Operations Payoff

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How Productive Is Your Company?

Jack Welch once said the best measure of productivity is units of input per unit of output. Some companies will have $18 of revenue per dollar spent on labor, while others will have $3, but regardless of the actual revenue what we want to see is improvement over time.

In this case, we see a clear problem:

 Labor Productivity Chart

This client asked me to come in because he had problems with shipped-on-time and was convinced that the fault lay with the warehouse. When I asked if he wanted me to look at the production facilities as well, he replied that production was perfectly fine.

However, when I looked at the financial statements I discovered that dollars shipped per labor dollar had declined from about $18 to $8 over the course of a year. When I asked about the plummeting labor productivity he admitted he had no idea that it was happening.

This company has been through Lean, but no one ever bothered to measure labor productivity.

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