Gainsharing Drives Quality Improvement
Ross, Timothy L., Hatcher, Larry, Personnel Journal
Flying high on the flagpole in front of the Evart Products Co. in Evart, Michigan, is a flag designating the company as a winner of the Chrysler Corp. Quality Excellence Award. This much-coveted award goes only to facilities in which defect rates are less than .040%--that's four defective products per 10,000 shipped.
It wasn't long ago, however, that the company, which supplies automotive assembly plants with exterior signal lighting, high-mount stop lights, dashliners, pads, trims and other plastic products, was flying in the face of disaster. Just ask Larry Roman, Evart's plant manager--he can remember when the defect rate was a whopping 437 defective parts per 10,000.
"Four years ago, I received complaint calls--and sometimes multiple complaint calls--every week from managers at assembly plants because we were rated as one of the five worst suppliers in almost every plant. I'm talking about out of all their outside suppliers--hundreds or maybe thousands of suppliers. We were shipping them junk," says Roman.
Evart's high rate of defective products didn't go unnoticed by its former parent company, American Motors Corp. (AMC), either. By 1986, Evart's future was in jeopardy. "The plant was in trouble with AMC," says Roman. "Before Chrysler bought out the whole AMC corporation in 1987!, there was a question about whether it would sell Evart or shut it down."
Knowing something had to be done to turn the company around, a task force of corporate-and plant-level managers, including the personnel manager, Mike Critchfield, was formed to explore the organization's options. In late 1986, this group concluded that gainsharing offered the greatest potential for addressing the firm's many problems. The pros and cons of this approach were discussed with all employees in large town meetings in late 1986 and early 1987. In June 1987, more than 90% of the employees voted to implement a gainsharing plan for a trial period of one year. (The trial period later was expanded to 18 months.)
The gainsharing plan worked. In just four years, Evart has pulled off an impressive turnaround. For example:
* The 1991 defect rate stands at just two defects per 10,000 parts shipped
* The company has earned numerous awards for its achievements in product quality
* Evart's much-improved reputation has allowed it to capture business from other facilities, making it the largest supplier of nonheadlight lighting systems to Chrysler
* The company has achieved a level of management and nonmanagement cooperation and employee involvement that's unheard-of in most automotive plants.
Quest Plan is a high-involvement program. Quest Plan, Evart's gainsharing program, can be described as a high-involvement gainsharing plan because it consists of two parts: 1) a bonus calculation that pays employees regular bonuses for improved company performance; and 2) a structured employee suggestion system that facilitates employee participation through the involvement of nonmanagement employees in work decisions.
What's unusual about Quest Plan is that the bonus and the involvement system work in tandem to create organizational change. The bonus gives workers the motivation to improve productivity and quality, while the involvement system gives them the power actually to make these changes. At the same time, the interlocking nature of the three-tiered framework of committees included in the suggestion program fosters better communication, coordination and working relationships.
With Evart's bonus calculation, the amount of actual production taking place is assessed each month, and the allowed costs associated with this level of production then are determined. The allowed costs are an estimate of how much it should have cost to produce these goods, based on the way the plant has performed historically.
Employees achieve a gain (improve the overall performance of the company) when the actual costs of production are lower than the allowed costs for that month. …