Employees - Wages, Retention and Productivity

wage

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Lean manufacturing and productivity are all about the practice of team efforts. You cannot achieve high-efficiency rates without excellent employee and management practices. A lot of companies claim to have very good employee practices, but too many deceive themselves. A common statement by employers is often, “We just cannot find the right employees to be dependable and work hard anymore.” But employees often have the following complaint: “We are treated like mushrooms in that we are kept in the dark and fed horse manure.”

This is a very touchy subject for most companies and employees. In this article, I am going to be blunt and straight forward with my thoughts regarding this subject matter. I will impart to you what human-resources gurus take years of training to understand and disseminate to the masses. Let us start by understanding some basic truths of productivity.

Most production problems are caused by…

Total Output Issues – Poor retention of employees, there is always an employee shortage to fill all the positions needed for full production. Also, because of low employee retention, a company’s staff is often poorly trained and not skilled enough.

Quality Issues – Normally caused by low employee retention, a company’s staff is often poorly trained and not skilled enough.

If you are a manufacturer and you desire high efficiency with high-quality products and good services for your customers, you know you need good employees to deliver this. You claim that employees are the most important part of your business. So it should not come as a shock to you that poor productivity and quality issues are caused by too few employees and also too many new employees in your group. How can your company possibly be at its most productive when they are constantly hiring and training new employees? I know what some of you are thinking at this very moment: “Oh Todd, we treat our employee very well, and it’s not the company’s practices causing these issues.” Please bear with me and keep reading. I know this is difficult for some of you, but if you truly want to resolve production and quality issues in any department, it is all about the employees.

Industrial engineers are taught that most skilled positions take an average of three years of experience to reach full potential. Typically, a three-year-experienced worker is usually twice as productive as a new hire. Experienced workers not only produce more units per hour but also higher quality with fewer mistakes. So how can any department within your company reach maximum output if you have a high percentage of new employees with very little experience? The answer is simple, you cannot. Client statement: “Oh, but Todd, how difficult is it to cut lumber or assemble trusses?” Honestly, I hear this too often from clients. Let me give you an example to illustrate the hand-eye skills needed in the truss manufacturing process. If I am working on my house, adding a new room or fixing the roof shingles, my wife will know this simply by seeing me at the end of the day. I do not have to say a word to her. Now. why is this? It is simple because at some point in the day I will have injured my hands in some way. That’s right, I will have smacked my finger or cut myself. I do not use my hands like this every day, so my hand-eye coordination is poor compared to any shop employee assembling trusses all day. Now, I consider myself a semi-intelligent individual who knows how to perform the different tasks involved in the truss manufacturing facility. (I teach how to do this faster and better for a living!) But do you honestly believe that I, or maybe even you, would be as fast and as competent as your experienced truss assemblers? The same thing applies to your design staff. How much faster and of higher quality standards would your designers, who have years of experience, be compared to someone who barely knows the design software? You should know that it takes a long time just to be competent in using design software. If I cannot convince you that you need to retain competent personnel for the highest quality and efficiency output possible, then I truly pity your employees. By far and away the worst companies I have witnessed with the most problems are always the ones that cannot find and keep the “right” employees or hire enough employees. The “right” employee is a common client term, which simply refers to the inability to attract and retain highly skilled and dependable employees because their company’s employee practices are less than optimal (and I’m being kind in using the term “less than optimal”).

Here is an exercise you should perform within your company: Choose a department, such as manufacturing, and add up the number of positions it would take to be fully staffed. Let us assume it requires 40 different positions, from the lumber pickers to the truss stackers. Now, here is the typical scenario in the USA: Approximately 1/3 of the group has been with the company longer than three years. Approximately 1/3 has been with the group for about one to three years. And the remaining is constantly being turned over because they only last weeks, let alone months. So this would mean you have 40 x 0.33 = 12 new employees every year. But when you look at the actual hiring, you will most likely see 24 or more new hires per year. So, purely by the numbers, you have a greater than 50% turnover rate. Most companies in the USA have a 100% turnover rate while in Canada they have less than 25%. Have you ever stopped and thought about all the time being wasted trying to teach new people how to do their jobs correctly? How about just trying to catch all the mistakes the new hires are making? Any production manager will tell you it costs the company far more than most realize. If you actually retained just four of the new hires per year, you would be fully staffed with long-term employees within just three years.

I-QuitIf you have a high turnover ratio you have two problems:

  • Recognizing the right employees to keep.

  • Actually keeping them happy enough to stay with you.

