Mike Ryan talks about what he did to improve a company experiencing 24 consecutive months of losses.

When Mike Ryan arrived at Tug Technologies Corp. as president and CEO in mid-September of 2006, the company had been losing money for 20 straight months. “This was a company that had a negative bottom line each month,” Ryan said. “It was struggling in an unique market. But today, we’re the epitome of a successful turnaround.”

Tug Technologies, based in Marietta, Ga., manufactures equipment for the airline industry, such as bag tractors that pull the luggage carts, belt loaders to put luggage in the belly of planes, gate tractors that push planes away from the gates, AC and ground power units, as well as air starts that bring ignition to a plane’s turbine engines.

The business has historically been cyclical—the airlines are either bankrupt or not bankrupt, explained Ryan. The other challenge for companies in this arena is that products only sell when the airlines have the cash to buy them. “Our competition is our customers trying to extend product life through continued maintenance and repair,” Ryan said.

Mike Ryan

Keeping up with demand
Tug Technologies was founded in 1973 and sold to private equity fund Jacobson Partners in early 2005. As a managing general partner of Jacobson Partners, Ryan has been working with Tug Technologies for just about seven months. Managing the acquisition process and the operations requirements of the partnership is Ryan’s other responsibility.

In March and April of 2007, Tug Technologies made money for the first time in two years. “We improved the operational margin by several percentage points in just six months,” Ryan said. “We’ve experienced significant improvement in quality and delivery as well.”

Ryan and CFO Mike Klaes put together a three-year strategic plan in October 2006—an aggressive plan to implement lean policies. “Most people that are generalists would call it the Toyota production system,” Ryan said. “It’s a method for increasing productivity, reducing costs, improving quality, and providing customers with reliable delivery. We’ve moved from mass production toward balanced flow.”

The concept was deployed at Tug to improve the overall cost structure, and Ryan’s team has already seen dramatically reduced costs. Creating flow lines for assembling its vehicles, Tug created distinct stations and assembly process lines. Each station has defined standard work for the operators, who know exactly what they’re supposed to do for each station. Each operator is certified for a station’s requirements, and each station has only the inventory and tools necessary for use internal to each line segment.

“We call that standard work or perfect balance. The customer demand is defined not by pieces per day, but by the inverse measured as takt time, which is minutes per piece. We measure how long it takes to make a vehicle as lead time, and how long it takes to finish work in each station as cycle time, allowing us to keep up with the demand in the field as defined by our customer,” Ryan said.

For example, Tug’s highest volume product is the baggage tractor; the company manufactures more than 1,200 of them each year. To meet customer demand, Tug must make one baggage tractor every 67 minutes. “This enables our airline customer to knowingly deliver on time to their customer,” said Ryan, explaining that it’s disruptive to the airlines if Tug is late in delivering a product to specific airports because they can’t unload/load the planes if the equipment isn’t there. “It’s that kind of service to our customer that represents itself in improved delivery performance,” he said.

“We create a balance with each station along the assembly process. The 67 minutes of allowed time to build one vehicle off the line also represents the maximum time that’s available for the operators to build the requirements of that station,” he said. “We have to have a vehicle every 67 minutes, so every operator in each station has to do their standard work inside of the 67-minute takt time.”

Quality improvement
Tug also works closely with suppliers to implement lean to balance work in the supply chain. These method changes have enabled the company to improve its throughput by about 26% on its assembly lines. The company also improved its inventory level, which gets measured in turns (how much inventory replenishes itself in one year’s time). “We moved the inventory up from three turns to seven turns,” Ryan said. “We have less than half of the inventory we had two years ago.”

This overall effort is coordinated with Tug Technologies’ supply base, which enables them to be more efficient as well. The quality in the field has so far been nearly flawless, and final inspection has found the products to have significantly less defects. Tug has about 17,000 baggage tractors in domestic service around the country. According to Ryan, many of them are in double-digit years of service. The machines last from 10 to 20 years, and the company also sells service parts to help customers maintain the machines over time.

“Some people think improved quality needs to costs money,” said Ryan. “My theory is that quality improvement is caused by better and balanced processes that allow lower cost, and they all go together. Productivity answers quality and vice versa. We’re premium priced in the market, so we’re not inexpensive, but when the customers buy a Tug product, they get the benefit of longer performance. Our equipment uptime is better than our competitors’, and it’s easier to service,” he concluded.