Laying off workers

This Mythbuster is a beauty.  Really.  Here it goes:  Laying off employees doesn’t necessarily save labor!  It might increase your labor cost! 

A major international company just laid off 60,000 employees.  Can you believe that?  60,000.   At each headquarters, the employees were called into an assembly hall of sorts and read a prepared statement that outlined the severance package, instructed them to clean out their desk by days end and bid everyone a fond farewell.  Bam!  I can’t help but wonder what these people were doing the week before.  Were they swamped?  Were they crazy busy?  Were they twiddling their thumbs?  Did they see the handwriting on the wall?  Assuming for a minute that they were doing something, who did their jobs the next day?   I will not learn the answers to my questions, largely because I don’t know that business.  But I do know this business.  And it is different than many other businesses.  The amount of work that needs to be done by production employees is directly proportional to the amount of work brought in by your customers.  For the purpose of this column, let’s forget all about office staff and managerial people.  Because if you can cut that staff by (say) 25% and still be assured that the same amount of work is getting done, then you really need to do it today.  But I truly don’t know the ins and outs of your office related duties.  But I do know this business. 

Many plant owners and managers use labor percentage as a barometer.  Consultants that don’t understand production find comfort in that too.  This measurement of labor cost is too ambiguous.  I know that some of you have been doing it for generations, but those days have passed.

When I started in this business 43 years ago, a typical major intersection had 5 drycleaners.  You all knew each other.  You were probably friends and you may have met up for a beer from time to time.  There was plenty of business for all of you.  You peaceably co-existed and just made sure that your labor percentage was around 25%.  Three decades later, there is barely enough business for one of those plants.  These days, you must keep your labor proportional to your piece count or risk insolvency.  It’s that simple.  The problem with that is three-fold and significant: 1) most drycleaners don’t count pieces, 2) most drycleaners don’t measure productivity and 3) most drycleaners don’t measure total department pieces per production labor hour nor do they understand its significance.  Those are three world-class problems and the lack of attention to these issues is exactly the reason that so many of you are in financial trouble, or at least not making the money you could be!

I spoke with a manager some years ago about his pressing productivity issue.  He insisted that he didn’t have one.  My math was clear; his pressers were averaging 18-19 pieces per hour.  He claimed, nay, insisted, that it was 42 pieces per hour!  Big difference.  The next day, he came to me and said, “I just clocked the pressers again and, like I told you, they press 42 pieces per hour.  I asked about his data collection method.  He said, (you’re not gonna believe this…) “Martha is my best presser.  I approached her at 10am and told her that I was going to measure her production for the next hour.”  Martha pressed 42 pieces.  The manager used that monumentally insignificant data to run the plant.  Extrapolating it further, he concluded that 5 pressers working 40 hours each pressed 42 pieces per hour!  My math doesn’t lie.  It was 18.  This is a true story.  Even I have a hard time comprehending that story sometimes and I was there and heard it myself.  I have said this before; having bogus data is much worse that having no data at all because it leads you to believe that you don’t have a problem.  In effect saying, “I don’t know where my problem is, but I know that it’s not productivity because I checked that and it is great.  I’ll look somewhere else.  Try as you might, if you have a productivity issue, no other ‘workaround’ will fix it and you are leaving money on the table. 

Counting pieces can be a challenge.  POS systems do not easily generate that number. 

But once you have an accurate number of pieces and link them to the person that pressed them, it’s easy to calculate pieces pressed per hour.  Now you have two of the important pieces of information.  Lastly, you need PPLH, an acronym for Pieces Per Labor Hour.  You’re almost there.  Let’s lay out a couple of examples and ultimately demonstrate my point; laying people off does not necessarily cut labor.

▲ Your shirt pressing team, Lisa and Lucy, pressed 85 shirts in one hour. 

