Back in 2002, Haider Nazar received an offer that was not difficult to refuse. Nazar's father-in-law wanted him to take over as CEO of a small precision-parts manufacturing company, Kemco Tool and Machine Company, which he owned. The 85-person firm in Kirkwood, MO, while cash-flow positive, was not growing. Worse, Kemco (since renamed Kemco Manufacturing) relied on mature programs at just a few defense contractor customers -- Boeing Co.'s Integrated Defense Systems unit accounted for 65% of Kemco's business -- and many of them were beginning to look to lower-cost, offshore suppliers for parts.
"At the time, job shop work of the sort Kemco was doing was becoming more and more commoditized," Nazar says. "Those margins were shrinking year to year. If the company didn't change and approach the market differently, this business that had been successful for 50 years would have been in jeopardy."
Not the sort of opportunity that ordinarily would attract an executive like Nazar, who was accustomed to high-growth, rapidly changing markets. Before getting the invitation to run Kemco, Nazar had been a consultant in Accenture Inc.'s San Francisco office and had acted as a key manager in two Silicon Valley software startup companies.
Nazar told his father-in-law that he'd be interested in taking over Kemco under one condition. "I said it could be interesting if we really tried to grow the business in other directions," Nazar recalls. "We had to move away from being a machine shop that relied on [the] pockets of Boeing and diversify. We needed to become a true solution provider offering contract manufacturing, engineering support services, and technology solutions."
With the approval of Kemco's owner, that's just what Nazar did. Building on a lean transformation initiative and a technology makeover, Nazar and his team have diversified the company, turning it from a low-margin job shop into a full-service contract manufacturer offering a wide range of engineering services and even an on-demand program tracking system that lets customers closely monitor the status of projects at Kemco.
These efforts have allowed Kemco to solidify its relationship with existing customers and, more importantly, to begin expanding its customer base for the first time to commercial aerospace and Department of Defense projects. And Kemco is growing again. Revenues are up 20% over the past year and 16% over the past two years. And prospects are good for significant future growth.
Kemco's ability to overcome competitive challenges facing many manufacturing companies today -- specifically its ability to transform its business model, align with customers, tune its supply network, and retrain its workforce to its competitive advantage -- have earned the company Managing Automation's Progressive Manufacturer of the Year award for 2006.
When Nazar arrived at Kemco in 2002, he knew he could not hope to attract demanding new aerospace industry customers unless he could demonstrate adherence to world-class practices within Kemco's four walls.
"We had to open up to world-class customers like Boeing and Lockheed and impress on them that we were coming to play in this world of global competition," Nazar says.
He started by introducing a new system and standard processes for procuring material, scheduling production, and optimizing pricing. Historically, since the company typically worked with only a handful of customers, it could get away with managing such information in a collection of spreadsheets and stand-alone databases. Nazar replaced those with JobBoss, an MRP package from Exact Software (Andover, MA) for contract manufacturers that supports make-to-order and engineer-to-order processes.
"As we were moving from working with a few Boeing programs to a host of new programs and interfacing with different organizations and customers, bringing all that information together and managing it consistently was critical," Nazar says.
With a consistent data management platform in place, Nazar then set out to standardize and lean out key processes. Teams of Kemco workers put together maps of existing and planned business processes. The exercise uncovered some uncomfortable truths. In some cases, for example, key business processes were completely undocumented and, as a result, inconsistent.
"The whole purchase-order-to-shipping process was not codified," Nazar recalls. "Documenting how it should work helped us all understand how we could turn new contracts into winners on the floor more systematically. It also helped everyone understand where they fit into the overall process. And with the MRP system, everyone was working off the same information."
Documenting its business processes also helped Kemco obtain quality certifications that would be critical to attracting new customers. Kemco last September received both International Organization for Standardization (ISO) 9001 and AS9100 certifications. (AS9100, managed by the International Aerospace Quality Group, is the aerospace industry equivalent of the ISO 9001 program.)
