Staying Alive
The struggles of a business trying to survive.
The other day, I was working on a budget for our current operations, part of which involved totaling up payroll costs per hour. Right now, the company employs 14 people, and the pay totals $337 per hour (assuming a 40-hour week, and pro-rating the salaried employees). With that number of workers, using our current manufacturing methods and equipment, we can produce $2 million a year worth of goods. The projected profit should be in the range of 10 percent, $200,000 or so.
Just out of curiosity, I looked at the same sum from a couple of previous years, and by coincidence found that in 2005 my payroll costs were the same: $337 an hour. But then I had 20 people on staff, and we were producing at a rate of $1.5 million a year. And we did not make a profit. Hmmmm. What happened?
First, the big crash of 2008. In the following 12 months, headcount dwindled to a low of seven people. In 2010 we started to grow again, but this time I invested in better machines and procedures along with adding staff. Of the 20 people I had working for me in 2005, six are still here and the others have been replaced. In 2005, 15 of the 20 workers were on the shop floor, 4 in the office and 1 in the finishing room. Now, there are five on the shop floor, six in the office, two in the finishing room and one in charge of shipping. The most notable change is the shop floor — 5 from 15, with a 30 percent increase in build volume. Changes in our product mix, our designs and our workflow have resulted in an enormous increase in work value per man hour.
If you are in manufacturing, this may be a familiar story for you. Raising productivity is not optional, if you intend to stay in business. If you don’t do it, your competitors will, and you will eventually be priced out of the market. This is what was happening to us in 2005. We were making residential furniture, dining tables and chairs for the most part, using tools and methods that relied on a lot of hand work and some simple machinery. Our sales volume was increasing steadily. But we couldn’t figure out a recipe to increase production and still make money.
The stuff we were making required highly skilled workers. My core crew of six people had the chops to do the job, but paying them the going rate for those skills meant that we couldn’t afford to distract them with teaching duties, which meant that newer workers never got real training. By the time we reached 20 workers, our shop floor was a circus. The best guys were still doing good work, but the new guys were constantly in their way, and the overall productivity was poor. We lost money for years. The wipeout in 2008 had a silver lining: I was able to rid myself of the lower-performing people and rebuild our capacity with a combination of skilled people and machines that actually produced positive cash flow. Which is a wonderful thing. Having some spare money means that we can devote resources to further improvements in training and equipment.
In the last two years we have added a couple of machines (one to glue pieces of veneer together, and the other a specialized sander) that have sped up our production significantly. That process was not smooth. The veneer splicer is a real dinosaur — it was built in the ’70s from a design that has been unchanged since the ’30s. Back then, a single worker would have been assigned to run the machine and would have done it for his entire career. The machine is quite tricky to set up and run, but once you get it going, it churns out product. Because we don’t do big runs of anything, we are using it differently.
Learning how to set up the controls to accommodate all of the different woods we use took more than six months, with a lot of ruined veneer. Understandably, the guys on the shop floor grew to be very wary of the splicer, as they were never sure whether it would destroy their project. I finally tamed it by coming in over a weekend and taking closeup movies of the machine in action, which, when slowed down, finally revealed precisely what was going wrong. I confidently announced that our problems were solved at the next Monday meeting, and was met with blank stares. No one believed it. It took more months of cajoling, and a special program of recording the results of each session at the machine, to build confidence. Now we use the splicer every day, and it saves significant time.
The sander came to us in mediocre condition, and it also took several months to get the worn parts replaced, and the machine adjusted properly. Again I found myself browbeating the guys into using it, only to have something else fail. Another call to the sander technician, another thousand dollars for him to adjust a bolt or two, and we’d start all over again. The problems were eliminated, one by one, and now it, too, produces the results I anticipated.
With all of the machines functioning, the guys have had an outstanding August on the shop floor. We have a production target of $160,000 for the month, but they will complete jobs totaling $227,113. That’s a new record, by a huge margin. I gave them a paid day off on Friday to make Labor Day a four-day weekend.
Wouldn’t it be lovely to just let things be for a while? Unfortunately, I don’t feel that I can do that. The guys would probably like it — they are happiest when they know for certain that all of the machines they use will work and that they can rely on their current procedures to get the job done in time. They hate it when they try something new and it turns out to be worse than what they had been doing. So it can be tough to get them to buy into innovation, and I bet it’s going to be even tougher if our current methods are working well. I wouldn’t mind letting everything sit for a while, except I know that my competitors are out there, and I assume they are trying as hard to up their game as we do. So I’m going to have to find a way to improve things a little bit more. Maybe better machines, maybe different procedures — I’m not sure.
I fantasize about being in a business where this is not an issue, although such a thing may not exist. Maybe restaurants? Is it expected that, five years from now, you will serve the same number of people with 25 percent fewer staff members? Or plumbing? Can you suddenly fix a toilet twice as fast? That doesn’t seem possible to me, but — from a distance — other people’s businesses always seem to be easier than mine. Does anyone care to contribute their own stories of raising productivity, or why it’s not that important in your business?
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.
Article source: http://feeds.nytimes.com/click.phdo?i=2ad05170bb4b780fa87ff91d9aed5490
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