In times of economic distress, business owners often begin contemplating the dreaded ‘L’ word — layoffs.
But are they really an effective cost-saving measure? Probably not, says Lynn David McAninch of Competitive Edge Associates, a management resource firm located in Orville.
According to McAninch’s figures, personnel costs represent only 7 percent to 10 percent of the tab of running the typical manufacturing plant. The real savings, he asserts, can be found in reducing overhead and materials, which often account for as much as 30 percent and 60 percent of costs, respectively.
“If you lay people off, it’s a discouragement to the people that remain,” McAninch says. “They have their own jobs to do plus those of the other people. They don’t go away.”
Instead of cutting the number of workers, McAninch suggests teaching employees to cut overhead and material costs by sending them through the Lean Simulation Machine, an interactive five-hour class developed by retired Toyota executives for the Donnelly Corp., an automotive parts manufacturer in Holland, Mich., and subsequently used by the likes of General Motors. A group of up to 10 workers, ideally of mix of top executives, managers and front-line workers, sits down for a lecture on continuously improving the manufacturing process.
They then participate in a four-step simulation that involves producing a “product” — in this case, a metal bar to which two nuts and bolts have been added, which is then painted and heat-treated.
“Most workers learn better hands-on than they do just listening to a lecture,” McAninch says. “We do a combination.”
Five group members participate in the simulated manufacturing process, which is not laid out in the most efficient manner. One functions as a forklift driver — the only person who can move materials –while two act as efficiency experts, who make suggestions on how to improve the process after every 5-minute week.
A “lean” principal is then discussed, and the group is allowed to make two changes to the process. The goal is to gradually eliminate activities that don’t add value to the product — for example, moving materials more than absolutely necessary or taking unnecessary steps to retrieve them; double-handling things; doing things twice because they weren’t done right the first time; having downtime on the line because materials aren’t available or machinery isn’t functioning; or storing finished goods that ideally should be shipped right off the line to the customer.
“Most companies, if they really analyze their products, will find that only 10 percent of their time is spent in value-added activity,” McAninch says. “Ninety percent is spent in nonvalue-added activity. You’ll never get it down to just the opposite, but that’s the goal.”
He stresses there is no right or wrong way to reconfigure the simulation process.
“Every group does it a little bit differently. That’s part of the learning curve.”
McAninch likes to take groups back to the workplace within 48 hours of completing the class and ask them to apply the principles they’ve learned to a real-life situation. While positions often disappear in the simulation, most companies who put employees in the classes commit to not cutting anyone’s job as a result of it.
“Generally, lean done right does not eliminate people,” he says. “But the position that you have right now may not be there any longer, and you’ll be retrained in another area.” How to reach: Competitive Edge Associates, (330) 683-3431
Lynne Thompson is a free-lance writer and regular contributor to SBN Magazine.