The Profit of Efficiency

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The Profit of Efficiency

• David Ellings
• Business Mentors
• 2009 Large Loss and Business Development Summit,
  Chicago, Illinois

2
Whats On Tap

• Industry standards
• Efficiency myths and facts
• Study profile
• A case study
• The results
• The hidden effect
• The bottom line
• Simple steps to improve your position

3
Measuring Success?

• Employees
• Equipment
• Building Size
• Volume

4

• SALES
• 5,000,000
• EXPENSE
• 4,850,000
• PROFIT
• 150,000 or 3

• SALES
• 750,000
• EXPENSES
• 600,000
• PROFIT
• 150,000 or 20

5
Risk
Reward
6
NAICS Code

• Industry Segment
• Profit

8
7
0 22
15 30
50 80
8
Direct Costs 20 50 Material/Equipment
50 90 Labor
50 80
DIRECT COSTS
9
50 90 Labor
Focus For Efficiency
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Top Five Inefficiencies

• Materials
• Buying smarter and using wiser
• Speed of work
• Get your employees to move faster through the
  assigned tasks
• Amount of management
• Train your staff to function in the field with
  less management oversight
• Pricing
• Estimating program pricing problems
• Project size
• Advance to larger projectsthey are more
  substantially more profitable

Myths
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True Inefficiencies

• Scheduling
• Time management and efficient use of resources
• Material procurement
• Multiple trips, retaining stock, price shopping
• Accuracy
• Time card slippage, accountability, management
• Drive time
• Most significant indicator, liability, waste,
  waste, waste

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Ratio Difference Efficiency
1 increase in efficiency results in a 5
increase in profits
13
Study Profile

• Executive Summary
• Productivity trends carry a large impact on
  profitability
• Utilize detailed data gathered over three years
  to analyze efficiency
• Productivity focused on production employees and
  management processes
• Clear conclusions were able to be drawn by the
  results

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Introduction

• Background
• Productivity is the key factor of economic health
• Industry productivity is not well defined
• Rely on productivity figures from sources of
  questionable credibility
• Exactware, Means etc.
• Ineffective management results
• Need to offset the tightening of profits by the
  insurance industry

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Introduction

• Objectives
• Study efficiency trends over an extended period
• Create an awareness
• Counter insurance industry pressure on margins
• Increase management tools
• Nothing matters unless we increase.
• NET PROFITS

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Introduction

• Scope
• Defined
• The American Association of Cost Engineers
• Productivity is a relative measure of labor
  efficiency, either good or bad, when compared to
  an established base or norm
• Its nature creates difficulties in tracing it as
  an absolute value over time.
• Information is gathered against movements of an
  established base, or benchmark value

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Introduction

• Methodology
• Study detailed movement of 82 production
  employees
• Focus on inefficent time and not on production
  cycles
• Created buy-in through incentives and
  self-improvement
• Used sampling and statistical analysis techniques
  to establish and confirm results
• Sampled across all company production areas
• Gathered data very quietly

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Affecting Factors

• Project Uniqueness
• Each job is different and unique
• Environmental factors
• Landscape, weather, and physical location
• Aesthetic factors
• Level of quality required, material selection,
  existing conditions
• Human factors
• Expectations of adjusters, owners, managers etc.
• Uniqueness requires modification of the
  processcreating an inefficient learning curve at
  the beginning stages of each project activity

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Affecting Factors

• Technology
• Hugh effect on overall productivity
• Modify skill requirements
• Create difficulties in separating contributions
  of technology, management and labor to the
  efficiency
• Less motivation to add technological changes when
  the associated labor is not expensive
• Sometimes expensive and only a temporary
  strategic advantage

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Affecting Factors

• Personnel
• Management
• Level of training, accountability, and knowledge
• Documented studies poor management activities
  account for over 50 of the inefficiencies
• Production
• Cross training, flexible contract increase
  efficiency
• The fall of real wages within the industry
• Old skills retire...young talent goes else ware
• Industry tends to retire or fall off at an
  earlier age
• Lack of formal training
• Lowest of any formal sector of the economy
• Workforce tends to be transient, causing a
  reluctance to invest capital to train