• You counted the pieces (85 shirts)
• You counted the hours in production (1, duh)

▲ So Lisa and Lucy press 85 shirts per hour.  This statistic has limited value because it is for a very limited scope of time.  It becomes a lot more valuable when a larger sampling is considered.  If your press team presses 2550 shirts over a 30 hour work week, they press 85 shirts per hour.  The fact that they often pressed 95 or 100 shirts in certain one-hour periods during the course of the week has value, but that is not an indication of what their true productivity is.  It is, however, an indication of what they and your equipment are capable of.  But 85 shirts per hour is your true production number.

▲ Now you need to know your Pieces Per Labor Hour.  This will include Lisa and Lucy, plus everyone else that is involved in the production of those shirts; washer, assembler, touch-up person, etc.  Because it is far more accurate and significant, let’s consider the weekly total of 2550 shirts and count the number of people/hours involved in the production of those shirts:

• Lisa – presser – 30 hours
• Lucy – presser – 30 hours
• Freddie – washman -15 hours (Freddie is the drycleaner, but performs the washman duties.  It isn’t fair or accurate to allocate all of his hours to the drycleaning department, so we estimate that he devotes around 3 hours per day to washing shirts)
• Betty – Inspection, touch-up, buttons – 35 hours
• Liz – Assembly, Bagging, Folding – 40 hours

▲ The total hours divided into the total number of pieces produced is of extraordinary significance and is the key to profitability. 150 hours of labor are necessary to process 2550 shirts.  This is 17 PPLH.  This is not good, but very typical.  95% of the people that contact me are somewhere between 16 and 18 PPLH.  My goal for this scenario would be 27.5 PPLH. (FYI, that is an annual payroll difference of roughly $35,000!)

▲ Let’s assume that you believe me and are now convinced that your shirt department production payroll is much higher than it should be.  You immediately mandate that someone be laid off in your shirt department.  You reason that this will cut significant hours off the payroll and result in measurable savings.  Not really.  Watch this:

• Liz is terminated because Betty insists that she pads the time clock and that she can do both jobs.  Mathematically, this sounds like the pot of gold at the end of the rainbow.  Hours have been reduced to 115, down from 150.  The projected savings is $1800 per month.  You figure that even if it is half that, buying a new Porsche is a real possibility.

What really happens is very different.  My experience has proven time and time again that the more “backed up” the Inspection/assembly arena is, the slower pressing productivity is.  If you walk into your plant right now and find your assembly area backed up, your conclusion is never that your pressing productivity is poor.  Never.  You might conclude several other things such as poor quality, your inspector is slow or that your assembly person can’t get out of her own way.  A back up in assembly however, causes poor productivity.  This is a fact! 

▲ I have learned that pressers operating any equipment are perfectly capable of cranking out the work at substantially higher production rates than you think.  You may consider the DLI target rates for pants pressing, for example, to be lofty and perhaps unattainable, but I bet that your pressers are not only capable of doing it, but actually do attain that level for segments of time during the day.

▲  I have often timed pressers and found that they can indeed press 100+ shirts per hour because they take a shirt off their body press every 30-35 seconds.  Their average however, spread out over a full day is 30-40% lower than that.  What gives?

▲ Inexperienced managers, or consultants not familiar with production, draw erroneous conclusions from grossly misleading information.  I once heard of a consultant that deduced that a plant operator was leaving $78,000 on the table by observing a presser.  A pants presser was observed doing a pair of pants in 95 seconds.  That is equivalent to 38 pants per hour.  But because the statistics showed that this presser was averaging only 22 pants per hour, this proved that the presser was wasting 68 seconds per pants; which amounted to $26,000 per year on this presser, multiplied by three pressers, $78,000.  I guess that he took his pay check and ran.  We all know that life isn’t that simple.  The consultant was insinuating that the only thing that his client had to do was boost production and everything else would fall into place.  While it remains true that poor productivity is something that I find in virtually every plant that I visit, addressing the reason why production is poor is the true remedy.  An M16 in the back of a presser is hardly the cure. 

