Productivity, after rapid growth in the recession, begins to cool
At the end of the production line at the World's Finest Chocolate factory in Chicago, workers must pack 115 large boxes with smaller cases of chocolate-covered cherries every hour, or Audra Lee records the slippage on a board with a red marker.
When Lee whips out her green marker it means the workers are on target “and my supervisor starts smiling,” she said.
Output per hour at U.S. companies rose significantly in 2009 and 2010 as layoffs continued in the wake of the recession. Companies stepped up production quotas and found ways to shave seconds and minutes here and there with newer technology and adoption of lean manufacturing techniques. Then productivity's growth began to wane.
During the recession, “companies got smarter (with their processes) but there is only so much fat you can squeeze with that,” said Gary Pisano, a professor of business administration at Harvard Business School. At some point, he said, companies need to hire more workers to increase output.
A case in point is Midland Manufacturing Corp., a Skokie, Ill.-based unit of Dover Corp. Kevin Cook, Midland's director, said he has pushed workers “do more with fewer people.” But as sales increased, productivity improvements have not been enough to keep up with demand.
Last year, Cook said sales of valves and devices for railroad tank cars, marine barges and freight containers rose by a third and he expects that momentum to continue. This year he said he plans to expand the workforce, including adding machinists and assemblers, but he declined to say by how many people. “We have been fortunate to have rapid growth coming out recession,” Cook said.
Experts warn about reading too much into productivity figures. Two years ago, fear of a double-dip recession caused American companies to ratchet down on producing goods which, in turn, resulted in slower productivity growth. Now Europe's weak economy, China's slowdown and budget fights in Washington are fueling uncertainty, which could affect sales, hiring and productivity figures.
Still, some companies are bullish about improving their productivity.
Mauro Pino, vice president of assembly operations at Chrysler Group LLC, said he expects productivity to increase 30 percent year over year in areas where the auto maker has incorporated lean manufacturing techniques from Fiat, its Italian parent company. “In our case, productivity has been higher and higher and not slowing down for sure,” Pino said.
One example Pino cited was making it easier for workers to access parts they need to assemble vehicles. Reducing the number of steps they have to take from 40 to 7 at some plants have improved the efficiency of the line and will allow Chrysler to increase the line's speed.
American workers, manufacturers like to point out, are among the world's most productive, and a reason why companies build and move factories here. Proximity to markets and rising transportation costs also contribute to that trend.
Workers, however, haven't reaped the benefits of productivity since the 1970s, said Lawrence Mishel, president of the Economic Policy Institute, a pro-labor think tank based in Washington, D.C. The gap between wages and productivity grew wider in the 2000s due to globalization, the weakening of unions, deregulation of industries and high unemployment, Mishel said. “All have had a downward pressure of wages and empowered the employers to reap the gains of productivity,” he added.
The competitive spirit also plays a role in productivity.
Consider Utah-based American Linen Supply Co. The industrial laundry and linen-supply company installed equipment at its Chicago plant that made it easier for workers to sort and wash linens such as napkins, tablecloths and sheets. Soon after the equipment was brought in, people began competing against each other, increasing production by about 50 percent, according to Micaela Castro, a union steward.
The company then raised minimum production rates by 25 percent. A few weeks later, minimum rates were pushed up another 20 percent, said Castro. Soon afterward, the women stopped competing.
“It took years for (the women) to understand that production rates are established by them,” Castro said.
An official at the company, also known as Alsco, declined to comment.
Older women struggled to keep up with the production quotas, Castro said, who added that wages remained relatively unchanged. In fact, in the past 20 years wages at the company have increased slightly, Castro said. Workers now make between $9.55 and $17 an hour. Most make about $12 an hour, she added.
Edmond Opler, World's Finest chief executive, said sales have doubled in the past five years to $150 million.
Opler took over the business in 2007 and focused it on its Queen Anne brand of cherry bonbons and solid chocolate bars, the kind children sell to raise funds for sport teams and school activities.
His products are mostly made by machines, although workers correct errors and fill in when machines hiccup. Opler's business is a seasonal one, so when sales rise in the fall, he hires a few hundred temporary workers to handle the increase in production and sales. But as his market share increased and sales rose year-round, Opler looked for ways to further increase production.
Nearly a year ago, he decided to outsource maintenance to Advanced Technology Services Inc., which focuses on keeping World's Finest's machines running. That meant that some three dozen employees were transferred to Advanced's payroll, but continue to work at the plant. About two months ago, the firm provided Apple iPad tablets to its techs at World Finest to log notes and to see their next assignments, rather than walking a half-block to a computer.
So far, the technicians estimate those efforts alone save an hour a day.
The tablets also allow the technicians to be located throughout the plant. “Before, three to four mechanics would surround us (when there was a problem); now they are spread around,” said Lee, the production supervisor. That's because they can now send photos to each other or video-chat. So when Lee asks for help, the response time is almost instant, she said.
The iPads have also helped to speed up major repairs. Recently, for example, a technician used a tablet to video-chat with the machine's manufacturer, based in Germany. As a result, the machine was back in operation in just a week instead of the usual two to three weeks it would have taken, said Jose Vargas, a team leader.
Those time savings, in turn, help workers hit their production numbers. “We would be at capacity if we don't improve (productivity),” Opler said, adding that his goal is to double sales in three to five years. Ultimately that will mean the company will have to invest in more automation and more employees, Opler said.