Throughout history, free societies have enjoyed remarkable progress in living standards. In the United States, advances in medicine have improved life expediency from 49 years in 1900, to 77 years at the end of the century. Modern conveniences in our homes such as electricity, indoor plumbing, refrigeration for perishable foods, as well as heating and air-conditioning have brought unforeseen comfort to our lives. Conveniences in travel with cars, aircraft and interstate highways have made it possible to be anywhere in the world in less than a day.

Imagine what someone from the mid-eighteenth century would think if he could observe life today. Aside from his astonishment of the technological advances that provide convenience to life, he would marvel at the availability of the products today. Not just to the wealthy or an exclusive class of aristocracy, these goods and services are available to everyone. As an example, as of year 2000, 92% of the households in America had color televisions.

The instrument making this possible is a free market, and serving as a catalyst are entrepreneurs with new ideas for improved products and services. Of course none of this would be possible without consumers and their continual demand for better, faster and cheaper. Henry Ford’s story provides a good example. Ford didn’t provide a grand revolutionary leap in technology, the model T was a simple car, easy to maintain. His role in history was the development of mass production, making the car affordable for the common man. In some respects his efforts to lower production costs were as dramatic as the invention of the automobile. He did it by developing the assembly line and vertical integration, which in turn dramatically improved labor efficiency. Between 1910 and 1914 Ford was able to reduce the average time to build a Model T from 12.5 hours to 93 minutes, an 800% improvement in productivity.

Productivity is defined as a ratio of production output, compared with a critical input. Typically, but not always, the critical input is labor hours or minutes. In Ford’s Model T example above, productivity changed from 12.5 hours/car to 1.55 hours/car. Companies with high product variety, such as fast food restaurants or job shops, may measure it as revenue/hour. Factories with standard costing techniques may measure productivity as a percentage of actual labor hours compared with a standard or estimate. An employee that takes .9 hours to finish a job estimated at 1.0 hour is 111% productive.

An opportunity for aggressive productivity metrics is with companies seeking low cost labor solutions to compete in price sensitive markets. Before making the costly step of moving overseas, try measuring productivity and drive the organization for “step change” improvement. There are organic options for reducing labor costs. Some possibilities include: product redesign, consolidating products into a standard model, lean manufacturing techniques and equipment automation. Opening and maintaining a plant in another country is not a painless undertaking. The costs are significantly higher than expected, and companies end up losing valuable agility.

No matter the company or business category, every company can and should measure productivity. First is to identify the output, most importantly identify an output the customer views as value added. If the company makes widgets, then the output is widgets. Revenue works for some businesses, we know customers value money. Second, compare it with direct time. It’s advisable to exclude G&A hours; direct employees responsible for completing tasks need to know how they are performing. And third, chart productivity in a trend chart with time (weeks, months or years) as the x axis. We motivate what we measure. Everyone wants to improve; companies need to show the score to employees.

Setpoint Systems is in the business of providing productivity improvement through automation solutions. For twenty years their strong team of engineers and experienced technicians has supported a sophisticated customer base with cost effective results. We understand that at the end of each project our customers demand equipment that pays for itself. Gains in productivity provide this payback.

What are you doing to be more productive at your company?  How are you measuring your success?

One Response

    Excellent read, I just passed this onto a friend who was doing some research on that. And he just bought me lunch as I found it for him 🙂 Thus let me rephrase that: Thanks for lunch!

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