Do you honestly want to try and convince me that you cannot find the right employees in your area? Just looking at your new employee turnover numbers tells me you do not even recognize a good employee when they cycle through your manufacturing area. And to top it off, even if you do recognize them, you are unable to retain them. Out of all the people cycling through your group, you cannot find a few keepers?

Now let us turn around the negative and think about the positive when dealing with employee hires. How can any company be fully staffed with competent and dependable employees and remain so when there is a so-called labor shortage? I am using the term “so-called labor shortage” because too many companies use that one as an excuse for their ineffectual employee hiring practices. Your company may be excused from that last statement if the unemployment rate in your area is less than 5%. However, the best companies are fully staffed even when there is a low employment rate, because people want to be employed at the good companies.

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InteFrame Components LLC
Tom Manning – General Manager
Nampa, Idaho

InteFrame has always been attentive on lean manufacturing practices and continually works daily to put these practices into place. To validate, provide new ideas, and possibly increase the effectiveness of these practices, InteFrame looked to Todd Drummond and his formal experience. His methods for training led our group down a path that touched on every aspect of our business. The consultation not only looked at the manufacturing area, but focused attention on our sales, design, and accounting methods. The daily routine was divided with the mornings being utilized as Todd’s “fact finding” time of our company’s practices. The afternoons were constructed of training sessions that were serious and methodical, all being guided by Todd’s understanding of the fact-finding session from earlier in the day/week. Todd’s insights and suggestions were based upon his assessments of our company’s practices and performance, as well as being guided by best practices he has observed through the numerous other consultations he has been a part of.

The end result is our company has a much clearer understanding of areas we can improve. Todd’s consultation confirmed some of our own ideas and challenged us with new ones enriching our internal processes and creating better efficiencies. Where Todd challenged us he provided the why, how, and what to successfully complete and implement the change. Through better management practices, guided by Todd, our company was able to increase capacity in our manufacturing area.

Our team has many decades of experience in the component industry, and we all still gained valuable new ideas and practices from Todd’s consultation. Our investment in his services has made a real difference in our processes and methods of doing business. Most weeks Todd’s information and comments still populate most of our meetings. His consultation has allowed an increase to profits and is highly worth the investment.

First ask yourself this: Do you have to advertise for new hires and put the word out to get new applicants to apply for vacant positions, or do you have a stack of applications all ready to choose from? If you stated you have to advertise, contact a temp agency, and maybe go to the local unemployment office to seek new hires, you have problems. On the other hand, if potential employees are constantly requesting open positions within your company, this is a very good indicator that you’re a good employer to work for. Now you should be asking yourself what are the very things that employees desire from a company. If you think money is the number one issue, you would be mistaken.

Human resources surveys after survey over the years have shown the same results for the following:

salaryWhen asked what is the most effective motivation to keep employees satisfied with their employment—

(From the most important to least from the employee’s perspective)

  1. Appreciation of work well done

  2. Being part of the discussions

  3. Help with personal matters

  4. Job security

  5. Good Wages (Note that this is not first)

  6. Interesting work

  7. Promotion and growth

  8. Management loyalty to employees

  9. Good working conditions

  10. Tactful discipline

There are some minor differences when dealing with employee age or gender. For instance, older employees and women rate job security higher in the ranking.  Women also rate tactful discipline much higher. As with any survey, this only reveals the results of large groups of people, and so individuals may have different priorities depending on their particular wants and needs. For instance, promotion and growth for some employees are paramount when they are seeking higher status and responsibilities. Notice how good wages is positioned in 5th place in this survey? Survey after survey all find the same results that wages are normally the 4th or 5th in a list regarding employee satisfaction of employment. However, if your company has a high turnover rate and high employee vacancy, the number one reason is usually that you are not paying the correct market wages for the given positions. So let’s talk about wages first (I can hear the moaning and groaning now from some of the managers as you read this):

There are two very distinct aspects to employee pay rates.

Market Wages

  • Employer responsibility

  • Employee will eventually leave for better paying position with other companies if not met

  • Employee performance will suffer if not met

What is the market wage for any given position? Well, most of you believe it is the rate-of-pay you are currently paying because it is long established pay rate and maybe it has something to do with what being paid by your competition. Well, this depends on certain conditions. Let me explain by examples: If a truck driver of yours can drive across town and get a higher rate-of-pay for the same hours and working conditions, then your market wage is based on your competition’s pay rate. However, if your starting wage employee can flip burgers for the same pay rate and hours as in your manufacturing, why would he/she gather lumber or other drudgery type work for your company when they could be flipping hamburgers for the same amount? What if it takes an additional $1.00 to $2.00 then what you are paying currently an hour to attract better types of people to perform the same task in your shop? What if you paid your employees another 5% to 10% more in order to retain them so they do not go looking for employment in other companies for their skill sets? Well if you pay more to get better people to apply and actually retain them, then that is the true market wage. Oh, by the way, most of you could actually be paying the individual employees more with an effective incentive program, and your overall labor cost would actually be lower. Your goal should be all about making your overall labor cost percentage as low as possible while not concerning yourself too much with what you pay each employee. It is all about the amount of productivity for the investment. If you pay someone twice the average but get three times the output, why are you so worried about that individual’s pay rate?

