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The Cost of “Standing Around”

Standing around

I just finished a great article I found in the August/September 2012 edition of Pavement Maintenance and Reconstruction (www.pavementOnline.com), a construction industry trade publication. The article appears in a re-occurring department of the magazine, written by Brad Humphrey. The August/September article was titled “Why do your workers stand around?”.

I highly recommend reading this article as Mr. Humphrey boils down the answer to the title of his article into six reasons:
1. No. Pre-Planning
2. Too Many Laborers
3. Over-Estimation on Bids
4. Not Enough Tools
5. Work Culture Too Lax
6. Surprises Happen
This issue is not confined to the construction trades. I have encountered this same issue in companies operating in both manufacturing and distribution industries.

In one particular case, a proud distribution manager was giving me a tour of his facility when we came to the shipping area. He was extremely proud of his three automated pallet wrappers and pointed out how he was making a concerted effort to “modernize” his operations.

As an aside, I knew from prior experience (I had cost justified and modeled the capital budgeting for the acquisition of automated pallet wrappers for a $38 million company operating in the reverse distribution industry) that these machines are not inexpensive- they can cost anywhere from $10,000 to $15,000 per unit.

While we were talking in the shipping area, I saw the same set of activities repeated about 7 or 8 times:
1. Pallet jack operators would drive their palletized loads up to the automated wrappers.
2. Place their pallets on the rotation platforms.
3. Dismount from their pallet jacks and affix stretch wrap to the pallet and turn on the pallet wrapper.
4. After turning on the automated pallet wrapper, they would watch wrapper rotate for three or four minutes until the stretch wrap was wound from the top of the pallet to the bottom and then back up to the top.
5. The pallet jack operator would then remove the pallet from the wrapper platform and move it to the loading dock to be staged for shipping.
The above process seems innocuous enough. After all, it’s only 3 or 4 minutes right?
Consider that in the last four years, our economy has witnessed the decline and failure of countless companies because they could not streamline their operations enough and reduce their break-even point in the face of declining revenues.
In the case of the above company: The proud distribution manager told me his outbound volume averaged about 15 truckloads per day (and at peak times could be as high as 22 to 25 per day). A double stacked 53 foot semi-trailer holds 26 pallet positions, so his 15 truckloads translates to about 390 pallets wrapped and shipped per day.
In Item number 4, above his employees were “watching” the automated wrapper wrap each pallet for 3 or 4 minutes. At 4 minutes per pallet, that amounts to 1,560 minutes (26 hours) per day of multiple employees standing and watching.
To quantify this in annual terms: Those 26 hours translate to 3.25 excess employees. A $15 per hour employee with taxes and benefits cost approximately $20.25 per hour. Annualized at 2,080 hours per year, those 3.25 excess employees will cost the company over $136,000. I would submit that $136,000 represents worthwhile savings for any middle market company.

photo credit: Self Portrait on Market Street via photopin (license)

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