Profiles In Productivity

Dec. 21, 2004
Manufacturers embellish, adjust standard formula.

Dave Layman, senior vice president of operations for La-Z-Boy, has been tracking productivity for most of his 33-year career at the Monroe, Mich.-based furniture company. It's a relatively simple calculation. Output is measured in terms of "equivalent units." This figure is normalized for complexity, or the amount of time typically required for assembly of a given product. An ottoman, for example, might be one quarter the value of a recliner or sofa. Total employment and the number of hours worked for a given period comes from his payroll department. The end result: equivalent units produced per day per employee. This figure is monitored over time, and can be compared among the eight plants in his division. Regular adjustments are key to making sure they aren't fooling themselves, Layman says. Buying more components will skew the equivalent units and drive productivity upward, but total costs might still remain unchanged. "I can drive that number down by taking the labor out and purchasing it, but the end result is it doesn't turn out," he says. This is one problem with many manufacturers' productivity measures. They don't account for critical inputs beyond direct labor, major cost factors such as materials, energy, and capital, as well as indirect labor. Gains in one area may be offset by declines in another that isn't being tracked. On the output side of the ratio, more often than not the production targets set by sales and marketing fail to reflect actual market demand. By the time word gets back to the factory, there might be a warehouse full of the wrong stuff. What's the point of hitting productivity goals if you aren't selling what you make? Weaknesses aside, manufacturing managers have to make do with what they've got. Productivity, not so much the raw number, but the change from month to month or year to year, can indicate if an operation is on the right track, that output per hour is going up, hopefully faster than total labor costs (faster than health-care costs if you're lucky) as well as raw material costs. At New Balance Athletic Shoe, managers calculate pairs per person per day to monitor trends and compare the overall efficiency of various plants, reports John Wilson, vice president of manufacturing. The headcount number includes assembly and some maintenance personnel. Because some styles are easier to make than others, the company's accounting department defines a basket of styles that is supposed to reflect a standard amount of work. Wilson says design for manufacturing efforts at New Balance are having a noticeable impact on productivity by reducing the number of inputs required for each shoe. More computerized stitching is also pushing output per man-hour up. He says he's pushing accounting to define new measures, sales per associate perhaps, to better match their strategy going forward. Michael Rose, plant manager of Bridgestone/Firestone's passenger and light-truck tire facility in Graniteville, S.C., says his plant measures productivity two ways -- pounds per production man hour and pounds per total number of people who work in the plant. These are just two of several measures that the company now tracks on a global basis. "I get a monthly report that compares all facilities in the world," says Rose. Such comparisons must be tempered by local conditions. The South Carolina factory for example, which is 6 years old, is newer and more automated than many of the company's other plants. It therefore has a higher ratio of output to direct labor, but it also has the largest information technology staff of any plant.

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