Drummond: Automation Will Lead to Small Net Profits

Time and again, executives state they are having problems finding enough qualified people to staff all the needed positions within their company. The truth is that this problem will get much worse, and you need to understand why to fix it.

I have found that companies with the best employee practices, low turnover, and very few unfilled positions have the highest profit percentages of sales among their peers, regardless of their automation within their manufacturing. I have seen their P/L statements, and it is not even close. On average, it is five to 10 points better. Conversely, the companies with poor employee practices have the worst net profits of their peers, and yet again, the numbers are not even close by at least five to 10 points below the average. (Points, not percentages.)

Why are the available labor shortages happening? There are four main reasons, but the number one problem is that 400,000 fewer new workers in the U.S. are coming into the labor market this year than are leaving. For the next 10 years, the problem grows upward towards 900,000 per year with fewer workers coming than are leaving in the U.S. The problem as a percentage of the total population is even worse for Canadians.

The second problem is that fewer people, as a percentage of the total available, are willing to participate in the labor force for various reasons. According to the U.S. Bureau of Labor Statistics, the labor participation percentage is projected to decrease over time, not increase. So, not only do we have a shrinking labor force, fewer of the remaining are willing to be employed for various reasons.

An additional complication, the third reason, is not being openly talked about in the employment availability discussion – a large portion of the construction workforce needs to be physically healthy to perform the tasks required for the necessary work. So not only are people less willing to work, but as many as 42% are unable to perform the tasks needed within the construction industry. Certainly, much of the work that is in the construction industry does not need to be performed by an athlete, but let’s be honest about many of the very real physical needs within our industry.

The last reason for the labor shortage is a fun fact that most employers don’t know. The “higher education” push has been too effective for the workforce needed. Of the U.S. labor force of 140.7 million adults, approximately 69% have a college education. Of the approximately 9.2 million job openings, only 3.2 million (34.7%) needed any college education.

There is a natural resistance for anyone with higher education to perform a non-college-educated job position.

The second problem concerning the participation rate needs to be further expanded upon in relation to the education level of the workforce needed.

Associate degree level has a 63.1% workforce participation rate. Those with a bachelor’s or higher education have a 72.3% participation rate.

The numbers look far worse for those without any college, which is 31% of the total workforce. Here, it’s a 55.9% participation rate for those with a high school diploma and only 44.1% for those who never graduated from high school.

In September of 2021, there was a need to fill approximately 9.2 million job openings. Of the 9.2 million openings, 6 million were non-degree job openings. Yet there were only 3.39 non-college-educated potential workers available. And no, immigration numbers into the U.S. are not close to filling those open positions.

Automation and labor issues. Many believe that, somehow, a company can invest a lot of capital into the available automation to manufacture roof and floor trusses to markedly reduce the needed personnel within their company. Put simply, you cannot. And if you cut back on the number of personnel in many areas, your company will suffer lost sales and net profits because overall production volume will suffer.

Yes, some tasks of material handling may reduce the headcount by a few personnel, but as far as the manufacturing process for wood trusses, the answer is still no. Current robotic automation for wood truss assembly is overrated and simply impractical. I have yet to witness a fully automated truss system that significantly reduces the total labor workforce needed while maintaining or improving the total output worth the capital investment.

Those who believe they can reduce the number of personnel on the assembly tables falsely believe labor savings based on board footage (B.F.) per work hour rates. For every needed assembler on a wood table, the rate is approximately $3,000 to $3,500 in sales per shift. Translated, this means that when there are only two roof truss assemblers when there should be three, the company loses $3,000 to $3,500 in additional sales per shift per workstation. For more about this subject, see How to Lose Millions of Profits with Linear Saws and Two-Person Crews.

For all the wood truss manufacturers still using B.F. or other non-work-minute estimations, such as piece count with an average setup time applied to each piece, please see Estimating Truss Labor Using Board Footage Versus Proper Man-Minute Time Standards.

How does automation investment make sense to reduce labor? Automation within the truss manufacturing process and in the design/admin process can, if done correctly, dramatically improve productivity and quality for the same amount of labor. The takt time, units per hour rate greatly enhance the amount of product being produced for the same amount of labor. It can also improve quality and the learning curve to get new workers up to speed. It is not the magic pill to reduce the total number of personnel unless your company wishes to reduce the total sales output. Reducing the number of personnel and improving the output per labor hour are not the same thing. Sometimes one must employ more personnel to enhance the units per labor hour. And just because your company may have a lot of automation does not mean you can fill those positions with warm bodies and not expect output and quality to suffer, which it seriously would. Too many highly invested companies only operate at about a 60% efficiency rate because of the labor practices.

As stated in my October article, Including Meaningful Process Improvement on Your Capital Investment Checklist, “Over the coming decade, the companies that survive and prosper will only be those with strong and healthy H.R. management practices.” This article should convince your company to take best-in-class H.R. practices seriously. Automation is not going to be good enough.