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Case Study Assumptions

• Employee
• Carpenter
• Generalist to handle multiple tasks
• Wage 25/hour
• Burden 50
• Total cost to employee 37.50/hour
• Work year available 1960 hours/year
• 2080 hours minus 3 weeks for holidays, vacation
  and sick time.
• Expected production 100/hour

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Scenario One

• 700 AM arrive at your facility to get assignment
  and supplies
• 700 730 drive to work site
• 730 930 install trim (productive work)
• 930 945 break (paid)
• 945 1130 finish trim and paint (productive
  work)
• 1130 1200 lunch (unpaid)
• 1200 145 install interior doors (productive
  work)
• 145 200 break ( paid)
• 200 300 install door hardware (productive
  work)
• 300 330 drive back and unload items and
  paperwork

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Scenario One

• Results
• 8 hours worked and paid
• 200 wages 100 burden 300 cost
• 6.5 hours productive revenue generation
• 1.5 hours unproductive time paid
• 19 of paid time unproductive

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Scenario Two

• 700 AM arrive at your facility to get assignment
  and supplies
• 700 730 drive to work site
• 730 745 get coffee then discuss project,
  activities last evening and other personal items
  with the rest of the production crew
• 745 800 unload supplies and tools from truck
  and set-up to work
• 800 900 install trim (productive work)
• 900 915 break (paid)
• 915 920 put away coffee, doughnuts and items
  from break

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Scenario Two

• 920 1000 install trim but a scope
  clarification problem arises (productive work)
• 1000 1015 discuss project with home owner
  and/or call project manager for clarification
• 1015 1030 install trim (productive work)
• 1030 1040 at 1020 the carpenter realized
  that there wasnt enough trim to complete the
  work, so a discussion about this issue occurs
  with the crew and the carpenter winds down his
  activities to get ready to leave for a store
• 1040 1100 drive to Home Depot (even though
  there was another lumber yard 5 min away but was
  unknown to the carpenter)

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Scenario Two

• 1100 1130 locate trim in store, pick-up a
  couple of other supplies on your account, look at
  a the new compound miter saw, look at bath
  fixtures for a home remodel or side job, go to
  pro-desk to check out, converse with pro-desk
  manager about the weather or sports, load items
  into truck and leave
• 1130 1140 stop for gas and snacks
• 1140 12-00 drive back to project
• 1200 1230 lunch (unpaid)
• 1230 1240 conclude lunch and put away lunch
  supplies, clean-up and use restroom

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Scenario Two

• 1240 100 install last piece of trim ( project
  completed for the day, other supplies to arrive
  tomorrow)
• 100 115 wind down from activities and load
  vehicle
• 115 130 drive to a different work site
• 130 145 set-up tools and work at new site,
  also greet and discuss things with crew/homeowner
  
• 145 215 install windows (productive work)
• 215 230 break (paid)
• 230 235 put away coffee, doughnuts and items
  from break

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Scenario Two

• 235 250 install insulation (productive work)
• 250 300 wind down for day, load truck and
  leave
• 300 330 return to facility, drop of time
  sheet/paperwork and unload supplies and debris

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Scenario Two

• Results
• 8 hours worked and paid
• 200 wages 100 burden 300 cost
• 3.0 hours productive revenue generation
• 5.0 hours unproductive time paid
• 63 of paid time unproductive

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The Cost of Inefficiency

• Scenario One
• Scenario Two
• Industry Average

1.5 hrs
56.25/person/day
13, 781/year
5.0 hrs
187.50/person/day
45,937/year
2.6 hrs
99.00/person/day
24,255/year
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Is this it.
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No, it is just the tip of the ice berg!
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• What about the revenue that should have been
  earned during the inefficient time spend.

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Lost Revenue

• 2080 hrs in a work year 208,000
• 3 weeks removed for vacation, holidays, etc.
• 1960 possible productive hours in a year
• At 100/hr 196,000/person/year of revenue
  generation

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Lost Revenue

• Scenarios
• 36,750/yr of lost revenue per person
• 367.5 hrs unproductive 1592.5 hrs productive
• 122,500/yr of lost revenue per person
• 1225 hrs unproductive 735 hrs productive
• Avg. 64,680/yr of lost revenue per person
• 646.8 hrs unproductive 1313.2 hrs productive

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What Does All of This Mean?

