Scholars tell us that coins began to be used between 400 and 600 B.C. They were a big hit. Bartering is great, but it has its limits. Coins soon became a widely accepted, universal unit of exchange. Now imagine a world where all component manufacturers have a unit of exchange that is just as valuable as coins are. Because this unit of exchange is completely accepted by everyone, manufacturers can easily compare the production efficiency with each other. Everyone estimates their jobs using the same method. Getting a quote from another manufacturer to build trusses for you is a snap, because you both measure jobs in exactly same way. Oh, and by the way, this is a real place. It is called, ‘Australia.’
Down Under
It’s really true. In Australia, virtually all manufacturers have “bought in” to the concept of converting all forms of work into EquA’s, or “equivalent finks.” Getting deeply into EquA’s can get complicated, but the basic idea is simple. Convert all work into the single unit (our “coin.”) This is done by arbitrarily declaring that “a standard fink truss with one splice takes 1 EquA to build.” The next step is to come up with a method to determine how many EquA’s it takes to set up (as opposed to build) that truss. From there, we have to come up with an easy way to determine the EquA for all truss types. In Australia, this is mostly done through the number of joints, but, as I said, it can get a little complicated. Attached is a PDF describing the method in some detail, if you are interested. My purpose here is not to explain the method, but rather to describe the benefits that the Australians enjoy because they all use the same method to measure work.
The Point
I had heard about this method of estimating before my trip to Australia in 2006. From what I had heard before that trip, the Aussies were a bit ‘EquA obsessed.’ Why would this method be better any other? And how could it really be true that everyone used the same method? During my visit to MiTek Australia I had a chance to talk at length to Andrew Scane, one of the MiTek sales and support guys there. He told me that the small size of Australia (population equal to Michigan + Ohio) had helped. Also, MiTek had promoted the use of this method, and supported in throughout its software suite there.
I asked more questions. I wanted to know if the EquA method was accurate. Was 23 commons really the same as 18.5 cathedrals? At some point, I realized that that wasn’t the point. Once you accept EquA’s as your unit of measure, once you just decide to trust it (like we do dollar bills,) a whole world opens up to you. Once you begin to do everything in EquA’s – estimate labor, calculate production capacity, price jobs, determine overhead, set profit goals, you are now living in a world that is much easier to comprehend and manage.
One Example – The Labor Rate
Once you can measure your work in EquA’s, you can determine plant’s capacity in terms of EquA’s. And once that has been done, you can measure your productivity by combining your overhead and direct labor, and dividing by your plant’s EquA capacity. So if you find you capacity is about 300 EquA’s a day and your overhead and labor is about $4,500 per day, you know your (non-material) cost of production is $15 per EquA. How does that compare to your competition? In Australia, you can just ask, because everyone measures in the same way.
MiTek Australia has written considerable documentation on how to make sure you are accurately calculating overhead, as you can see in the attached document. They actually provide a software program called Profit Centre that allows you to step-by-step enter costs (like those tax-filing programs we sometimes use) and use those figures to really see your overhead per EquA. It really is cool stuff.
Regrettably (I think) in the US, we have the phenomenon known as “no two customers do things the same.” Because of this, most of us have a much more fuzzy sense of our productivity and costs than the Australians do. To be fair, in the US we have a large variety of production equipment – it is more uniform (pedestals) in Australia. Also worth noting, in nearby New Zealand, preachers of the “EquA religion’ have not made many converts. Still, sometimes I wish I lived in a world where we all agreed to use the same “coin.”