The word ‘productivity’ is synonymous with manufacturing companies; however productivity can be measured and improved in all types of businesses.
Let’s use the example of a production company; an organisation which earns at least a portion of its income by charging a rate for the hours taken on a job – whether it be a professional firm or service company which charges ‘by the hour’, or a manufacturing business which has a labour component built into its price. The starting point is to ask “How busy are you?”
The answer is quite often – “We’re flat to the boards. Everyone is as busy as a one armed wallpaper hanger.”
That’s nice – but you’ve got to dig deeper.
By looking at the charges made for ‘labour’ (or professional fees or whatever other term is used to describe the manhours sold) in any given week and comparing it against the number of hours that are available for charge out, you can quickly measure a business’ real productivity.
As an example, a smallish manufacturing business has a full time ‘production team’ of 8 people. Given that they were all working 37.5 hours per week, that meant there were a total of (8 x 37.5 =) 300 hours per week available for charge out.
When the invoices were checked, it is found that the business was charging out around $8,000 worth of labour to clients per week. It is also discovered the labour charge out rate for this business was $45 per hour, which meant the business had a potential productivity of (300 x $45 =) $13,500 per week.
The $8,000 which it was actually charging out was the equivalent of only ($8,000 ÷ $45 per hour =) 177 hours and 43 minutes. This is clearly well short of the 300 hours it had available.
In fact, further calculations uncover that, in real terms, the business was only achieving ($8,000 ÷ $13,500 =) 59.25% productivity.
“Bull#%@*!” roars the client, when brought to his attention. “Everyone here is working on something for every minute of the day. Nobody rests for a second. I won’t let them!”
So what is going on?
Yes the staff may all be busy, but remember that ‘busy’ doesn’t necessarily mean ‘productive’.”
Here’s what was happening. Jobs which were estimated at 1 hour were routinely taking up to 1 hour and 25 minutes. Bigger jobs were blowing out by even larger amounts. Many small jobs were being done without job cards being raised and so the time spent on them wasn’t being charged to any customer.
But the main problem is what is called “the vacuum principle.” Specifically, the time taken to complete a task will invariably expand to fit the amount of time available.
In line with this theory, production staff were routinely working on a job, smoothing off the rough edges and filling in time until the next job arrived – yet this was not being reflected on the job cards. Instead, the estimated time was charged to the client regardless of how long the job actually took.
And in addition to all of this, some production staff were routinely spending time on administrative and other matters which had no charge out value attached to them at all.
As always, the solution is a fairly simple once the problem has been identified.
A simple change needs to be made to the job cards to allow the production staff to record the actual amount of time spent on the job, next to the budgeted time. As soon as the staff had to record their start and finish time on the job, they began to concentrate on getting the project completed within the time which had been estimated.
A simple incentive program can be introduced to reward highly productive workers. Graphs can be placed on the walls of the lunch-room so that everyone could see how their performance compared with the others on the team. Under-performers are quickly identified and either pulled into line with the other workers (usually by the other workers) or they have a “career adjustment interview”.
Of course, in some cases the staff simply can’t complete their jobs in the time allowed because the estimated time was too short. Adjustments then need to be made to the foreman’s scheduling system to ensure that he allows more time for these jobs, and the revised estimate is used thereafter when costing a job.
Even with these modifications there will still be occasions when the jobs run over the budgeted time. To guard against this, new ‘estimates’ forms can be drawn up to explain to the customer that the estimate was subject to no further work being needed once the job was begun. In the event that further work is found to be necessary, the form requires for the customer to be contacted and advised. Customers should also be offered an updated estimate and an opportunity to have the work done elsewhere if they do not feel the revised price is justified.
Want to see the results? The business now invoices $12,100 worth of labour per week (which is an increase of 51.25%). Productivity is now 89.6% or 33 hours and 36 minutes per production worker (which is about as much as you can hope for, while still allowing for maintenance work and the inevitable down time that occurs between jobs). Net profitability has increased by around $1,880 per week…
…and they’re still working with the same number of staff and the same number of clients.
The point is this…
“You can’t manage what you can’t (or don’t) measure” … and “What gets measured, gets done.”
If you’re not already measuring the productivity of your people, you must begin to do so.
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