Productivity growth in the truck body and trailer industries generally has been underwhelming over the last 24 years.
Best defined as units of output compared to units of asset inputs — labor, capital, managerial skills, and/or better technology — overall productivity has been relatively flat, according to figures compiled by the Bureau of Labor Statistics of the Department of Commerce.
Overall productivity declined an average of 0.4% annually over from 1987 to 2011, the most recent year for which statistics are available. According to the BLS, productivity fell 2.4% annually during the 2007-2009 period, no doubt reflecting the market slump during the Great Recession, and the body/trailer industry’s reluctance to cut overhead during those years.
Productivity recovered to 1.2% annually during the next two years (2009-2011), reflecting the industry’s renaissance paralleling the upturn in the nation’s economy and with it, overall higher freight shipments. That’s good. (see chart)
At the FTR 2013 Transportation Conference in Indianapolis last fall, FTR senior consultant and president of Transportation Fundamentals Noel Perry said truck costs spiked by about eight percent in 2010-2011 because of the imposition of emission control technology (that’s bad) but then remained stable in 2012-2013 (that’s good). Bill Strauss, senior economist for the Federal Reserve Bank of Chicago at the Indiana conference, added “We are easily facing the largest collection of regulatory changes in the history of this industry.” (That’s bad).
Because of these added expenses, he predicted relatively flat truck sales for 2014 and 2015, despite the reviving economy. Obviously, anything that hurts sales of trucks hurts the sales of truck body and trailer manufacturers. (That’s bad too.)
Opportunities and rewards
Let’s look at two snapshots of today’s opportunities. First, since the economy is recovering and with it freight shipments, there will be more trucks on the road. But as transportation costs rise and new regulations bite, purchasers of specialized truck bodies and trailers will be forced to be more tight-fisted than ever in their new equipment purchases. Hence, flat sales, and an increased need for higher productivity and lower per-unit costs by suppliers to meet the demands of tight-fisted purchasers.
Trucking industry suppliers looking beyond tomorrow know there are four ways to reduce per-unit costs: boost worker productivity, increase supervisory efficiency, improve managerial effectiveness, or invest in new labor-saving capital equipment.
The first three can be mastered with a modest investment, a relatively small expenditure of time, and a willingness to challenge the status quo before it becomes the status woe. The last—new investment—takes funds, and banks are still stingy in their new loan departments. But taken together, all four methods will result in lower per-unit costs and the ability to compete successfully now and tomorrow as the economy continues its lurching climb and truck and trailer purchases stabilize.
Let’s start at the simplest and fastest to accomplish, and move to the complex.
Employees and productivity
The simplest way to boost productivity at the worker level is by creating incentive systems to motivate them to work smarter, and if needed harder, to increase their output.
Most workers want to do a good job, be productive…and be rewarded for their efforts. When a reward system like Gainsharing is implemented by an expert with experience in the truck and trailer industries, history shows that productivity will improve 17-22%. (“Productivity Sharing Programs: Can They Contribute to Productivity Improvement?” U.S. General Accounting Office, 1991).
But how to measure their productivity? While many executives sit up late thinking of ways to improve productivity, few in my experience do an adequate job of measuring it. Most settle for a simple figure—sales dollars per man hour worked—even though they make a wide variety of bodies and trailers.
And competition is fierce. Competitive pricing is paramount to obtain new orders. Having dealt with many truck and trailer executives in my career, few of them, devote enough time formulating understandable productivity measures that can be communicated to employees, or to developing effective incentives that motivate workers to strive for the continuous productivity improvement needed to please today’s price-conscious customers.
A simple measure of productivity is actual hours to assemble a specialized truck body or trailer compared to estimated hours in the bid. That ratio can be measured in terms of direct labor, overall plant labor, or all labor, plant as well as office workers, and is easily understood by all. Obviously, actual versus estimated hours is a crude but understandable measure. Corrections ought to be made for the equipment and options requested. But once the corrections are made, producers have a simple, effective measure that is easily communicated and understood.
The latter is important, because body and trailer manufacturers wishing to improve employee productivity must provide understandable benchmarks for employees to shoot for as well as rewards for exceeding them.
Moreover, astute managers look beyond direct labor productivity. They focus on overall productivity by including other workforce segments in their calculations. By adding additional classes of employees — supervision, quality and technical support, and office workers — body builders and trailer makers can quickly determine their effect on overall productivity and bottom-line profitability as well. Whether to hire more maintenance men or additional estimators in the office then becomes an easier decision.
Supervisory efficiency
There are two reasons why few body and trailer builders drill down to measure supervisory efficiency and the effectiveness of their managers or make many efforts to improve either of them. First, it is usually difficult to measure results and second, inertia. It is easier to blame “lazy” workers for mediocre profits than to upset long-term supervisors and mid-managers who are set in their ways. For most companies in the industry, “good enough is often good enough,” if a modest profit is made.