Next, Kemco focused on taking waste out of key production processes, with the goal of cutting cycle times, improving on-time deliveries, and, ultimately, improving customer service. Seeking to take advantage of high-speed machining equipment, for example, Kemco sent computer numerical control (CNC) programmers and even some production floor employees to training classes. Using advanced features in the NX2 CAD tools from UGS Corp. (Plano, TX) and the DNC Professional numerical control program management tool from Cimnet Inc (West Springfield, MA), Kemco was able to cut product cycle times on some projects by up to 85%.
Kemco was able to further reduce cycle times by implementing single minute exchange of dies (SMED) technologies and techniques on the production floor. The approach, which involves taking time and complexity out of processes used to change over the products being produced by shop floor machines, has enabled Kemco to reduce cycle times and add flexibility to production scheduling.
Kemco also improved cycle times and manufacturing quality by implementing Poka Yoke techniques on the shop floor. The approach reduces errors and improves first-time quality by configuring work cells in such a way that production workers are not able to, for example, place parts in a fixture incorrectly. The approach allowed Kemco to take some steps out of certain production processes, cutting cycle times and improving quality.
While Kemco's lean process improvements were supported by the deployment of technologies such as Exact's JobBoss software, employee training was also a critical enabling factor. Nazar shipped employees off to classes to learn about high-speed CNC programming, SMED, and Poka Yoke techniques. He also arranged for training in supply chain management to be conducted at Kemco by faculty from the School of Business Administration at Alabama A&M University. Altogether, 30% of employees in Kemco's procurement department and 60% of employees in its material and inventory control department received the supply chain management training. The training and resulting process changes helped Kemco reduce fulfillment cycle times by 30%.
All that training has been instrumental in helping Kemco develop the engineering services part of its diversification strategy. Besides contract manufacturing, the company now offers program management, planning, fixture design, and CAD services.
Of course, like many small manufacturers, Kemco didn't have lots of spare cash to pay for training. So Nazar took advantage of training assistance programs from key defense contractor customers such as Boeing, which offers to subsidize training for what it considers preferred suppliers. The supply chain management and CNC programming training were made available to Kemco as part of the Boeing Academy program. Kemco also received SMED and Poka Yoke training through the Department of Defense's Mentor-Protégé program. Boeing nominated Kemco for the program. Recently, the mentor-protégé pairing of Boeing and Kemco was named one of the 12 winners of the program's Nunn-Perry Award, which recognizes outstanding teams.
"Boeing has sort of taken us under their wing and helped us through our transformation," Nazar says.
The latest step in Kemco's transformation -- and potentially the most promising -- grew out of an initiative begun last year to improve visibility into the company's project management processes. While the new MRP system gave Kemco a way to review a project once planning was scheduled, Nazar decided the company needed a way to automate the tracking of projects all the way from the receipt of a purchase order to fulfillment.
Unable to find a suitable commercial software product or service, Nazar decided to develop his own manufacturing production lifecycle tracking and analysis tool. Teaming with iToolsOnline Ltd. (Auckland, New Zealand), a maker of Web-based project management tracking tools, Kemco created what it calls Partner Synchronization Services. PSS is a real-time reporting tool that shows the status of jobs and flags jobs that are at risk of missing milestones. The tool was modified to include the kind of program/part/part family relationship information required by aerospace and defense contractors and manufacturers. It also includes dashboards and integration with Kemco's Exact MRP software.
Nazar also offered access to the PSS tool to key customers, and the strong response inspired him to spin off a joint venture company with iToolsOnline -- called Amplify PSS -- to market the project-tracking tool along with business process and technical consulting services. Kemco customers and suppliers have shown strong interest in Amplify PSS, according to Nazar.
"We expect rapid growth at Amplify PSS over the next five years," Nazar says. "In fact, over that period revenue for the sister company could be not that far behind Kemco."
That's saying something when you consider that Kemco itself seems poised for continued growth. Thanks to Nazar's lean process improvement push, overall on-time customer deliveries have increased from 73.3% to 89.2% on average. And that kind of performance has helped Kemco diversify its customer base. Over the past two years, the company has added six new customers, including a major contract from defense contractor GKN plc (Worcestershire, UK).
Those deals, Nazar says, signal that Kemco's enterprise-wide efforts to transform the business and diversify its customer base are working.
"We're still at the beginning," he says. "There's still a lot of work to be done. But we have created a very strong base from which to build a much bigger entity."