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Janesville manufacturer takes labor costs to new level

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Photo by Matthew Wisniewski

Dwight Williams makes a quick tack weld on a trunnion at United Alloy in Janesville. The manufacturer has enjoyed five consecutive yearas of lower labor costs. The way United set up an assembly line for a family of tanks is an example of how the company has been able to decrease its labor costs, said CEO Terri Roessler. Four welders set up the line to produce four tanks per shift, but when the got comfortable with the process, they were able to increase production to five tanks per shift. The workers came up with ways to make the line more efficient and ultimately determined that three welders could produce the five tanks. ‘The savings were shared with the employees and the customer: Everyone won,’ Roessler said.

JANESVILLE — Eight straight years of sales gains.

Three consecutive years of debt reduction.

Four successive years of improved on-time delivery and increased operating profit.

United Alloy's 2007 efforts were impressive by anyone's standards.

But the result that makes the Janesville manufacturer of fabricated metal parts and components most proud is the one dealing with its labor costs.

In an era when manufacturers are ecstatic when they can hold labor costs constant, United was able—for the fifth straight year—to decrease its costs as a percentage of sales.

"In my 22 years of financial operational analysis, I have never seen anything like it," said Terri Roessler, United's chief executive officer. "Labor costs just don't go down."

Across the nation, the U.S. Labor Department reported that first quarter labor costs were up 2.2 percent.

Labor is typically considered the most important cost in producing goods and services. When higher labor costs aren't matched by increased productivity, they're usually passed on to customers or absorbed in profit margin.

Another path to lower labor costs is layoffs or cuts in wages and benefits.

But none of that is the case at United Alloy, which uses its track record of labor cost containment as a key selling point with its customers.

Next level

In 2004, United started a compensation and job description program that outlines expectations and performance levels for all jobs. In a nutshell, the program—which was rewarded by the state's Department of Commerce with a $250,000 tax credit—pays workers more for doing more.

For example, entry-level employees are hired at Level C and have lower expectations and pay than Level B or A.

"We realized that if we wanted to continue to be United Alloy, we had to get our arms around what our expectations were and what's reasonable from both an employee and employer perspective," Roessler said.

Too many employees look at their annual raise as an entitlement program that should match cost-of-living increases, she said.

"This is a business, not a charity, and to challenge that status quo thinking takes guts," she said. "If I give you 25 cents more an hour with no increase in productivity, them I'm giving you more, and you're not giving me more."

Employees have clear guidelines on how to improve their level and pay.

For example, United recently posted a position for a first-shift welder. If the new employee was hired at Level C, he or she could move up to Level B by reaching several goals, such as maintaining quality levels with minimal scrap or advancing to the point that they can train entry-level welders.

To move up to Level A, the employee would need to meet a different set of criteria, such as being able to train others on all welding operations, performing moderate supervision, completing welding certification and becoming an internal auditor of the company's standards.

Roessler said employees have plenty of opportunities to move up a level. Advancements to the next level typically are done at an employee's annual review, although some employees can earn mid-year promotions.

"My goal is to have everybody be a rock star," she said. "I'd rather have all As and Bs than Cs."

Early resistance

When Roessler unveiled the Levels program in 2004, she met resistance.

"How dare you write something down and then hold me accountable?" she remembers being asked. "The culture had been one of doing things by seat of the pants, ‘We think this might work, we think that might work.'"

Brad Bliss remembers those days. He started with United in 2001 when the company was still small. Now he's a Level A welder and the lead employee in the company's tank welding division.

"At first, I thought this was just a program where I wouldn't make more money," he said. "I thought that now there would be specific excuses why I wouldn't get a raise at the end of the year."

But as he learned the details, his opinion changed.

"If you're at work, you're are a team player and you're good enough—efficient but not to the point that you're creating scrap—and accurate in entering how many parts you made, you'll be fine," he said.

In many United departments, there are no traditional supervisors, which means employees have to be able to supervise themselves. If they want to move up, they have to demonstrate that they can supervise others.

"In my opinion, if you're going to sit around with no goals or objectives for your job, then you're just going to flop around," Bliss said. "When I looked at the program, I realized that I just got to do to what I got to do without crying and complaining.

"If you do that, the program is easy."

No secrets

Accountability and self-motivation drive United's pay for performance program. Every one of the company's 75 or so employees is responsible for understanding and controlling costs.

There are no financial secrets at United.

Business is won and lost on cost, Roessler said, and when everyone in the company understands that, her job is easier.

"A great deal of companies use the financial aspects of the business as secret, hocus-pocus, unexplained jargon that really scares employees instead of educating them and making them part of the cost solution," she said.

"I share everything financial, except what specific individuals are paid."

The levels program is built on metrics and grids that clearly outline expectations and pay.

"It's organizational behavior in its simplest sense: If you want to make more, do more," Roessler said.

United's labor cost containment efforts are paying off in a big way in what's shaping up to in a challenging 2008. The company's cost of raw materials, primarily steel, is up 70 percent.

"I go to our customers, and I know exactly what our costs are, and I lay it all out for them," Roessler said. "They can understand the cost increases due to material. We don't have any fudge factors in our costs, and we can ask the customer what other supplier of theirs has gone five years without raising costs because of labor increases."

With skyrocketing material costs and decreasing labor costs, United continues to grow, Roessler said.

The days of asking company founder Tom Baer to dip into the sock drawer to cover costs increases are long gone, she said.

"We quite simply must meet our profit margin requirements."