since customers can count on getting quick deliveries, they are more likely to order from Athena, and less likely to make large, blanket orders to compensate for long lead times. Customers now order parts on an as-needed basis, which gives Athena a more accurate view of true market demand. Now that orders are on the rise, Athena is going one step further to strengthen relations with its best customers by offering them virtually instant delivery on orders. Athena has begun keeping specific quantities of finished products on hand that can be shipped to specific customers on demand. In exchange, customers agree to pay inventory costs if they decide to turn to another supplier. So far, none have. "These customers are now connected to us at the hip," Runfola says. "They wouldn't think of leaving." Athena's next step is to apply lean principles to its New Opportunity Value Stream functions. Those efforts are just getting underway, so Runfola can't claim success there yet. Thanks to the lean transformation elsewhere in the company, however, Runfola has taken some of the heat off of Athena Controls.

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