25 Feb. 2013 | Comments (0) Share Follow @Conferenceboard
Last month, we examined the true costs of granting economic increases to bargaining unit employees during contract negotiations. This month, we are going to look at how to generate enough productivity to keep some or all of those costs from impacting the bottom line. Most companies start by creating a wish list and examining labor agreements to look for productivity opportunities. A common example includes reducing labor costs by increasing flexibility of assignment. Companies may also seek opportunities to shift costs by requiring employees to assume a greater share of health care expenses. However, cost shifting is typically met with great resistance by unions and employees, leading to a zero-sum bargaining situation, where neither side wants their slice of the pie to become smaller. I suggest that this limited approach will typically fall short of covering the full cost of an average settlement. In addition to identifying what needs to change in the labor agreement, you should brainstorm what could be changed that would improve the operation, and then determine if there is anything in the CBA that is a barrier to making that change. As opportunities present themselves, be creative in determining how to find or create data to allow an estimate of the value. Don’t discard a suggestion simply because valuation presents a challenge.
When I begin the preparation process, I want to find the top sources of waste, downtime, yield loss, and so forth, searching for people-related causes (as this is where the greatest impact can be found). A very small increase in yields or uptime can result in significant incremental production at virtually no additional cost. It takes a great many difficult cost-shifting proposals to equal the value of keeping a sold-out production line running another 2 hours a week. Let me share two examples of how we identified and delivered value by looking beyond the pages of the contract and finding opportunities to bake a bigger pie – rather than slice up the existing one differently.
At a very large and complex facility in Virginia, I was using a “great day/bad day” technique to generate potential opportunities. I simply asked about those factors that make a great day, and then the ones that make a bad day. One supervisor brought up variation in machine repair time on the off shifts as a contributor to a “bad day.” The plant was essentially in a sold-out position so machine downtime was an obvious opportunity, but how much was it worth and was it something we could fix?
I created a simple, but effective, form the supervisors would fill out when a machine broke down, which captured details about what caused the malfunction, who repaired it, and how long did the repair take. It also tracked lost production. We found some repairs required detailed knowledge of a particular machine or process, while most could be accomplished by virtually all of the mechanics. We also found much wider variation when mechanics were called in than when the regularly assigned shift mechanic performed the job. It made sense once the facts were in front of us. Mechanics from external operating areas lacked the skills to effectively fix certain complex machines.
How much was this problem costing us? We gathered more data and found that on average the margin on the lost production was just over $5,000 a week, amounting to $250K per year or $750,000 over the life of the agreement – and this loss applied only to mechanical issues found at just a portion of the plant.
The data helped us frame a narrow solution to the problem. We added a new or sub-qualification for call-ins to repair the complex machines while maintaining the existing call-in procedure for other repairs. These sub-qualifications meant only mechanics holding these qualifications were called in for any specialty equipment. We began to explore other areas where the sub-qualification process could add value and found about a dozen, which led to additional discussions focused on maintenance optimization and creating opportunities for additional mechanics to become qualified on the equipment. Overall, this value creation opportunity delivered over $1,000,000 to the bottom line, helping us provide a solution supported by the union.
Another good example took place at a large chemical plant. There had always been issues with the day maintenance crew waiting for work permits to be signed before they could start repairs. This was especially true on Monday mornings. A potential solution was to have hourly crew chiefs qualified to sign certain permits. This solution had been on the internal “wish list” and had been a company proposal before, however, it just didn’t seem to be a big enough problem to overcome the union’s resistance. Yet, as the company reduced the number of supervisors at the facility (while adding additional hourly “chiefs”), this solution became more financially attractive. In addition, like many organizations, the Company had “raised the bar” on what was required before a permit could be signed.
While raising requirements was clearly the right thing to do to ensure the safety of all employees, it had the unintended effect of increasing the long wait before repairs could begin. This turned into additional lost production as units remained idle until repairs were completed. We began collecting data, and it did not take long to realize that qualifying chiefs to sign permits created a seven-figure opportunity. Though chiefs already made many equally important and impactful decisions, we knew it was going to be a tough solution to bargain for. The union resisted as expected, concerned that one of their own could be held responsible for a mistake when signing a permit.
However, I saw a bargaining opportunity when the union made an impassioned plea to increase the ability of employees to use more of their vacation a day-at-a time. I told them that I could never see agreeing to that proposal, due to the added complexity, burdensome nature of the record keeping, and reoccurring issues with short-notice requests. The only way I could ever imagine being able to agree to their proposal is if the union agreed to something equally big on our list, namely chiefs signing permits.
We had an agreement on both items at the next meeting.
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