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Productivity Survey Results
In today’s competitive market place knowing all of your costs of doing business, and knowing where your profits are being generated are critically important. Knowing how productive your employees are is also an essential ingredient to operating your shop with an eye towards long term growth, increased productivity and efficiency, and acceptable profits on each job performed.
The following survey information, broken down by regional as well as national averages is a step in the direction of defining several of the average machine shops business’ matrix. Information provided includes: average number of machinists per shop; productivity ratios based on hours worked divided by hours billed; productivity ratios based on the average number of machinists per shop; shop hourly labor rates based on the number of machinists per shop; and how machinists are paid, including a regional breakout of the percentage of shops paying employees a bonus or commission.
We’ve also provided basic production data for our survey respondents including that for domestic and import gas, and domestic and import diesel engines; gas engines built per month based on the number of shop machinists; and the national average for the percentage of shop work that is engine and cylinder head work for performance applications.
Information for this survey was compiled through fax questionnaires received by 7,819 shops. The return rate was 759 shops, a little under 10%.
Although consolidation of machine shops continues, the small shops still predominate. There has been no noticeable increase in larger shops. By far, the largest percentage of shops responding to our survey were those with one to two machinists - nearly 64% of shops fall within this category. Sixteen percent of shops reported having three machinists - the next highest number. Only 20% of shops reported having four or more machinists, with 3.3% of shops employing 8 or more machinists.
Shop productivity ratio is a function of the total number of hours worked by machinists per day divided by the total number of hours billed to the customer by machinists per day. We did not define "work" when we asked the question. Obviously, "work" could include time spent on shop and equipment maintenance, chasing down parts, etc. However, based on this productivity ratio definition, shops with 7 machinists had the highest productivity ratio. Those with 5 machinists had the lowest.
We would have liked to determine shop productivity more accurately by taking the total number of shop employee hours worked divided by the total number of dollars billed the customer. However, past experience has shown us that many shops do not keep track of all this data.
For example: 3 men x 8 hours per day x 20 days per month = 480 hours. If shop labor billed that month was $24,000, then $24,000 divided by 480 equals $50 produced per man hour. If your shop hourly rate is $60 per hour then your shop would be operating at an 83% productivity rate ($50 per man hour divided by the $60 shop hourly labor rate).
The above chart shows that the average hours worked by machinists per day varies little by region.
Just as the average number of hours worked per day by shop machinists hovered in a narrow range of 7.7-8.3 hours, the average number of hours billed the customer per machinist per day also varied little by region, ranging from a low of 6 hours in the Pacific region to a high of 6.6 hours in the South Atlantic region. Statistically, there is very little variance in individual man hours billed by shops across the country.
Based on our productivity ratio of hours worked divided by hours billed the customer, shops located in the Northeast section of the country registered the lowest productivity ratio at 75%. Shops located in the Mountain region registered the highest productivity ratio at 83%. The national average for all shops combined is 80%.
The national average shop hourly labor rate charged the customer was $55 when shops from all regions of the country are figured in regardless of the number of machinists employed by a specific shop. However, a shop’s hourly labor rate increases consistently as the number of machinists per shop increases.
Shops with one to two machinists averaged an hourly customer labor charge of $51 compared to an hourly labor charge of nearly $59 for shops with eight or more machinists.
The distribution of shops by hourly labor rate charged to the customer was closely aligned to a bell-shaped curve ranging from the lowest hourly rate to the highest hourly rate.
Just 10% of shops responding to our survey charged an hourly labor rate of $35 or less. On the other hand, just 3% of shops charged more than $75 per hour.
The highest number of shops (19%) reported an hourly labor rate of between $46-50. But, 68% of shops today charge $46 per hour or more.
Looking specifically at those shops paying a bonus or commission on work performed, we find that on a national basis 44% of shops pay a bonus or commission. Looking at the percentages regionally, we find that the highest percentage of shops paying a bonus or commission (54.1%) reside in the West South Central region. The lowest percentage of shops paying a commission or bonus (36.1%) reside in the Mid-Atlantic region.
Except for the Pacific, West South Central, South Atlantic and to a little degree the Northeast region, there is very little difference in the percentage of shops paying a bonus or commission.
Taking a closer look at how machine shops compensate their machinists, we find, not too surprisingly, that the vast majority of machinists are paid an hourly wage – a little more than 52%.
Nearly 23% of shops responding to our survey pay an annual salary to their machinists.
About 23% of shops report that they pay machinists hourly or by salary, plus a bonus or commission, or they are the sole proprietors taking a varying percentage of sales and/or profits.
Not too surprising is the fact that the average number of gas engines built per month by a shop increases as the number of machinists employed by the shop increases. For more than two decades Engine Builder magazine has undertaken a national survey of machine shops and custom engine builders to determine the average number of engines built monthly. For gas engines the monthly average has remained at 17-18 units since 1997.
However, it’s interesting to note the average number of gas engines built monthly as it relates to the number of machinists employed. That ranges from four engines in one-man shops to 26 engines in shops with five or more machinists.
Turning to the production of specific engine categories of our survey respondents, we find that the vast majority of machine shops perform domestic gas engine work (92.1%). Exactly 74% of survey respondents said they performed machine and/or assembly work on import gas engines.
Interestingly, nearly 50% of shops reported doing some domestic diesel engine repairs, while nearly 30% reported performing machining or assembly work on import diesel engines.
The percent of reported diesel engine work we suspect is primarily on small to mid-range commercial, industrial or fleet applications.
The above chart provides data on the percentage of shops that report performing at least some work on domestic and import gas and diesel engines. Of those shops that actually do engine machining and repair work in these four engine groups, the vast majority of total shop jobs is still on domestic gas engines – 64%.
Engine building of import gas engines accounts for 19% of total shop work with domestic and import diesels representing 13% and 4% respectively of total shop work.
Looking at shop size on a regional basis based on the number of machinists employed, we find that the higher percentage of larger machine shops/custom engine builders are located in the Northeast, West South Central, Pacific and Mid-Atlantic regions. The highest percentage of small shops are located in the West North Central, Mid-Atlantic, West South Central, Pacific and Northeast regions of the country.
The percent of performance related engine and cylinder head work undertaken by machine shops is represented by an inverted bell-shaped curve.
All of our survey respondents said that they were involved with performance related cylinder head jobs. The level of involvement ranged from 35% of shops that said that performance heads accounted for 10% or less of their work to 28% that reported that 71% or more of their total work was performance related heads.
As with performance heads, all shops responding to our survey are also involved with performance engine building to some degree. As expected, the same inverted bell-shaped curve seen with performance head work is also seen with performance engine work.
On the low end, 38% of shops reported that performance engine work accounted for 10% or less of total shop jobs. Thirty percent said performance engine work represented 50% or more of all shop work.