• Company Assumption
• 1,000,000 revenue for year
• 60 direct costs 600,000
• 25 materials/equipment 150,000
• 75 direct labor 450,000
• 25 overhead 250,000
• 15 profit 150,000

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What Does All of This Mean?

• Company Assumption
• We will use the average efficiency to test
• 1/3 of production day is inefficient
• 2 hours 38 minutes non-productive
• 5 hours 22 minutes productive time

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• 1 increase in efficiency
• results in a 5 increase in profits

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Small Increase, Big Gain

• 5 increase 25 more profit
• Productive time
• 5hr 22min to 5hr 37min..or only 15 min/day
• 12,000 hrs of labor in our example
• 1,500 personnel days per year
• 1,500/days X .25hrs X 100
• 37,500 increase in PROFITS

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Results

• 5 increase 25 more profit
• 1,000,000 revenue increased to 1,037,500
• 60 direct costs 600,000
• 25 materials/equipment 150,000
• 75 direct labor 450,000
• 25 overhead 250,000
• 18 profit 187,500

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Results

• 5 increase 25 more profit
• Therefore with the exact same costs the company
  was able to produce an increase of 37,500 of
  additional revenue which increased the profit by
  the expected 25 from 150,000 to 187,500 with
  only 15 min of increased production per person
  each day.

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Results

• 5 increase 25 more profit
• In addition, in order to capture the same profit
  of 187,500 without increasing the efficiency
  would require a 25 increase in the revenue or an
  additional 250,000 of sales.
• Which is the easier improvement?

43
Actual Results

• Four Year History
• 62 increase in employee retention
• With incentives wages increased 6½ X greater then
  rate of inflation
• 18 increase in margins
• 76 decrease in paid none revenue travel time
• 36 decrease in management related inefficiencies
• 54 reduction in production inefficiencies

44
Actual Results
NET PROFITS
42.4
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Strategies For Corrections

• Put production on a pedestal
• Plan and use your production staffs 2080 hours as
  your first priority

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Production

• Create and post and organization chart
• Make sure each production person know where they
  lay and who supervises them
• Emphasis safety and safety training
• Let them know you are interested in their well
  being
• Create a detailed job description for each
  employee
• Change them as the positions change
• Create a review form holding them accountable for
  the items in the job description

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Production

• Include them in meetings
• Offer training incentives
• Have a clear and concise path for career mobility
• Remove cancers immediately
• Hire toughfire fast
• Create and implement an incentive plan
• Both personal and team based
• Small perks and recognition go a long way

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Production

• Remember
• You cant manage what you cant measure
• -Jack Welch
• And
• Trust but verify
• -Ronald Regan (with special credit to Phil
  Rosebrook Sr.)

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Strategies For Corrections

• Put production on a pedestal
• Plan and use your production staffs 2080 hours as
  your first priority
• Monitor and reduce drive time
• Monitoring is the blood test of your businesses
  health check-up
• Single most reducible and inefficient time spent

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Drive Time

• Start/stop day at job site
• Production staff should start and end day for all
  non-emergency work at the job site
• Use technology to monitor the process
• Review company vehicle policy
• Pay mileage instead of allowance
• This will allow a tracking mechanism for drive
  time
• Add runner for material delivery
• Better yet use your suppliers to deliver material
• The numbers do not support staff material
  procurement

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Strategies For Corrections

• Material Handling
• Dispose of extras
• Look critically at what you stock
• Keep production from material procurement at all
  costs

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Material Handling

• Dont return unused commodity stock to your
  warehouse
• Dispose on site
• Give to property owner
• Production personnel should produce and not
  purchase
• Avoid the temptation to stock most supplies.
• The savings on most bulk purchases are far offset
  by the cost of storage and delivery
• Utilize suppliers that will deliver even for a fee

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Strategies For Corrections

• Material Handling
• Dispose of extras
• Look critically at what you stock
• Keep production from material procurement at all
  costs
• Add technology
• Computer, faxes, PDAs
• GPS, Nextel systems

