A Case Study for Transforming Profits Through Employment Practices

Issue #16304 - November 2024 | Page #26

By Todd Drummond

The following is a summary of the seminar I gave at this year’s BCMC show on October 8^th, 2024. If your mind is open, I am handing you pure gold to help your company meet the challenges negatively affecting everyone now and in the coming years.

Case Study —Building Material Supply & Truss Manufacturing

Employee staffing and cost issues will impact net profits. Changes in employment demographics over the years necessitates companies adapting to meet these challenges. This case study at Building Material Supply & Truss Manufacturing explores how they have transformed from negative to positive net profits in three years by altering their employment practices. Their story will provide you with insights into effective strategies for improving your business’s profitability too.

Four main reasons for employee application declines are:

Demographics – Not enough births
Labor Participation Rate – Record lows
Obesity Rates – Negatively affect trade labor
Education Level – Too many college-educated workers

Demographics—When more people are leaving the workforce than are entering it, you will have to fight harder to choose from the ones willing to work for you. By 2030, the US will have more than one million people leaving the workforce each year for retirement than are coming into the workforce. It is that simple.

Labor Participation Rate—Regardless of why able-bodied people are not working, the US Bureau of Statistics numbers show that participation has steadily dropped and is currently at 62.7%. It is at an all-time low level and does not appear to be improving.

Obesity Rates—Let’s face the fact that our society has become more sedentary, and our diet has become worse for a healthy lifestyle. Both adults and kids have become heavier, and this trend is leading to a very unhealthy reality for the trades. Whether you are swinging a hammer on a construction site, laying bricks, or adding shingles to a roof, they all require a person to be in some form of physical shape to be able to do the work. Why would you think this would not affect your manufacturing? Who wants to work standing up and physically working all day on a cement floor? The same thing applies to working on a roof gantry table assembling trusses. Who do you think is least likely to be the person as the top chord assembler?

Education Level—The decade’s push to send our kids to college has made the labor force unequal regarding job availability. A well-known fact is that people with a college degree are unwilling to fill a position that does not require a college degree. In 2021, the need for non-degree workers was about 6 million, yet only 3.4 million were not college-educated.

In May 2018, Building Material Supply & Truss Manufacturing (BMS) struggled with profitability with outdated equipment. They had little to no money available for equipment and capital upgrades. They requested my services, and one of the first things I had enquired about and noticed was their struggle with constant employee turnover and vacancies. In their market, their employees continuously went to local competition(s) for small wage increases and returned if BMS gave them another small wage increase. Needless to say, BMS was struggling with errors, scheduling, and efficiency because of a constant influx of new employees. The turnover and unfulfilled positions needed to end immediately. The first thing needed was a change in employee pay and management practices, as advised by TDC, using lean principles and best practices.

BMS needed to embrace another mindset. It is not just about better practices for overall improvement in every area but about changing how they view employee wages and skills. Trying to improve their practices, such as embracing lean practice methodology, is almost pointless if you keep having to train new unskilled workers. The leadership at BMS was eager to turn things around, and what was offered went hand-in-hand with their management style if only given solid evidence. First, their mindset had to change, and actions would follow, and finally, results would bear fruit. And to their delight, the results were almost immediate.

Changing Mindsets

A sad fact within our industry is that too many managers underestimate the skills needed for component manufacturing (CM) operations.

Ask any Production Foreman; “Who is more skilled for far fewer errors, needs far less supervision, and is far more productive? A three-year employee versus a three-month employee?” It is not even close. How many new applicants who apply for work at your CM operation have ever swung a hammer and read a tape measure for a living? The hand/eye coordination for swinging a hammer without injuring oneself takes more skill than most understand. Too many believe they save labor costs by cycling in new workers, which is becoming increasingly ever more difficult each passing year. A CM wastes hundreds of dollars of unrealized sales production daily for each vacancy on the assembly table. This does not include the hundreds, if not thousands, of dollars lost to low productivity and errors caused by unskilled workers.

Many CMs need more personnel in their manufacturing than their current practices. The most common reasoning for this is that they believe that the most cost-efficient method for roof truss assembly is using two personnel at each of the assembly workstations. However, they are mistaken, and each CM can prove what I am stating with this simple exercise for productivity and profits.

This simple spreadsheet recorded the results of two versus three people for assembling five trusses. You can see there is a slight labor savings for the 32-foot common over the 44-foot piggyback. However, what everyone overlooks when only staffing two personnel on each assembly workstation is the shop time. [For chart images, See PDF or View in Full Issue.]

