Update on Pay for Skills
A while back I wrote about a Six Sigma project that focused on implementing a pay for skills initiative. I am happy to say the project has passed through control phase and is currently institutionalized.
Validating cross training employees created savings was a little difficult at first.Sure, there were tons of soft savings. Employee satisfaction survey scores increased. The production schedule remained on plan more frequently than it did before. Retention increased with zero turnover in production during the six month control period. On time product shipment metrics improved.
At first I thought about using amount of overtime worked as a metric, however when the project initially went into control phase the company encountered the slow period of its yearly cyclical cycle. Differentiating a natural slowdown vs. improved efficiency driving reduced overtime would be a daunting task that may not receive buy in from all stakeholders. I ran into the same obstacle when looking at using revenue dollars per employee as a hard savings metric.
I thought using a labor efficiency metric would capture hard savings. Because of the cross training there was less dependence on key individuals who had previously known how to operate only one or two machines. Wait times for machine changeovers were significantly reduced and production time better adhered to planning with the end effect being a consistent improvement of approximately 10% in labor efficiency.However with improvements made and cyclical capacity increasing, I now had too many people.Plus I had to contend with the additional labor costs that resulted from adding additional salary bands for skillsets.
You may be saying “This is a no brainer.You have excess employees. Have a layoff to achieve hard savings.” Yet executive management had made promises to employees that there would be no lay-offs so another option was crossed off the list.
When I was just about to run out of ideas, I made a final stop to visit the sales department. I was hoping the increase in efficiency could somehow translate into better profit margins. It just so happened that sales was on the brink of postponing a quote to distribute a developmental product line to a large customer because of concerns about production capacity and time to market.
When I shared production trending data along with forecasted production capacity for the proposed delivery dates, the quote was submitted and the business was acquired. In the span of a very short time, I had gone from having too many people to saving the company the equivalent of hiring six full time employees and filling any excess capacity indefinitely.
Throughout my pay for skills journey, I learned several lessons. Transactional projects can be just as successful as technical Six Sigma projects, although hard savings may take time to document. If you make a promise to employees, you must keep it even if it impacts your savings results, otherwise you will lose all credibility and never get support on any future projects. Lastly, even though I focused my initiatives towards production, other departments outside the initial scope of the project may provide the pot of gold at the end of your Six Sigma rainbow.