“Work smarter, not harder” is a phrase straight out of a Dilbert strip, but as the Wall Street Journal points out whether America has been working smarter or harder is an important question for the US economy (Moment of Truth for Productivity Boom, May 6). Productivity has been strong and growing pretty much through the recession and now the recovery. For example, the Labor Department reported on Thursday that nonfarm worker productivity rose 3.6% in the first quarter. The question is what is driving that productivity growth. One possibility is that workers are generally scared about losing their jobs and have been willing to go the extra mile to keep their jobs. That is, they are working harder. The other possibility is that forced to make do with fewer bodies, firms have found ways reduce unnecessary tasks, eliminate mistakes, increase machine uptime and yields etc. That is, they have fond ways to work smarter. According to the article, both have been going on:
Some of the productivity gains experienced by K&S Tool and Manufacturing in High Point, N.C., are almost certainly temporary, says Joe Hughes, who helps run the company his father started out of the family garage in 1974. K&S, a machine shop, makes everything from roll bars for forklifts to components for giant electric motors. The recession wasn’t kind to it. The company had about 100 employees in mid-2008, but had cut back to about 60 by April 2009 as customers slashed orders. …
Much of the company’s productivity gain comes from changes in the way people work—rather than new technology or other physical changes. Mr. Hughes, the boss, has started doing work that was previously done by skilled hourly employees. When the company got a contract last summer from Caterpillar Inc. to make a new engine part, Mr. Hughes went into the shop, designed the part and set up the machines so they could do the work. Similarly, another manager now spends part of his time helping to load and unload trucks. Ostensibly, the company is getting more out of its workers because two of its managers are doing tasks formerly done by hourly employees. But the ultimate impact on cost and efficiency is more difficult to gauge. When Mr. Hughes is on the plant floor futzing with machines, he isn’t courting new customers.
So K&S is working harder. Other firms in the same region, however, are working smarter, looking at changes in operating procedures to boost output.
Consider Greensboro, N.C.-based Unifi Inc., a maker of polyester yarn. … [Unifi] had just $50 million in capital spending in the five years before the recession. But the company has still managed to lift productivity. The upshot of this is visible at Unifi’s Yadkinville plant, where it “textures” yarn—a process that gives it bulk and strength. The plant is the size of 16 football fields and is lined with machines that stretch and heat the yarn. Scattered workers dart here and there. Most of this automation was added years ago. “Every piece of equipment we have here is pre-2000,” says Unifi Chief Executive William Jasper. “We have to find out how to be more efficient with what we have. Last year, the plant focused on reducing how often yarn breaks during the texturing process. Each time that happens, machines are shut down, yarn is wasted, and workers have to spend time clearing up the problem.
The company held a brainstorming session and came up with around 25 cheap fixes. Then, it ran statistical tests to determine which of the fixes would make a difference. “Creelers,” whose job it is to splice strands of yarn together with a heat gun, were told to be more vigilant about removing stray bits of yarn. That tiny change eliminated many of the breaks.
Why does this matter? Because it has a lot to with what the economy will look like in terms of employment and wealth creation over the next several years. On the one hand, what firms like K&S are doing is not sustainable. They have increased productivity by shifting resources to activities that immediately affect output. Managers are putting in more time on measurable tasks (creating part drawings) and less time on tasks with less concrete, less quantifiable outcomes (meeting with customers). But that can’t last forever. Working the phones and visiting clients may not be immediately measurable but they are necessary for a healthy business. As the economy recovers, someone has to go back to those tasks and that means K&S will have to hire. That goods news on the employment front.
At the same time, K&S’s output worker will slide when resources shift back to those overhead tasks. That’s bad news on the long-term wealth generation front. Over a long horizon, productivity growth is what leads to increased per capita GDP and what separates rich countries from poor ones. Unfi’s approach is more promising on this front. Fewer breaks mean less time fixing breaks and more time actually making yarn. Those gains will persist as Unfi’s business grows. But there is no free lunch. Unfi is going to need fewer workers so while they may be creating more wealth, they will be generating fewer jobs.