The Profit-Promoting Daily Scorecard
Everyone at Rhino Foods knows how to build up the bottom line. And each day's work makes a difference
When Ted Castle was a hockey coach at the University of Vermont, he never had much trouble motivating his players. They wanted to win. But as Rhino Foods Inc., the Burlington, Vt., specialty-bakery-foods manufacturer he'd founded in 1981, started to expand, Castle discovered that motivating manufacturing line workers was entirely different. Or was it? What if he turned the business into a game, with rules, strategies, and a prizes? "Most people," he reasoned, "love a good game. It needn't be football or hockey. It could be checkers or chess or Ping-Pong."
Or a bakery? "How do you get people to care about spilling a rack of cheesecake? If everyone worked like me, it would be great. I want the employees to care about the business as much as I do." But, of course, it's not their company. That's where Rhino Foods' Game of Business comes in.
The key to winning games is knowing the enemy. "The opponent here is expenses. The home team is working to make good-quality products that we're able to sell." And if the business doesn't make money, Castle continues, "we're not going to be here." And he recognized that the game would fail unless everyone knew exactly how the company was doing. That meant opening the books.
"I'd been struggling with whether I should open the books to my employees even before we thought about the game," he says. "I was working with a consultant who put my concerns into perspective. He said, `Imagine you're playing touch football. You play for an hour or two and the whole time I'm sitting there with a book, keeping score. All of a sudden I blow the whistle, and I say, "OK, that's it. Everybody, go home." I close my book and walk away. How would that feel?' That convinced me."
Still, everyone had to learn how to win. "If you just throw the numbers at them, all they can do is get confused. We worked on it from scratch." Castle says the first lessons looked at a single day's sales. "We demonstrated how if we produced a pallet of Ben & Jerry's brownie batter, we could sell it for $1,586. I can still remember the number. I thought the guys would figure, 'Hey, Ted's getting really rich.' So we showed them where all that money went." From that $1,586 Castle subtracted the costs: materials, rent, insurance, labor, other expenses, and taxes. The net profit after taxes was $100. "I said, 'That's what we really made today, guys. That's not a whole lot.' They were amazed."
Castle distilled those lessons into the daily scorecards Rhino uses to keep everyone up-to-date on the game. When, at noon each day, he posts the previous day's results near the entrance to Rhino's production room, everyone checks "whether we've made or lost money on what we produced the day before." After all, it's not an academic exercise; there's a bonus check for each employee at the end of every four-week game that meets profitability guidelines. And when the results aren't all that pleasant? Employees do what they can to improve their performance. It's not fun to lose.
Because of the game and the way it's integrated into company procedures, Castle reports, employees are aware of how every decision affects the bottom line and their bonus checks. "So if someone says, 'I think we should have a three-day holiday at Christmas,' I say, 'If we do, that's going to cost the business $3,000 in salaries, with no production to offset it. Remember what it's going to cost us.' "
The game has succeeded where pep talks alone failed. Rhino has flourished since the first game, three years ago. Employment has nearly tripled to 58, while both revenues and profits have grown by 600%.
Sample scorecard:* * *
RHINO FOODS' GAME OF BUSINESS
Daily Scorecard: Game Day #8
Days Remaining in This Month's Game Ñ 22(1)
COST OF GOODS PRODUCED: OPERATING EXPENSES:(10) BONUS CALCULATION
|Total to Date||Today 9/08(2)|
|DIRECT MANUFACTURING COSTS|
|* Raw Materials(4)||6,400||40%||48,500||40%|
|* Direct Mfg Wages(5)(incl payroll expense)||1,300||8%||9,100||7%|
|INDIRECT MANUFACTURING COSTS|
|* Indirect Mfg Wages(5) (incl payroll expenses)||900||6%||6,300||5%|
|* Leased Equipment(6)||250||2%||1,750||1%|
|* Other Mfg Overhead||360||2%||2,520||2%|
|TOTAL COST OF GOODS PRODUCED||9,820||61%||72,440||59%|
|Admin, R&D, Sales & Marketing Wages||1,780||11%||12,460||10%|
|Sales & Marketing Expenses||320||2%||2,240||2%|
|TOTAL OPERATING EXPENSES||4,692||29%||32,844||27%|
|Net Profit Before Taxes||1,488||16,716||14%|
|Less Taxes (40%)||595||6,686|
|Net Profit After Taxes||893||10,030||8%||(12)|
|After-tax Profit Less 6% "Set Aside"||7,320||6%|
|Remaining Net Profit||2,710||2%|
|Game Bonus to Date (20% of above)||542|
|# of Employees / Individual Game Bonus||58||9||(13)|
Ted Castle explains how to read a hypothetical scorecard:
1. For most businesses, it takes a whole year to go from beginning to end. How many people like to play a game that lasts all year long? That's why our games are only a month long. There are 12 chances to win.
2. We post a new scorecard every day. If we have any production problems, they show up on the scorecard the very next day. People see it, and they learn in plenty of time to make a difference.
3. Sales here actually means production for the day. We multiply the amount we produced by the selling price. We know that approximately 1% of our finished goods don't get sold, so this figure has to be $14,000 to $15,000 for us to break even.
4. Raw materials cost from 40% to 50% of "sales," depending on what we're making.If the cost was, say, 65% I'd wonder about waste. The raw materials for certain products might cost around 40%, but their direct manufacturing costs might be as high as 14%. The sum of the two shouldn't go much over 50%.
5. The manufacturing line workers actually make the product and are considered direct labor. Shipping and receiving, maintenance, quality-assurance people, and so on are indirect labor. We don't punch time cards here. Workers log their hours directly into the computer, so these figures are not estimates.
6. When the shipping-and-receiving guys saw the impact they have here, they asked whether we could get by with three trucks instead of four. We rent off-site freezers for storage, so the guys need to pay attention to our inventory levels, too. They also need to be careful when they are moving the product around the freezer. If it gets damaged, it gets taken off the game.
7. My people are using expensive equipment. If we have to spend $12,000 to fix vital machinery, it shows up right here. So everybody knows breakdowns can't happen often.
8. Employees can see here that they actually do have an effect on profitability just by making sure the lights are off.
9. This is my bottom line. I know the gross margin should not be less than 40% of "sales."
10. Because we derive these operating-expense numbers from either an average of what we have spent recently or an estimate of what we expect to spend, they change infrequently. We make any modifications at the start of a new game. If our insurance premium goes up, for example, from $130 to $145, at the start of the next game we explain the adjustment to our employees. We take the opportunity to talk about how insurance rates are set, and we review our safety policies and training programs.
11. Whenever our interest expense rises, we discuss how that increase affects all of us. We may have taken a loan to cover an investment in new equipment. It's important that everybody understands that while new equipment makes tasks go faster and means a decrease in direct wages, there is still the impact of rising interest payments to consider.
12. At the end of a game, if we haven't made at least 6% net profit after taxes, we've lost that game, and there's no bonus. But if we earn more than 6%, we take the first 6% and reinvest it. Then we distribute 20% of anything over that initial 6%. Those percentages are arbitrary. We also have a six-month profit-sharing program that's based on length of employment, but in the game bonus, every bonus check, including mine, is the same size.
13. This "9" is the individual bonus size by day eight of this particular game. At the end of one successful game, we were able to distribute game checks of $150. Still, last month, people were delighted when we issued $66 checks throughout the company.
We were really pleased with the results we were getting by playing Rhino Foods' Game of Business, when one day I was amused to hear about a similar strategy at Springfield Remanufacturing Co.