Page 20 - MetalForming June 2011

Best Practices
By Bob Dobrowsky
A Closer Look at Industry Productivity
One of the few positives resulting from the recent eco- nomic downturn has been the ability for companies to do more with less. Many have found themselves able to handle increasing volumes without adding addi- tional resources. Those that have adapted are poised to cap- ture better profits as manufacturing makes a comeback dur- ing the coming years.
Manufacturing’s Comeback
More and more signs surely point to such a comeback. PMA’s monthly Business Conditions Report indicates that metalformers expect strong improvements in their industry and in the economy as a whole. Says one senior-level exec- utive, with more than 30 years of experience: “I’ve read more good news about manufacturing in 2011 than in the past 15 years.”
Others share this view. According to a Wall Street Journal article titled, “World Revs Up U.S. Profits—Manufacturers Boom on Global Demand, Spurring Stocks to Three-Year High” (April 21, 2010), growth in manufacturing output is very strong compared to the rest of the overall economy.
“Manufacturing output has been rebounding since mid- 2009,” the article says, “from a deep slump. During the first quarter it increased at an annual rate of 9.1 percent, accord- ing to data released by the Federal Reserve.”
Certainly challenges remain for manufacturing, such as the recent natural disaster in Japan and the high unemploy- ment rate here in the United States; however, most expect these advances to continue.
Productivity Measurements
The annual PMA Benchmarking Report tracks several measurements related to productivity, the three most impor- tant of which are:
• Sales per employee;
• Value-added per employee; and • Capacity utilization.
Bob Dobrowsky is a partner with the Cleveland office of Plante & Moran, PLLC, and is one of the leaders of the firm’s Ohio Manufacturing and Distribution prac- tice. He has been delivering professional services to privately held companies for the past 21 years. Bob has authored the annual PMA Benchmarking Report since 2003, serves as a member of the board of directors for PMA’s Cleveland district, and has pre- sented at various district level meetings. www.plantemoran.com
Bob.Dobrowsky@plantemoran.com
The 2010 Benchmarking Report (based on 2009 fiscal year-end data) shows that the first two metrics remain at strong levels throughout the industry, while capacity uti- lization continues to decline. More importantly, the report, which tracks the performance of the industry on average along with the performance of the most profitable companies (based on their operating income), reveals that performance in these three metrics is closely tied to profitability. In near- ly all cases, the most profitable companies outperform the rest of the industry in productivity.
Sales per Employee
Sales per employee, computed by taking a company’s annual sales divided by its total employees, relates to a com- pany’s efficiency. Since 2006, the metalforming industry has averaged a sales-per-employee ratio of $201,000, with a high of $213,000 in 2009. This high level of productivity has result- ed from streamlined operations, successful lean-manufac- turing implementations and effective use of outsourcing.
$225,000
2006 $200,000
$175,000
Sales per Employee 2006 to 2010
2008
2009
2007
2010
Value-Added per Employee
Another measure of manufacturing productivity, value- added is defined as the difference between total sales and the cost of materials plus outside services. Some consider this a better measure of productivity, since it gauges only the out- put within the four walls of a company and removes out- sourcing from consideration. Value-added per employee has averaged approximately $100,000 during the last five years, with $105,000 (in 2007) at its peak.
$125,000
$100,000
Value-Added per Employee 2006 to 2010
2007
2009
$75,000
2006
2008
2010
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MetalForming/June 2011
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