The Secret Behind One Company’s Improbable 30-Year Productivity Boom
If you’re running a middle market company these days, you’re acutely aware of twin economic forces working against your success: first, there’s a worldwide slowdown in productivity growth pinching margins and, indeed, dampening the entire economy; second, labor markets have tightened dramatically, and all companies are struggling to hang onto their better workers and to attract good-quality new employees.
I could dial up some experts on these topics, but I find it far more helpful to visit a company whose basic approach to business helps it overcome productivity hurdles and attract and hang onto great employees. Located in Holland, Mich. – roughly two and one-half hours’ drive from either Chicago or Detroit – Padnos Iron and Metal Company is an 111-year old, family-owned company operating in centuries-old scrap markets. It possesses no significant technological or other intellectual property advantage over its thousands of global competitors. Overcapacity plagues the scrap and recycling industries. And Padnos’s markets – metals, paper and plastic – are highly subject to the ups and downs of Chinese industrial demand and thus are for now mostly struggling. (Annual sales are more than $300 million.)
What on earth could we learn from this outfit? Plenty, it turns out, and the lessons apply across manufacturing, distribution and services industries. Padnos’s roughly 650 employees have for 30 years participated in an elaborate and highly successful continuous improvement program. Some 20,000 ideas have been offered up during that period – ground floor stuff (examples below) that makes the thousands of discrete tasks at Padnos a little more efficient than at the competition. In turn, the company pays competitive wages and offers benefits not seen at many comparable companies. These two factors form a virtuous cycle: loyal employees share their valuable knowledge and the owners share the wealth.
It’s the opposite of a management approach widely seen in many commodity-reliant industries: pay the absolute minimum and, let’s face it, suffer with an inferior workforce that doesn’t see how to improve the operation and, even if it does, is disinclined to share those lessons.
Jeff (president) and Shelley Padnos (executive vice president) – third generation co-owners, two of the four cousins who have managed the company for decades – in a conversation on continuous improvement immediately give credit for the program to someone else, Bill Clay, who was vice president of operations at Padnos for some 35 years. Says Shelley Padnos: “Bill related to the hourly workers. He, above all, believed they knew best what was happening in their area. And the challenge would be to get them to tell us.”
Adds Jeff Padnos: “We’re in the recycling business. We’re not wanting to waste resources. And the capacity to contribute is a resource.”
The high regard for employees’ knowledge is part of an unusual and admirable culture of mutual respect at Padnos. I first learned of the company from a 2007 New York Times article that made clear the family owners had been thinking long and hard about the role of a company in its community and in society. Padnos is also self-critical, as opposed to the self-congratulatory culture one finds among so many company leaders. Jeff explains: “We say leading practice, not best practice. We can always do better.”
What’s remarkable is that the owners’ desire to provide a good living and benefits to Padnos workers has contributed to – not taken away from – the company’s superior profitability. Scrap prices plunged after the financial shocks and worldwide recession of 2009. Many scrap companies went bankrupt. Others laid off workers and retrenched. Padnos, Shelley points out, made profit sharing contributions to its employees each and every year.
Other than once, in the wake of the depth of the economic crisis in 2009, the company has never laid off a worker , instead re-training and re-assigning people when automation or other factors made jobs unnecessary. Really, how else could any company management hope to elicit continuous improvement ideas?
Anyone at Padnos can suggest an improvement via the company’s website. The goals are improved safety and efficiency. Last year, 2,132 ideas were submitted and 51% were implemented. If an idea is rejected, an employee can appeal that decision, further explaining its merit. Rewards for individual ideas aren’t huge. A getaway weekend for an employee and spouse would be at the top end, a retailer gift card at the bottom. But there’s plenty of recognition for contributing – the website lists those who submit the most implemented ideas – and also a general understanding that shared efforts support the better wages and benefits.
It’s counter-intuitive to some bosses, but actually asking more of employees can strengthen the bond between company and workers.
Dave Russcher, company electrician, says thinking about efficiency and safety has become second nature at Padnos. “If we put an orange dot wherever a continuous improvement idea was implemented, I guarantee you could see 50-to-75 dots from anywhere you stood in the company.”
That’s the opposite of what Bain & Co. observed: companies launching continuous improvement programs that soon are forgotten.
–A massive shredder into which cars, household appliances and other bulk scrap steel is fed jammed four-to-five times a year. Unjamming it required bringing in a crane capable of lifting 100,000 pounds to pull off the shredder’s hopper and clear it. Production stopped for two days. Cost: $12,000 per jam. The work was dangerous, too. A crewmember suggested installation of a pushing rod in the hopper to compress and clear jams. Cost $40,000, so it paid for itself in 3 1/3 jams. It takes just 10 minutes and removed a big potential safety hazard. Charles Everitt Jr. had this idea.
–Two jobs were turned into one when a giant shear, used to cut up I-beams and other large scrap, became remote-controlled and could be run by a crane operator working to feed the shear. Equipment manufacturers told Padnos it couldn’t be done. But employees built a wireless control panel for the shear and installed it in the crane cab. It eliminated one of the plant’s most boring jobs; the shear operator formerly sat and waited for the crane to load up his machine and then, every five-to-seven minutes, hit a button. Dave Russcher came up with this idea.
–Shredding automobiles produces valuable metal and also a residue mix of plastic, metal and whatnot. Padnos had for years sent the residue to a landfill, after running it over a conveyer belt and letting a couple of workers pick off the biggest metal pieces; they’d grab two-to-three tons an hour. Using a field of sensors under the conveyer and fast-moving metal fingers that zipped out precisely to grab metal pieces the sensors detected, the hourly recovery of metal soared to 25-to-30 tons. The pickers were re-assigned to higher-value jobs. Bob Herweyer and Dave Russcher developed this. Everitt, Russcher and Herweyer are all long-time employees.
Each of these projects required a team to design and build the solution. Some efforts initially failed. But through trial-and-effort the ideas were implemented, driving up Padnos’s performance. With each project, employees also better understand the plant and equipment around them, prompting refinements of previous ideas and new epiphanies, as well.
The overall economy’s productivity growth may be lagging. But every company has the potential to outperform the average. Engaging the brainpower of employees is the first step.