Productivity at U.S. companies grows at slower pace

At the end of the production line at the World's Finest Chocolate factory on Chicago's Southwest Side, workers must pack 115 large boxes with smaller cases of chocolate-covered cherries every hour or Audra Lee records the slippage on a board with a red marker.

When Lee whips out her green marker, it means the workers are on target "and my supervisor starts smiling,'' she said.

Output per hour at U.S. companies rose significantly in 2009 and 2010 as layoffs continued in the wake of the recession. Companies stepped up production quotas and found ways to shave seconds and minutes here and there with newer technology and adoption of lean manufacturing techniques. Then productivity's growth began to wane.

During the recession, "companies got smarter (with their processes), but there is only so much fat you can squeeze with that," said Gary Pisano, a professor of business administration at Harvard Business School. At some point, he said, companies need to hire more workers to increase output.

A case in point is Midland Manufacturing Corp., a Skokie-based unit of Dover Corp. Kevin Cook, Midland's director, said he has pushed workers to "do more with fewer people." But as sales increased, productivity improvements have not kept up with demand.

Last year, Cook said, sales of valves and devices for railroad tank cars, marine barges and freight containers rose by one-third, and he expects that momentum to continue. This year, he said, he plans to expand the workforce, including adding machinists and assemblers, but he declined to say by how many. "We have been fortunate to have rapid growth coming out of the recession," Cook said.

Experts warn about reading too much into productivity figures. Two years ago, fear of a double-dip recession caused U.S. companies to ratchet down production. That, in turn, resulted in slower productivity growth. Now, Europe's weak economy, China's slowdown and budget fights in Washington are fueling uncertainty, which could affect sales, hiring and productivity figures.

Still, some companies are bullish about improving their productivity.

Mauro Pino, vice president of assembly operations at Chrysler Group LLC, said he expects productivity to increase 30 percent year over year in areas where the automaker has incorporated lean manufacturing techniques from Fiat, its Italian parent company. "In our case, productivity has been higher and higher and not slowing down for sure," Pino said.

One example Pino cited was making it easier for workers to access parts they need to assemble vehicles. Reducing the number of steps they have to take from 40 to seven at some plants has improved the efficiency of the line and will allow Chrysler to increase its speed.

American workers, manufacturers like to point out, are among the world's most productive, and a reason why companies build and move factories here. Proximity to markets and rising transportation costs also contribute to that trend.

But workers, however, haven't reaped the benefits of productivity since the 1970s, said Lawrence Mishel, president of the Economic Policy Institute, a Washington-based pro-labor think tank. The gap between wages and productivity has grown because of globalization, the weakening of unions, deregulation of industries and high unemployment, Mishel said. "All have had a downward pressure on wages and empowered the employers to reap the gains of productivity," he added.

The competitive spirit also plays a roll in productivity.

Consider Utah-based American Linen Supply Co., an industrial laundry and linen supply company that installed equipment at its Chicago plant that made it easier for workers to sort and wash linens. Soon after the equipment was brought in, people began competing against each other, increasing production by about 50 percent, according to Micaela Castro, a union steward.

The company increased minimum production rates by 25 percent. A few weeks later, minimum rates were pushed up an additional 20 percent, Castro said. Soon afterward, the women stopped competing.

"It took years for (the women) to understand that production rates are established by them," Castro said.

An official at the company, also known as Alsco, declined to comment.

Older women struggled to keep up with the production quotas, Castro said, adding that wages remained relatively unchanged. In the last 20 years, wages at the company have increased slightly, she said. Workers make $9.55 to $17 an hour. Most make about $12 an hour, Castro added.

Edmond Opler, World's Finest chief executive, said sales have doubled in the last five years, to $150 million. Opler took over the business in 2007 and focused it on the company's Queen Anne brand of cherry bonbons and solid chocolate bars, the kind children sell to raise money for sport teams and school activities.

His products are mostly made by machines, although workers correct errors and fill in when machines malfunction. Opler's business is a seasonal one, so when sales rise in the fall, he hires a few hundred temporary workers to handle the hike in production and sales. But as his market share increased and sales rose year-round, Opler looked for ways to further increase production.

Nearly a year ago, he decided to outsource maintenance to Advanced Technology Services Inc., which keeps World's Finest's machines running. That meant about three dozen employees were transferred to Advanced's payroll but continue to work at the plant. About two months ago, the firm provided iPads to its techs at World's Finest to log notes and to see their next assignment rather than walking a half-block to a computer.

So far, the technicians estimate those efforts alone save an hour a day.

The tablets also allow the technicians to be located throughout the plant. "Before, three to four mechanics would surround us (when there was a problem). Now they are spread around," said Lee, the production supervisor. So when Lee asks for help, the response time is almost instant, she said.

The iPads have also helped speed major repairs. Earlier this month, for example, a technician used a tablet to video chat with the machine's manufacturer, based in Germany. As a result, the machine was back in operation in a week instead of the usual two to three weeks, said Jose Vargas, a team leader.

Those time savings, in turn, help workers hit their production numbers.

"We would be at capacity if we don't improve (productivity)," Opler said, adding that his goal is to double sales in three to five years. Ultimately, that will mean the company will have to invest in more automation and more employees, he said.

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