Responding to change - Allegheny Ludlum's total quality program

Nation's Business, May, 1993 by Michael Barrier

Its revenues run around $1 billion a year, and it has 5,400 employees, but the specialty-steel manufacturer Allegheny Ludlum Corp. in some ways resembles a successful small company-- and not just because it serves a relatively narrow market in an industry still dominated by larger firms.

Like so many of their small-business counterparts, Allegheny's senior managers know their business from the inside out; they are metallurgical engineers, rather than accountants or lawyers. They have run the company for more than 20 years, and they have a powerful interest in how well Allegheny performs, because they own more than 40 percent of its stock.

For such reasons, what Allegheny has been doing in recent years may strike a chord in many small-business people. Allegheny has responded to the pressures of a rapidly changing, ever more competitive marketplace through a quality program that assigns productive roles to both people and machines.

Allegheny, headquartered in Pittsburgh, has long embraced the tools of quality management--it has been using statistical process control, for instance, for more than 30 years. In that time, the environment for American manufacturers of all kinds has changed radically. Consistently high quality--once regarded as a frill by manufacturers intent on spewing out goods--has become essential to survival.

Today, says Jack W. Shilling, Allegheny's vice president/technical, defective steel simply cannot be tolerated: "The customer gets very upset when they stamp 2 million pieces and 100 of them crack. The idea that it's OK if 80 percent of them don't crack--that's been gone for 15 years."

As Shilling says, "To squeeze the last rejection out of the process is tricky." In a business as capital-intensive as steel, solving such quality problems has particular urgency: Every time Allegheny has to scrap or rework a coil of steel, it effectively diminishes its very expensive production capacity. "We've been trying to increase capacity to serve a growing market," says David S. Dunn, Allegheny's quality-assurance director. "One way to do that is by cutting down rejections."

For a long time, machines took priority. As Shilling says, "Allegheny is a very technology-driven company. We had some consultants come in, and they told us that we had the most complex combination of products and processes they'd ever seen."

Allegheny is in fact a giant recycler. Unlike the so-called integrated steel companies, whose basic raw material is iron ore, Allegheny starts with scrap like old cars, to which such "virgin materials" as chromium and nickel are added, to make stainless steel (which accounts for most of its sales) and high-value alloys. Allegheny is the largest manufacturer of such specialty steels; its output goes into products as diverse as cookware, the handle of Gillette's Sensor razor, and the shutter doors for 3 1/2-inch computer diskettes.

To control the complexity, Allegheny has for many years relied on computers, to the point that now paper has been banished from most production floors. Allegheny is writing software that will, in Shilling's words, "load every order, when it's entered, exactly onto the mill equipment that will he used, in terms of minutes of production time, so we can make maximum use of our equipment."

That software is the only missing piece in an otherwise comprehensive computer system whose hallmark is a free flow of information. The data generated by each piece of equipment is available not just on the production line but throughout the company. Thanks to such data, many quality problems can be isolated, analyzed, and solved "in a matter of days," Shilling says, instead of the weeks or months that solutions required in the past.

So thoroughly are Allegheny's production lines controlled by computers that operators might seem almost superfluous. "We've taken the operators out of some of the things they used to involved in," Shilling says. "No question about that."

But, he adds, well-trained workers are still critical: "You need a mixture of things in the steel industry" to have a successful quality program. "If you don't have good technology, you will not be successful. But you need a lot more than that. Most of our competition can go out and buy the same technology that we have"--and in a few cases, for certain machines doing certain things, competitors have bought even better technology.

"We realized back in the early '80s," Shilling continues, "that there was a component of our quality-improvement process that was missing--not entirely missing, but underemphasized."

In 1982, Allegheny formed a committee, headed by Shilling, to identify opportunities for 'quality improvement. The committee found a need for greater employee involvement. "That was the one leg of the stool that we really were missing," says Terrence L. Hartford, who directs the employee-involvement program that Allegheny calls Manufacturing Excellence, or ME.

ME is a team-based program, in classic quality-management fashion but one tal1ored to Allegheny's technology-heavy environment, in which activity must be coordinated carefully, so that valuable machines do not go to waste.