Productivity is Up – Should You Keep it a Secret?
September 2009
Recent news reports indicate that productivity is up for U.S. manufacturers. Last week’s employment and economic numbers confirm that, although companies are increasing output, they are not hiring. Therefore, we can conclude that employees are working harder and producing more. It’s not great news for employees, but companies should be benefiting from lower cost of goods sold and potentially higher margins to help make up for lower sales.
The question of the day is: Should you keep this increased productivity a secret?
The results will undoubtedly be reflected in the bottom line, of course, but the question is whether or not you want to change your production standards and standard costs to reflect the higher output per labor hour. I’m sorry to say that I’ll have to give you the standard consultant’s answer: “it depends”.
Are these changes permanent or will you lapse back into the old levels of efficiency/productivity upon which the existing standards are based? If the change is temporary, you will probably want to leave the old standards in place and enjoy favorable variances for a time.
If you think the changes will become permanent, do you want these new expectations reflected in your planning and scheduling? Do you want your standard costs to include the latest and most accurate information? The ‘book’ answer to both of these is an enthusiastic ‘yes’. But the reality is, companies have different opinions (policies) about what standards should be. Some consider standard to be ‘normal’ expectations while others may opt for optimistic or ‘best case’ performance – something to strive for. Others are forced to set standards according to union agreements.
Whatever your situation, recognize that performance tends to change over time and standards that are more than a year old may, in fact, not reflect what’s happening in the plant today. Most companies will revise standards when new equipment is installed or when a procedure changes. Some will monitor and adjust standards when there is a personnel change. Few regularly review standards and make appropriate changes on a periodic basis.
Some ERP and MES systems will accumulate actual and average times and some perform statistical analysis and flag situations where times are changing or are outside of the expected range. Most, if not all, will allow plant management to maintain production standards without forcing an accounting standard change (and if there is a difference between the accounting standard and the current production standard, that’s useful information as well).
As we approach calendar year-end, give your production standards a thought and consider whether it might be appropriate to bring them up to date with current production performance.
For more suggestions about areas of improvement read Improve Processes All Year Long.