Look how many more sales and margin dollars the three assemblers generate compared to the two! It is not even close to any perceived labor savings.

Approximate sales and margins:

Two roof assemblers = $6–$7k/shift truss sales
Three roof truss assemblers = $9–$10k/shift truss sales
Each roof truss assembler = ~$3–3.5k per 8-hour shift
$3 to $3.5k at only 30% margin = $900 to $1,050 margin per shift
Equates to $112 to $131 margin per hour per 8-hour shift

At least a $100+/Hour Margin is Lost When Not Properly Staffed When at Maximum Sales/Capacity.

Limiting your roof truss assemblers to only two reduces your manufacturing by a minimum of 1/3rd of its capacity.

Here is food for thought for those stuck in the mindset of maximum efficiency based on board foot per work hour. Reducing the number of personnel will improve the ratio of BF to work hours, but it will reduce the total number of roof trusses (sales) produced. It is not even close!

TDC has stated this so many times before, and I will keep repeating it until someone can prove me wrong. The simple fact is that numbers don’t lie, and the numbers say that BF has nothing to do with roof truss manufacturing efficiency or capacity. Only properly developed time standards (MM, RE, or SU) can provide proper methods for scheduling, efficiency ratings, and pricing for roof trusses. TDC has over twenty years of refinement for developing time standards (MM, RE, or SU), and I can attest that BF is not part of any of my time standards for roof and floor truss manufacturing. For more about time standards, please read my article: How One Wood Truss Industry Leader Uses Industrial Engineering Practices of Work Minutes to Excel.

Because of their failed understanding of staffing, many CMs are making big mistakes in equipment installations and purchases. For example, many CMs purchase and install more than two assembly workstations per finish roller. This is a mistake.

Do It Right with –

Proper Equipment Setup
Proper Best Practices Based on Lean Principles and Industrial Engineering
Proper Labor Practices
Never Operate a Gantry Table with More Than Two Workstations Feeding One Finish Roller
Do Not Listen to Truss Equipment Manufacturer Recommendations of Using a Roller Gantry with More than Two Workstations.

When a CM has more than two assembly stations feeding one finish roller, the crews closer to the finish roller will spend most of their day standing around waiting for the exit roller to clear so they can eject their assembled truss. If your finish roller is not constantly rolling trusses, your operation is not operating at peak efficiency and producing maximum output.

Taking all of this into consideration, BMS implemented the changes recommended by TDC, which

Improved processes based on lean principles and implementation of TDC time standards.
Improved employee employment practices.
Increased the number of female employees to find a larger pool of potential employees.
- Lots of referrals from their current female employees.
Increased employee pay to cease the constant turnover and attract better employees.
- They have initiated a practice of being wage leaders, not followers or equals to their competition, and they set the local wages.

BMS Results: The company has extensive data collection and is driven by numerous benchmarks. They know their numbers.

The start date was June of 2018. Once the changes were implemented, it was like turning on a light switch. The positive results were almost immediate.
Across the board, they noticed a substantial improvement in quality, efficiency, and capacity. It was not even close once everything was embedded into the ethos of the company’s culture.
Costs went down, and margins improved without any pricing changes.
Mid-level management was reduced to zero.
Self-driven crews could now operate with minimum oversight.
Employee turnover was no longer a factor.

Profits and Returns:

Better than industry averages for net profits.
Better than industry norms for sales to labor cost.
Even though the wage per hour went up, their actual cost of wages to sales went down.
They started seeing these results immediately and improved from that point onward. This is also considering the lumber and sales spike during COVID that happened a few years later.
After three years, they made substantial capital improvements to remain competitive in their markets while retaining their best practices in employee practices.

For BMS, what was once a struggle, that is, employee costs and profits, has been entirely transformed. Now they have healthy profits, good employee practice, excellent productivity, and the list goes on. All of this has been achieved through better practices that started having immediate results and continued to improve as time passed. Now, they are prepared to meet the employment challenges caused by demographics and other issues that make creating a great team difficult for any company. Maybe your group would benefit from the better practices BMS was willing to embrace.

The TDC team is your best source for learning about proven and practical lean manufacturing best practices combined with industrial engineering principles to keep your company competitive. 20+ years for time standards (MM, RE, or SU) development and refinement for wood trusses. No one is better at providing your team with proven results for best-in-class practices. Please do not take my word about TDC’s services, though. Read the public testimonials many current and past clients with decades of expertise and experience have been willing to give: https://todd-drummond.com/testimonials/