Scrapping Reduction

 

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Another day, another meeting on production KPTs. HR was there because of the profit-sharing results that were based on some of these figures.

 

It was a company with low turnover. Most employees had been working for the company for over five years. So, they knew what they had to do, and yet, the scrap figures were rising since beginning of the year…

 

Scrap means it is literally what goes into the garbage; no rework is possible. So, big LOSS for finance. And of course, the finance guy and the plant manager were displeased while the quality manager was on a very uncomfortable position, since she had no justification for that matter.

 

Stark HR was then called to see if something could be done, because most of the process was based on human capacity.

 

Suppliers’ issues were as low as 2%; machine defects also were responsible for 4% of the scrapping, and we had a big “Others” staring at us as responsible for the remaining 94%. In short, the company was losing 10% of its monthly revenue to some “Others”…

 

Now this is the kind of project where Stark HR needs to go deeper into areas that it is not familiar with, a time to deeply understand a production process and to take a look behind the scenes. What was the real cause for that loss?

 

The production manager came back with the easiest answer: “Lack of attention, lack of motivation.” “And what do you think is causing that?” we asked “Bad compensation -- you know that!”

 

Did I? Compensation is always one of the main excuses when it comes to motivation, but we had to disagree here and say that, although it might be part of the issue, it is never the whole issue. Nevertherless we needed to test his hypothesis, so a meeting was organized with the production people.

 

Stark held three meetings that day (morning, afternoon and late night). During the first one, it was literally bombed by the blue collars… “You HR don´t do anything for us!” “I´ve been here for ten years and I am still an auxiliary.” “The new hire makes more money than I do! I saw his paycheck!” They were so frustrated that all we could do was to let them vent. It was not time for answers.

 

By end of the day, HR is like any other service provider. It has its customers, and whether you like it or not,  success as an HR depends on how the internal customer (blue, white, executive) will perceive the service. It deals with expectations and dreams and hopes. 

 

Back to the case… As they were talking, our team was writing down all their requests, complaints, and suggestions. We then asked them to organize the listed items into a priority list.

 

Their list had items like:

 

  • Bad health plan
  • Meal vouchers (amount)
  • Career path
  • Compensation
  • Celebration of results/performance recognition (barbecue)
  • Profit sharing

 

We then split the groups into four teams. By end of their discussion, compensation was the last or close to it on their priority list. Career path was one of the frontrunners, as well as performance recognition and celebration of results.

 

So we had 150 blue collars complaining about…RECOGNITION. Not much to our surprise, the plant manager was pleased and the finance guy was not.

 

“Waste money with celebration? Increase our meal vouchers???? Are you crazy? We are losing money with scrap, barely delivering results, and you want me to spend more money?”

 

“Well, it is up to you, but what I am telling you here is that we can spend as much as 10k celebrating or 1,2 million in scrap.”

 

 

“How can you be sure that this is what will reduce the scrap?”

“How can you be sure that this will NOT reduce the scrap?”

 

 

Stark HR left the meeting with a 10k budget for “others” and the certainty that we would deliver great results.

 

Our action plan was kind of simple: monthly meetings with blue collars to show what was being accomplished from our side, feel their “temperature”, and make new agreements.

 

We organized barbecues to celebrate results, and made some adjustments in job titles and compensation.

 

By end of the second quarter, scrapping figures had dropped to 6%. Savings of USD 120,000 for that period. During the third and fourth quarters, we were able to drop it even more, coming to an average of 4% scrapping.

 

Additional expenses were required for phase 2 in the total amount of 15,000 USD.

 

Total annual scrap reduction of ca. USD 400,000.