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Technology

• Cost vs. benefit
• Make sure it makes sense financially and
  logistically
• Keep production staff out of office
• Use faxes or computers to send daily time sheets
• Enter time data in real time through PDAs or
  phones
• Use GPS to track assets, both organic and
  inorganic

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Strategies For Corrections

• Increase management
• Accountability
• Direction

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Management

• Scheduling
• MS Project
• CDCI
• Virtual Boss (PDA software)
• Primavera

57
Management

• Budgets
• Everyone should understand the financial
  expectations of a project before it begins
• Communications
• Improve management/worker communications to
  reduce the assumption factor
• Use technology emails, text messages, etrace,
  etc.

58
Strategies For Corrections

• Increase management
• Accountability
• Direction
• Improve job costing
• Review results as projects are ongoing
• Measure, measure, measure
• Where profit is, loss is hidden near by
• Japanse Proverb

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Job Costing

• To contrive is nothing! To produce is something!
  To measure is everything!
• Unknown
• All produced work must be measured against a
  financial standard
• Incentive plan based on margins
• Accountability for all project phases based on
  budget
• Good financial accounting software

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Thank You
Questions
61
Challenges of having a mobile workforce

• No visibility into your team
• High overtime costs
• Manual timecard processing
• High mileage costs
• Cant allocate your resources effectively
• Difficult to communicate with your team
• Manual dispatching
• Manual paperwork chaos

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Mobile Technology

• Value
• Track and dispatch people and teams
• Right person for the job
• Increase TM accuracy and records
• Know how time is spent
• Reduce errors
• Manage sales team productivity

63
Mobile Technology

• Value
• Dispatch and track information
• Increase customer satisfaction
• See work in progress
• Reduce errors
• Capture and validate data

64
Mobile Technology

• Value
• Control overtime
• Accountability
• Decrease drive time
• Reduce errors rework
• Increase communication
• Monitor asset usage

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System Architecture
Mission Control
Mobile Solutions
QuickConnect

• Non-Java and Java GPS-enabled
• Easy to learn and use
• Configurable to your business
• Over-the-air administration
• Peripheral support

• View jobs, workers, activities
• Dispatch and manage jobs
• Real-time alerts
• Fleet, job and worker reports

• Back-office integration
• Real-time connection
• Secure and seamless
• Supports all applications

66
etrace Workzones

• All landmarks and jobs are geo-coded labeled by
  stop name.
• A configurable Workzone surrounds each stop to
  define its boundaries for GPS collection
• When a vehicle enters the Workzone, etrace starts
  to monitor the duration to determine if it should
  record this as a stop
• When a vehicle is in a Workzone for a specified
  duration, etrace marks this as a stop and records
  details, such as distance traveled and time of
  entry.
• If a vehicle is stopped in a Workzone that does
  not correspond to a landmark or job, the stop is
  logged as an unscheduled stop..

Stop is Recorded
Potential Stop
Workzone
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Worker Map Display of Exception Time
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Summary

• Ability to transform the mobile workforce for the
  field service industry.
• Eliminate manual processes increasing accuracy
  and costs.
• Increase customer response times
• Decrease mileage and overtime costs
• Leverage your IT and backend system investment
• Fast return on investment

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etrace editions seamless upgradeability

• Gain visibility
• Non-GPS Tracking
• WorkZone Landmarks
• GeoFencing
• Alerting

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worksmart

• Robust data capture
• Real-time field transactions
• Credit card processing
• Mobile printing

39
workflow
14.95

• Dispatch jobs
• Manage workflow
• Capture data
• Robust Reporting
• Blue Tooth Enabled

worksight

• Flexible GeoFencing
• Real-time Alerting
• PowerFields
• Real-time Mapping
• Electronic timecards
• Blue Tooth Enabled

19.95
worksight.lite
70
etraceTransforming and DrivingMobile Workforce
Performance
71
Your Gearworks Sales Team

• Contact Gearworks at 1-877-4GW-SALES today to
• schedule a product demonstration.

• See more.
• Do more.
• Be More