Increasing Profits through Higher Productivity

Case #27

The Challenge

Generally, there is a direct link between reducing labor costs and increasing profits. Management constantly strives to increase employee productivity as a result of this relationship.

The Situation

As the economy becomes stronger, the demand for labor increases. Upward pressure on wages occurs. With stagnant productivity and increasing labor rates, total labor costs rise and profits fall.

The Analysis

The lack of available, well trained labor requires our client to frequently hire unskilled labor. Initial training is provided, but often the result is poor productivity.

In some cases, employees are not able to achieve the productivity expectations. In other cases, faster workers tend to slow to existing levels as a result of peer pressure and the design of the existing compensation plans.

Management tends to avoid eliminating the slowest workers because of the difficulty in recruiting replacements.

The Recommendation(s) / Decision(s)

A thorough review was performed to evaluate each position in the production area. Equipment layout was improved. Maintenance issues were addressed. Compensation plans were redesigned.

A standard productivity number for each position was established and posted. Hourly productivity results, by employee, were also posted. Employees were paid based on meeting or exceeding the productivity standards combined with meeting established quality standards.

The Outcome

Initially turnover increased. Some of the most productive employees left. However, after the initial turnover, productivity began to increase and has remained at higher levels than previously established.