Those trying to upgrade their supervisors often purchase inexpensive training programs from the internet or a trade association. While these generalized courses might be a good introduction for bewildered “newbie” supervisors, they give the more experienced ones inured to the inevitable little reason for change. Moreover, most canned training is aimed at helping supervisors manage the behavior of their subordinates, rather than showing them how to manage the work of their subordinates. Teaching supervisors how to deal with sassy employees is fine, but does little for productivity.
These deficiencies can be rectified by retaining a knowledgeable trainer who takes the time to understand existing supervisory practices and attitudes before making recommendations to improve them. This understanding can be easily accomplished by interviewing the supervisors to determine how they perceive their work environment and then talking with mid-managers to obtain an overall view of how operations are actually conducted. Only then can realistic plans be made about the content of the training; how to set proper goals to measure its effectiveness; conducting the training with enough pizazz to keep even the most jaded of supervisors awake; and finally, measuring the results over time and communicating them back to the supervisors in question.
Management effectiveness
Improving managerial skills through development efforts is a fraught subject. The most obvious skill most managers need is making better use of their time — their scarcest resource. Managerial effectiveness can be improved by helping individual managers define their key objectives and then teaching them how to focus their time on those, leaving the hum-drum to subordinates.
Again, the first step is for a knowledgeable expert to spend time interviewing a company’s executives to find out how they perceive the problems, and then checking carefully with mid-managers to validate their concerns. Once accomplished, effective training can be designed based on reality. This is a more realistic approach than merely inflicting upon unsuspecting managers lists of KPI’s (Key Performance Indicators) and then expecting them somehow to shine.
Effective training then begins with helping individual managers set their key goals, obviously, with input from upstairs. Then, after managers are asked to demonstrate just how they actually spend their time, a trainer can show them objectively where they are spinning their wheels and when they are devoting their time to their most worth-while activities that contribute the most to their key goals. Managers can be shown how much each of their activities contributes to all of their goals. Then, managers can be shown how all their activities contribute to each of their specific goals. Once internalized and re-enforced, managers can and will use their time to their maximum advantage — as well as to their company’s.
Capital investment
Finally, another way to improve overall productivity is to substitute capital for labor, a trend that started the Industrial Revolution. In my experience, few executives of trailer or truck body manufacturing companies have ever asked themselves what return on capital they want before they invest in new equipment or “better” technology.
Let’s say new jigs will save time in welding by allowing the welders to position the parts for easy welding. If each jig costs $20,000 and the owner wants a 25% initial return on his investment, then he needs to ask whether the $20,000 he invests will result in $5,000 in annual labor savings, i.e., increasing welder productivity. Obviously, order sizes, depreciation schedules, and other tax issues confuse things, but that’s what keeps accountants and tax attorneys out of trouble. To complicate matters, the return on changing the plant lay-out to streamline production or implementing an ERP system to monitor work flow are not easy to estimate. But efforts should be made. However, the results of many of these changes are often over-estimated by gung-ho managers for two reasons: first, because many need a stronger shot of reality in their morning coffee, and second, because little effort is made to include employees in the decisions. As a result, workers see proposed changes in equipment and process as simple head-chopping exercises and find subtle ways to torpedo them in real life. Luddites lurk in the dark corners of every plant.
All together now
One can easily sympathize with the executives of truck body and trailer producers who constantly juggle the day-to-day realities of dealing with government regulations, union difficulties, lame supervisors, ineffective managers, and customer demands for lower prices and last minute schedule changes. Some of these problems are the eternal nature of the business…
Other problems are self-inflicted. It is very easy to sympathize with harried executives so immersed with the day-to-day problems of juggling customer demands that they delay challenging internal inertia within their own companies. This long term threat to their companies’ future can be overcome by dealing with subordinates openly and honestly: by rewarding outstanding performers and sanctioning mediocre ones at all levels; by showing managers how to function with high effectiveness; by providing supervisors with the training needed to run their departments with measured efficiency; and by implementing incentive systems like Gainsharing for better productivity at the lower levels.
Because if executives like you don’t do it, your competitors will be the ones who come in first in the productivity derby, winning the customers’ orders – and the competitive race!
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LANE W. IMBERMAN BIO
Lane. W. Imberman is a senior associate at Imberman and DeForest, Inc., management consultants headquartered in Evanston, Illinois. A Loyola University graduate, he specializes in engineering and implementing group incentive systems like Gainsharing Plans, as well as supervisory training programs and management development efforts. He may be contacted at [email protected]. for further information.