A
Th e
Component Manufacturing dverti$ dverti $ er
Don’t Forget! You Saw it in the
Adverti$$er
May 2024 #16298 Page #24
Increase Profits and Lower Labor Costs with an Effective Incentive Program for Every Group oo many get caught up in believing that any additional pay to employees is inherently costing the company more and should be avoided at every turn. If you believe this is the case, there is something you are overlooking. What may be Todd Drummond lost is that when the total volume (productivity and sales) is increased, the added gross margin dollars to the company’s daily intake should far outweigh any perceived increased wage or bonus payout. Just review the gross margin dollars per labor hour ratios and if there is truly a gain in productivity, the gross margin dollars per labor hour will increase dramatically. The actual labor cost per sales dollar will drop, not increase. Investing in greater productivity through an effective incentive program is no different than investing in equipment that increases productivity.
T
Most would agree that it is wise to implement an effective incentive program (IP) that actually increases productivity and lowers costs. However, very few companies have implemented such an IP, especially one that affects every group within an organization, including production, design, sales, and support. TDC has found that the vast majority of IP productivity programs are not positively affecting their sales the way most GMs believe. This article highlights the key aspects of implementing an IP for all groups. Effectiveness is Key — I must reemphasize the word “effective.” An IP is not effective if it does not actually increase productivity and lower costs on a consistent basis. According to industrial engineering consultants Mitch Fein and Fred Myers, most companies experience a more than 42% gain in productivity by properly measuring productivity, setting realistic goals, taking corrective action in response to unacceptable practices, and rewarding individuals. Fein and Myers emphasize that, if normal level output consistently equals an average value, anything beyond that value should split the cost of labor evenly between the employee and the company. For every dollar saved, 50 cents should be distributed to the employees and 50 cents should be saved for the company. Three things happen 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. The other shocking aspect is that even if you gave back to the employees all the labor dollars saved, the gains in additional gross margin dollars would still make it worth the perceived additional labor cost expense. Do Not Base on Large Groups — To motivate individuals to exceed the average output, one must keep in mind the individuals’ perspectives. Common sense indicates that an individual has a greater influence over one worker’s output than over that of a large group. Why would anyone believe that having a large group in the same IP pool would give an individual much influence? (1 of 30 vs 1 of 3)? You’re only fooling yourself if you think this does not have a big influence on the end results. Smaller groups have greater impacts on each group members’ motivation and effort.
Continued next page
PHONE: 800-289-5627
Read/Subscribe online at www.componentadvertiser.com
FAX: 800-524-4982