It is possible to give your truss manufacturing employees a raise, have them be more productive, and increase your net profit by implementing an effective productivity incentive program (IP). However, most of the IPs that are touted in the component industry fail to achieve desired results.
An IP is not effective if it does not actually increase productivity and consistently lower costs. Three things need to be happening at once: The company’s costs are lowered, its total volume is increased, and the employees are rewarded for exceeding the average productivity level. Every company administrator should desire this mutually beneficial situation, because it reduces the cost of labor and helps increase sales due to higher productivity.
In addition to profit gains, effective productivity IPs have numerous benefits: greater productivity output, which means greater capacity, which means more sales per day; more satisfied long-term employees, which means less employee turnover, which, in turn, means fewer mistakes by unskilled workers; and better utilization of existing assets that will reduce pressure to invest in more equipment to meet current demands.
To realize these benefits, however, one must understand three key aspects:
First, each employee’s efforts must be properly rewarded. To motivate individuals to exceed the average output, leaders must keep everyone’s perspective in mind. Common sense says that an individual has greater influence over a small group of two to four people, instead of being one of 30, where the efforts of one person often go unrecognized. A bonus plan paid out once a year, based on company profit sharing, is not a productivity IP. I cannot emphasize enough that individuals, or single workstations such as an assembly table, should be rewarded for their specific efforts.
Second, a small group’s productivity should be properly measured with clear, realistic goals that can be achieved daily. If the type of orders changes from large-lumber, high-quantity runs with only one setup (pole barn trusses) to orders with multiple setups, short quantity runs, and 2×4 chords (complex hip roof), the employees should still be able to achieve the daily incentive payout. This means that the board footage that is so commonly used by component manufacturers cannot work properly on an individual job basis. As proper units of measurement for truss manufacturing, I recommend only man-minutes, realistic expectancy, or scheduled units derived from properly timed studies. See todd-drummond.com/boardfoot-vs-man-minute/ to better understand time units.
Third, a key aspect of an effective incentive program is that it has to be worthwhile for the employees. A good rule of thumb is that the employee would get at least an extra $2 to $3 for every hour they achieve the incentive goals. Every industrial engineer is taught that, when there is a dollar saved beyond the common output levels, the cost of labor savings should be split 50/50. That means, for every $2 in savings, one goes to the employees and one goes to the company. Remember: The $2 labor savings would not have been achieved if the employees did not go beyond the standard output levels. The end result is that you get more productivity, less labor cost, and a larger profit margin for every order in which your employees achieved the greater output.
