Investment in Employee Training, Not Just Equipment

Issue #11244 - November 2019 | Page #47

By Todd Drummond

Is your company’s budget only for new equipment, but no formal training for your employees? Any time you think about investing for productivity gains, often the first thing that comes to mind is investing in new equipment. All too often, we think we see the situation clearly and can make the decision regarding a major expense for equipment straightforwardly and while minimizing the risk. Yet I am told much too often, “Todd, we invested in such-and-such and did not get the bump in production we were led to believe would happen. Could you help us get the kind of productivity that we were promised?” Some of you might remember that my last article, “The Vast Majority of Component Plants Have Too Much Lost Productivity,” went into lengthy description about all of the areas of lost productivity. Spending money on expensive equipment is the easy part of the decision equation; investing in training and changing your methods is actually the harder part. Let us look at ROI for all types of training.

HR Magazine reports that companies investing $1500 or more per employee per year on training average 24% higher profit margins than companies with lower yearly training investments.

The American Society for Training and Development (ASTD) collected training information from over 2500 firms and found that companies that offer comprehensive training:

Have 218% higher income per employee than those with less comprehensive training,

Enjoy a 24% higher profit margn than those who spend less on training, and

Generate a 6% higher shareholder return if the training expenditure per employee increases by $680.

Emad Rizkalla, Contributor, Founder & CEO, Bluedrop Performance Learning

Now, let us look at a logic exercise about possible gains. Assume the following very conservative numbers:

Average gross margin (GM) percentage per sales dollar = 30%
Salesperson sales per year is approximately $3+ million = $900,000 GM/Year
Designer output per year is approximately $1+ million (custom designs) = $300,000 GM/Year
Truss assemblers per each workstation per year are approximately $1+ million = $300,000 GM/Year
Automated component saw output per year is approximately $4+ million = $1.2 million GM/Year
(Note: Use your own existing sales numbers and productivity to estimate your actual GM per hour rate)

The purpose of using the GM per year is to understand your true rate of return for any productivity gain. For example, let us assume you gain just a 5% increase for a designer or a truss build team. Simply multiply the $300,000 GM they earn by 5% for a result of $15,000 GM dollars. A simple 5% gain in productivity is really a big deal for any group. For the salesperson, a 5% gain is equal to $45,000 in additional GM. Component saw crew gain of 5% is equal to $60,000 GM. If any one of these groups is your constraint (bottleneck), the entire GM gain is being added directly to the net profits!

Okay, now many are saying to yourselves, “We have been doing this for decades; if we could add 5% productivity to any of the departments, we will do it in a heartbeat!” Five percent is equal to just 24 minutes per day. Ask yourselves how you measure up in these situations:

Typically, most salespeople waste an average of one to two hours a day making phone calls just to find out the status on any project such as shipping or design. Think about it: one simple call is normally a 15-minute interruption for two people, not just the salesperson. A 5% gain is not having to make two calls per day to know when a work order is going to be delivered to a job site or completed in design.
How much time is spent doing the actual task of layout input and component designs within the design programs and not doing some other types of work? Better yet, are there ways of reducing their design time that they are overlooking? (For most design groups, there certainly are!)
Five blade component saws are typically operating at less than 50% of capacity.
Regardless of automation, assembly tables are operating at less than 65% capacity.
If you think I am exaggerating about saws and tables efficiencies, send me an email and I will give you some simple tasks to prove these statements.

In each of these critical areas, all I am looking for is an extra 24 minutes of productivity per day. An extra 24 minutes per day gain is at least an extra $15,000 GM for every $1 million in sales for each assembly station!

With additional training, most can also get gains with fewer errors and better quality. Do you want to improve your quality and have fewer errors in any particular department? How about better quoting methods and winning higher contribution margin orders? Do you really think your methods for estimating cost, establishing margin rates, and determining overall sales price are the best they possibly can be? Chances are, if you have not done any serious refinement to your quoting methods in years, you are losing tens of thousands of dollars for no reason other than an outdated method of quoting.

Reasons or excuses that are too common:

Not in the budget that we created for this year. (Lacking understanding of true gains)
We are too busy with the current workload to take the time. (Not understanding short-term pain for long-term gains)
We have been doing this for a long time, and there is nothing more that can be shown to us. (Bruised ego excuse)

Every single time I have performed a consultation, I have found far more than 24 minutes to be gained in every department. Are you willing to set personal egos aside and listen to other methods? Are you willing to try new ways of performing the same task? What is really stopping you from taking that step to invest your time and money in something you cannot see sitting on your shop floor, like new equipment, but that you can see in the accounting numbers?

When you want more than hype, TDC is your best source for learning about the very best and newest practices to keep your company competitive. TDC has proven real-world expertise that goes far beyond what many expect and has provided consulting services for well over a hundred clients. Whether you are a new or longtime operation, save your company a great deal of time and money by getting professional lean manufacturing help and training to improve all your processes, not just in manufacturing. When you are ready to move past using board footage units, which is a proven flawed method of measuring truss manufacturing, TDC can help you. TDC uses proven and practical lean manufacturing best practices combined with industrial engineering principles that include refined time standard man-minutes for truss manufacturing. So, before you buy equipment, get TDC’s advice! TDC does not receive referral fees from any equipment or plate vendors, and you can trust TDC for unbiased vendor and equipment recommendations shaped only by customer experiences. Please don’t take my word about TDC’s services. 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/.