Case Study: Emerson Power Transmission Division : Robert Amter

Case Study: Emerson Power Transmission Division

Emerson Power Transmission Division,

Emerson Electric Co.,

Ithaca, New York

Situation:

The Emerson Power Transmission Division (EPT) was created by consolidating five Emerson divisions in 1987. The largest divisions were the manufacturers of Browning sprockets and belt drives, Morse roller chain and worm gear reducers, and Sealmaster mounted bearings.

In 1988, Robert Amter was appointed President of $345 million in sales EPT. It was a profitable and well-established manufacturer, but was struggling and not achieving its objectives.

Problems:

» Unit sales and market share were deteriorating in several product lines due to gaps in the line, poor customer service, and non-competitive price points.

» EPT was not achieving the consolidation’s cost objectives. Headcount in cost accounting, manufacturing and engineering had been cut too deep in an effort to meet the cost objectives.

For example: the chain and mechanical clutch and brake plant did not have a plant manager. In addition, the periodic maintenance program had been severely reduced in the chain plant.

Some plants did not have reliable cost systems and were without routings, bills of material and labor reporting.

» The 1986 acquisition of a $15 million in sales electric clutch and brake manufacturer, which was expected to register high sales and profit growth, was losing money.

» There was duplication of manufacturing plants and functions:

– Nine plants. Need five.
– Two company employed sales organizations. Need one.
– Two IT computer operations. Need one.

» Morale was low due to:

– An unrealistic strategic plan and poor focus.
– The consolidation of two completely different cultures.
– The prospect of headcount reductions.

» Operating profit margins were at record high levels, but costs were increasing. Price increases were unlikely due to EPT’s high price points relative to competition.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Objectives:

Eliminate the obstacles to sales growth.
Maintain operating profit margins.
Improve return on total capital.

Results Achieved:

» Consolidated the Georgia sprocket plant into the Kentucky plant. Improved through-put from 7 days to 2 days and gross profit margin from 22% to 24%. Customer service reached the industry’s required level for the first time in three years. The consolidation’s return on investment was 37%.

» Opened an Atlanta sprocket rework center with large finished goods inventory to regain lost market share in the Southeast region. First year sales were $1 million with a 2% market share gain.

» Received approval for an $8 million powdered metal capital investment for the bushing and sheave product line. The objective was to drive product cost down 12% and fill the gap in the split taper line. Return on investment was 56%.

» Started the consolidation and rationalization of the manufacturing plants:

Four worm gear reducer plants into two.

The money losing electrical clutch and brake plant into the mechanical product line’s plant.

The Illinois and Kentucky mounted bearing plants into a vacant Fafnir bearing plant in Tennessee, owned by Ingersoll-Rand.

EPT’s Illinois plant was represented by a strong union. The Kentucky plant was non-union, but under constant organization pressure from the Illinois union. The Fafnir plant would be non-union with a direct labor force experienced with bearing manufacture.

Closed the money losing Ohio foundry. Reduced component product costs by purchasing from external vendors. Tried to sell the foundry for two years. The purchasers’ hold harmless requirements for environmental issues made closing the foundry more economical.

Implemented a periodic maintenance program for the chain plant’s heat treat operation. The program reduced downtime, lowered scrap costs and eliminated the use of high cost external vendors. Return on investment was 82%.

» Developed the European acquisition strategy for the chain, gearing and bearing businesses to fill product line gaps and to obtain the needed manufacturing and engineering capabilities.

» Completed product line segmentation including:

Introduced a new “drop-in” worm gear reducer to fill a product line gap.

Started the development of a light duty mounted bearing line to stop five years of market share losses in the high profit deluxe line. The investment would reduce the deluxe line’s cost 11%.

Reason I wrote my book “Learn to Whisper”

Click on this link for a more complete description of “Learn to Whisper”

The reason I wrote “Learn to Whisper”:

My conclusion after operating as a Turnaround Chief Executive Officer for more than twenty-five years is that the majority of this country’s top management is far from first-rate. In fact top management, particularly at the chief executive officer level, is at best average with a large number that can be rated mediocre. This lack of management competence has seen this country’s market leaders lose sizeable market share to foreign manufacturers able to export better quality and lower cost products to the USA. It has seen manufacturing and service operations unnecessarily moved to foreign countries. All of which has negatively affected the economy, severely damaged former blue-chip corporations and seen quality jobs lost.

It is quite common to discover that companies struggling with this inability to compete with foreign companies have been simply mismanaged. The once successful business deteriorated because of an incompetent chief executive officer and weak senior management

Why doesn’t this nation have first-rate management? Inadequate training. Chief executive officers and vice presidents learn “on the job”. A number get promoted based on personality, political connections and drive – not merit. They are not carefully screened for the potential to become successful at managing. For some all that is needed is a well-written resume, the right interviewing style and the inability of a new employer to accurately assess skills, performance and potential.

Compare this to the process doctors go through. From medical school to internship to residency to a senior role after years of education, experience and continuous training their progress and capabilities are constantly monitored even after they become senior in the profession. Generals and Admirals go through a similar protocol. They must prove themselves in low-level assignments before they are judged qualified for senior positions. Unqualified applicants in both professions are culled out. What can be done to improve management competence? Education, on-the-job training and job performance monitoring. My book will educate people on the subject of managing. Its 101 management lessons are separated into the 17 subjects managers need to know.