▲ If productivity is somehow improved, the pressed garments flow into an assembly area that is ill-equipped to receive such production.  The result – invariably – is production that slows to a pace that is more in tune with the post-press staff’s ability to handle it.  Got that?  Said in another way: when production goes up, the people that are supposed to inspect and assemble these pieces get bombed and backed up.  Pressers downshift a couple of gears and you don’t notice, but you are somehow thankful!  And because you aren’t keeping a careful watch on PPLH, you have no idea that your payroll has gone up in spite of your best efforts to bring it down!

So, in our hypothetical situation, we still have Lisa and Lucy pressing 85 shirts per hour and only Betty is in the inspection, assembly & bagging (IAB) area.  If all goes according to plan, 85 shirts will be pressed with 3 labor hours.  85/3=28.3 PPLH.  Sorry, it’s not gonna happen.  There used to be one person to do touch-up and inspection (Liz) and another to do Assembly and bagging (Betty).  But now Betty is alone.  She may be a rock-star, but, assuming that you’re using the same system in IAB, Betty will soon realize that she can’t do the work of two people.  Maybe one and a half, but not two.  This leads to one of three scenarios; 1) adding another person to help Betty or 2) production slowing down to rate that makes Betty’s job do-able.  Since the point was to lay-off a person, adding a helper for Betty is completely out of the question.  If you are a production nazi, maybe you will go in the third direction, which is that you get usual production and bomb out the IAB area and Betty gets and stays very backed up.  When all of the shirts are done, Lisa and Lucy jump in to help Betty.  This is rather common, but it’s an absolute train wreck.  Let’s put pencil to paper…

Production slips to 70 shirts per hour (Don’t laugh.  I’m being generous.  The number is usually 67) and Betty keeps up perfectly.  The pressers each work 37 hours and Betty works an extra hour per day to do folding and similar things.  Since that puts her into overtime, that will cost you more but we will ignore that for now.  So she works 42 hours and the washman, 15.  That totals 131 hours to do 2550 shirts, which equates to an improvement in PPLH; 19.5.  There are a couple of problems:

• During the weeks that you do less than 2550 shirts, your hours total will be the same.  You know that I’m right.  When you do only 2200 shirts in February, your PPLH will be 16.8.  Your payroll should be lower, but its higher
• Betty isn’t actually going to keep up.  She will love that Lisa and Lucy will help her finish up.  This will breed a dependency.  Even if she can keep up somewhat during the course of the day, which I doubt, she will allow the department to collapse towards the end of the day because she knows that her reinforcement squad will be there shortly.  Lisa and Lucy become her crutch. 
• Now everybody works an extra hour per day – at least – plus the wash time.  PPLH: 17.4 at best.

Ok, so that is an improvement over 17, so you may call that labor savings.  I call it marginal savings during the best case scenario.  Slower weeks will hose you and if you consider that overtime counts as 1.5 hours, your true “hours worked” as far as PPLH calculations are concerned is 154.  PPLH is 16.5.  Because you haven’t been counting pieces, hours or calculation PPLH, you are pleased because your shirt department now runs with three and a half people rather than four and a half.  You roughly figure that you’re saving $300-$400 per week.  But, in fact, your cost went up two cents per shirts!  Maybe you think that’s insignificant, but at this volume, it amount to $2600 per year.  If you still color that insignificant, recall that you were trying to cut labor when you laid off Liz.

The number of people that you need to run your plant has nothing to do with your labor cost!  I’m not saying that there is no connection, I’m saying that there isn’t enough information.  I believe that the need to measure PPLH is more important than ever, but some people that used to do it, don’t anymore because they don’t like what it says.  Out of sight, out of mind I guess.  I have seen that recently when people go to automated assembly for example.  They say, “we laid off two people!”  But then it becomes obvious to everyone that piece counts are now lower and productivity is down!  PPLH is the only true measure.  How many pieces divided by the total number of production labor hours; including clean, wash, press, inspect, touch-up, buttons, assembly, packaging. 

What should it be?  I aim for 27-29 Pieces Per Labor Hour in the shirt department and 18-18.5 Pieces Per Labor Hour in the drycleaning department.   Sound lofty?  Attaining that is how you stay in business.   

“If you do what you always did, you’ll get what you always got.”