Staying Alive
The struggles of a business trying to survive.
Well, commenters to my last post quickly revealed why I am not a wealthy and successful businessman.
My calculations of the cash cost of training “Bill,” our theoretical new engineer, were faulty. In my desire to make a point, I included the wage cost of both workers involved as additional expense of training, when I should have been sufficiently appalled by the value of the lost production. As Arend from Europe pointed out, the real cost of training, during the period when the engineer is fully occupied in training the newbie, is $170 per hour, or $6,800. The cost of the ramp-up period, 13 weeks, is the cost of the lost shop output ($80) less the output of an engineer at 50 percent efficiency ($45), which equals a cost of $35 per hour, for an additional expense of $18,200. The total cost is $25,000, not $43,720. But I stand by my original thesis: Training is expensive.
Many commenters objected to the concept that training a worker should be considered a cost, emphasizing that the additional engineering capacity would provide for more output, and presumably more profit, at some point in the future. I have no beef with this thinking, but that’s not what I was writing about. I stopped my analysis at the consideration of the amount of money involved in training, because that in itself is a huge problem for a struggling business. You can’t reap the rewards if you can’t afford the investment. Twenty-five thousand dollars is a quarter of my average working capital this year. I would think long and hard about whether spending it makes me vulnerable to some unexpected event.
If I do make this change in my own shop floor, my bank balance isn’t the only place where I will take a hit. I will also need to add in the expense of finding and training a replacement for Bill. Putting a new guy out on the floor means that the shop foreman is subjected to the same kind of distraction that my engineer was. No one starts a new job and operates at 100 percent efficiency on Day 1, at least not in a highly skilled shop like ours. So there’s a ripple effect from new hires and lateral promotions that inevitably affects our shipping schedule, and that means further cash flow disruption, as well as the potential for issues with unhappy clients.
If my business had extra cash on hand, and the engineer had a bunch of extra time available, then I would feel much more comfortable about starting training. Unfortunately, we are still recovering from a slow spring, and I need the second guy only because the first one is tapped out. This is what stinks about being small. You just don’t have extra capacity. The leap from one engineer to two is hard, which is why I found this comment from HT to be so unrealistic. Here’s the meat of HT’s thesis:
1) You are operating below 100 percent capacity, so Bill has some downtime when he’s not doing billable bench labor, and he can fill that time with training.
2) There are other workers who also have downtime during which they can pick up some of Bill’s work, so even some of Bill’s “lost billable hours” are compensated for.
3) Bill will be willing to put in extra hours during this training, so even if you are paying him hourly, these extra hours are not “lost billable hours” since he wouldn’t have worked those hours before the training.
4) A full-time employee with benefits like Bill may be salaried, in which case you could ask him to put in a significant amount of extra hours during the training period, costing you $0 per hour and further mitigating Bill’s reduced billable hour output.
HT, I appreciate your contribution, but none of that applies to us. There is no such thing as downtime. There is time spent doing things we are paid for, and there is all of the other time. As long as we have a backlog of work, and we always do, time spent on any other activity is a cost. It’s not just the value of the work we didn’t do, but there are also the fixed costs: rent, electricity, heat, insurance, etc. They never stop. Ideally, neither would my workers. If they are willing to work extra hours, I want that time devoted to paid work.
In my last post, I tossed in my observations on using specialized drafting software — and its implications for hiring — as a kind of afterthought. I was surprised at the lively discussion that resulted. Many people wondered why I don’t hire workers fresh out of community college to fill the engineering position. They correctly observed that this shifts the costs away from me and onto an institution that can deliver training more efficiently.
I should tell you that I made my only engineering hire in 1997, so it’s been 15 years since I last encountered this problem. My engineer started on the shop floor, and worked there for two years before I moved him into the office. The world has changed since he started. Graduates these days do have computer skills, but they tend to be entirely divorced from the experience of making physical objects. Shop class and apprenticeships are gone. I discussed this with my engineer and my shop foreman today, and we all agreed that the lack of shop-floor experience would be a crippling impediment for the next engineer.
College courses do provide a good introduction to how to use a computer program, but the real issue is knowing what to draw. Manufacturing any physical object is complicated. Our primary material, wood, is more difficult than most. And our procedures on the shop floor are varied and subtle. It took years of close collaboration between my engineer and my shop floor guys to develop programming that works for us. A designer who doesn’t know the shop floor in his bones will cause more trouble than he’s worth. (I don’t mean to be sexist, but the vast majority of cabinetmakers are guys.) I’ll stick with my plan to move an experienced bench hand into the office as the second engineer.
I should also add that I made the decision to use PowerCADD in 1996, when I was new to computers. Autocad didn’t have quite the dominant position then that it has today, so it wasn’t obvious that my choice would cause problems 16 years later. This was also before I had access to the Internet, so I wasn’t able to solicit a wide range of opinions about which program to choose. An architect I knew was using PowerCADD, he loved it, and that was good enough for me. And, to be honest, it really hasn’t been an issue in day-to-day operations. We don’t need to exchange drawings with architects very often. We did do more work with architects in 2007 and 2008, so we bought a copy of Autocad and my engineer learned to do basic work with it. Every now and then we fire it up to read or translate a drawing. That’s been fine.
Every program can read pdf formats these days, so that’s how we share drawings when we need to. Also, Autocad and PowerCADD are conceptually quite different. PowerCADD is much better at making the proposals that we show clients. In my mind this is a classic “ain’t broke, don’t fix it” situation. There’s never been a day when switching to Autocad was the best use of our time, and I don’t see that day arriving anytime soon. We’ll keep things as they are as long as my computers will run PowerCADD.
Thanks to all of the commenters. I always appreciate the effort people put into them, even when my own shortcomings are exposed. I have never claimed to be a genius, and I offer my own failures for their educational value. If they help another small-business owner avoid a fatal error, we’ve done some good.
Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.
Article source: http://boss.blogs.nytimes.com/2012/12/10/something-in-my-last-post-didnt-add-up/?partner=rss&emc=rss