Client statement: “Oh, but Todd, why should I pay someone more for something they should be doing anyways?”  Response from me: “Do you pay your salespeople more when they achieve greater sales?” Client’s response: “Yes, of course.” My response: “Why do you pay your salespeople more for something they should be doing anyways?” The client has a blank look staring back at me now.

Employee Needs

  • Employee responsibility

  • Employer is not responsible for paying more than market wages for given position

  • Employee will eventually find other employment to meet monetary needs

  • Employer will find other employees to fill the position at market wages

The employee pay rate needs are very simple. Everybody has their own monetary obligations they must meet. They themselves, and no one else has the responsibility to meet those needs. If they take a position within a company that does not meet their monetary needs, they will eventually seek other better paying positions that fit their skill sets within or outside the company. There is nothing an employer can do about this if they do not have a better paying position within their company.

Okay now for all the other things that make for a happier and more content employee. In a nutshell, the best way I can describe the best managers and companies to work for is that they act more like a coach than a military drill instructor. A coach is encouraging and a communications expert, while a drill instructor is an uncompromising my-way-or-the-highway kind of person. As a rule of thumb, you should be a coach 80% of the time and when need be, a drill instructor less than 20% of the time. If you review the first two most important things employees want from the employer (Appreciation of work well done and being part of the discussions), you would begin to understand that they want the manager to actually take time and let them know how they are doing and what is going on. So to put it in as simple terms as possible, communicate good work they do, communicate what is good work, and communicate what the company is doing overall. You may be very surprised that when you talk about future investments of equipment and other mundane things you normally would never discuss with employees, they will respond with a great deal of satisfaction because you took the time and displayed an appreciation of them being part of the discussion. The being part of the discussion aspect is normally the one thing most managers fail to do the most. I cannot emphasize this enough: communicate, communicate and communicate! A daily walk-around while saying a few words with all the employees goes a long way to improving morale. If they are really part of a team, then start treating them like a team by talking with them on a daily basis.

Now for the last thing to discuss is about employee retention and productivity practices. Why in the world do so many of you, especially in the USA, ignore 51% of the population for most of the truss manufacturing positions? I am talking about women in manufacturing and other areas dominated by men. I have witnessed women performing every task in manufacturing, design, sales and administration, and yet there is a mind block for far too many of you. Canada does a much better job of staffing women in every position, while in the USA too many companies complain they cannot find enough truss assemblers. Tell me, if the conditions in manufacturing are so bad that women feel uncomfortable, why do you allow this to happen in your company? What does this say about your management skills? The same principle of race applies to gender. They are irrelevant for the purpose of filling needed positions within any company. If the military can create an environment that race and gender are irrelevant in most of the God-awful locations around this world, you should be able to as well. (You think boot camp is easier than your manufacturing shop?) Create a positive environment that anyone would feel comfortable in, and do not tolerate foolish behavior that makes their lives uncomfortable.

healthcostCurrently, the Affordable Care Act (Obama health Plan in USA) is creating a lot of issues in trying to understand your cost of labor for employees. I understand how this is truly an unknown cost for many of you, and you are having a hard time trying to justify any type of labor pay-rate increases because of additional health-care costs. Everyone is doing their best to minimize this impact. Please keep this in mind: You and also your competition are having the same cost issues. So, if your cost of labor goes up with the implementation of health care, so is your competition’s. There is no question that pricing of the trusses will have to be adjusted.

Believe it or not, what I just talked about is actually part of lean manufacturing, because lean manufacturing is all about the team effort to get the work done faster and better. Time and again I have had many clients actually improve their productivity, in every department, while reducing overall manufacturing costs. People who have been in our industry for many decades are truly surprised by the improved bottom line when they implement my lean-manufacturing suggestions. I hope you found this informative. Drop me an email and let me know your thoughts.

Todd Drummond Consulting LLC

© Copyright 2017 Todd-Drummond.com

Todd Drummond Consulting LLC
© Copyright 2017 Todd-Drummond.com

(603) 748-1051
todd@todd-drummond.com
www.linkedin.com/in/todrummond