There are only a few absolutes when it comes to lean but one of them is that there has never been a company that achieved true manufacturing excellence that paid its folks on a piecework system. It can’t happen – ever. Period. Either you want to make the right product at the right time … or you just want to make a whole lot of stuff. You can’t have it both ways.
It is disappointing to see how many companies just don’t understand this fundamental point, but it all too common. The reason many won’t abandon old piece work systems, of course, is a misguided belief in hare-brained accounting – the absurd notion that inventory is an asset. Only in the world of debits and credits is a good thing to make stuff no one needs, build a big warehouse to keep it in, buy a bunch of racks and forklifts to handle it, then pay a small army of people to drive the forklifts and otherwise handle it, then buy a big computer to keep track of it, then pay people to cycle count it, and then hire high paid managers to keep track of all of those people.
In the world of common sense such thinking is insane. Piecework, however, is part and parcel to this inane logic. It is based on the idea that making more is always good – no matter that it exceeds demand.
The crux of the problem with piecework is that it is essentially a legally binding agreement with the folks in the factory that the company will subsidize the waste of over-production; but it will not pay for reducing costs anywhere else. Asking people to participate in a kaizen event instead of work on their piece rate job is a cut in pay. Asking them to stop producing in order to solve quality, machine performance or parts problems takes money from people’s pockets. The message is loud, clear and easy to understand: We will pay you more to over-produce, but we will not pay as much for eliminating waste. The irrefutable conflict with lean lies in the old, undeniable adage that you get what you pay for.
Eliminating piecework and replacing it with a team based incentive scheme that includes such things as JIT with a high on time delivery rate, quality excellence, total cost reduction, great safety results, learning and input to problem solving and improvement efforts really is not that difficult or complicated. It is simply a matter of deciding what you want, putting in a straightforward scheme to measuring it, then paying people for it.
Of course the real reason most companies hang onto piecework is a rather dim view of humanity on the part of management – a mortal fear that the people in the factory will revert to the inner-slacker when management stops dangling a big carrot in front of them.. How real that fear should be depends on what sort of folks you hired, I suppose. For most companies this fear is unfounded, but for those which have tasked HR with scraping the bottom of the employment pool barrel I suppose it might be real. There is no reason why the new scheme can’t include a healthy percentage of productivity in its math until management’s faith in the people is a bit higher.
The stories of companies experiencing the opposite of immediate, rampant slacking when piecework is eliminated are everywhere. Most experience productivity gains. The few companies I know of that lost productivity after eliminating piecework did so because of management – not the folks on the factory floor. In those cases management went a bit too hog wild in having people do everything other than make parts once the pressure of producing something just for the sake of producing was removed.
One company I worked with calculated the average hourly earnings for each employee for the quarter prior to changing from piecework to a holistic lean inventive scheme, then promised everyone that they would figure out how much, if any, they lost each quarter as a result of the new scheme and pay the difference; and they would do this for three years, allowing everyone ample time to learn how to make good money under the new rules. No one needed the ‘make-up’ pay less than a year into the new scheme, which makes sense. Everyone had a strong incentive to figure out how to maximize their contribution to the broader metrics.
However the company does it, piecework has to go if the company is going to achieve noteworthy results. Hanging onto piecework is hanging onto mediocrity – no way to avoid that particular harsh reality.