The 4 Profit Leak Zones | Labor & Efficiency Drift

In this episode of The Manufacturing Money Room, Tolani Lawson explores the second major profit leak zone: labor and efficiency drift. This is the hidden gap where teams are working harder than ever, yet productivity and profitability fail to keep pace.

Tolani describes how growing manufacturing businesses often fall into the “treadmill effect,” where increasing demand and complexity outpace systems, processes, and scheduling discipline. Instead of evolving operations, businesses rely on human effort to fill the gap, leading to more overtime, constant firefighting, and rising operational strain.

She emphasizes that efficiency drift is not a people problem but a system problem. As variation increases and workflows become less predictable, effort becomes disconnected from output. Teams stay busy, but inefficiencies in setup times, scheduling, and coordination quietly erode margins over time.
The episode highlights the importance of visibility into how labor is actually spent, encouraging leaders to look beyond total hours and examine where time is lost to delays, rework, and interruptions. Strong operational efficiency, Tolani explains, is not about working harder but about building systems that run smoothly, predictably, and in sync.

Listeners are encouraged to assess patterns in overtime, job performance, and recurring issues to identify where efficiency drift may be occurring. This episode reinforces that sustainable growth depends on aligning effort with output, setting the stage for the next discussion on inventory and purchasing, where profit can become trapped in working capital. 

Tolani Lawson, CPA is a finance leader with experience at KPMG, WestRock, and Air Lift Company, specializing in manufacturing finance, FP&A, and helping businesses improve cash flow visibility and decision-making.

Got a question about something you heard today? Have a great suggestion for a topic or know someone who should be a guest? Reach out to us:
Email:  tolani@fiscal12.com

Website:
http://www.fiscal12.com

Download the free e-book: 7 Financial Strategies For Manufacturing Companies To Maximize Profits & Cash Flow

https://www.fiscaltwelve.com/7strategies

Catch The Manufacturing Money Room on YouTube:
https://www.youtube.com/@TolaniLawsonCPA

Follow Tolani on social media:
LinkedIn:
https://www.linkedin.com/in/tolani-lawson-cpa/

Facebook:
https://www.facebook.com/fiscal12Inc/

Instagram:
https://www.instagram.com/fiscaltwelve/

Transcript

Welcome to the Manufacturing Money Room

VoiceOver 0:01

Welcome to The Manufacturing Money Room with host Tolani Lawson. Tolani is an experienced CFO who works with manufacturing businesses to bring clarity to their numbers, especially when cash feels tight and decisions feel heavy. These are the conversations that usually stay behind closed doors. Until now, it's time to step into The Manufacturing Money Room.

Tolani 0:27

Welcome

The Problem: Working Harder Without Better Results

Tolani 0:28

back. Let me start with something I hear often when I walk into a manufacturing business. We're working harder than ever. The team is flat out. Everyone is busy. And yet output hasn't increased or improved at the same rate. Margins feel tighter, deadlines feel harder to hit, and the business feels heavier than it used to. Here is the important question: if everyone is working harder, why doesn't it feel like the business is getting more efficient? This is what I call labor and efficiency

What Is Labor & Efficiency Drift?

Tolani 1:05

drift. It's not a sudden breakdown. It's a gradual shift where effort increases faster than productivity. And because it happens slowly, it's one of the hardest perfect leaks to detect. Let's talk about the treadmill effect. So let me build a picture here. Imagine your business five years ago. Lower volume, fewer customers, less complexity. Now, fast forward to today, you have more orders, there are more variations and more pressure. But here is often what hasn't kept up the systems, the processes, the scheduling discipline, and the standard of work. What

The Treadmill Effect in Growing Businesses

Tolani 1:45

happens in a typical business? The business adapts. People step in, they work harder. So you have people starting to work over time. Your admin staff is running overtime, they solve problems in real time. And on the surface, it looks like a commitment to your business. It looks like you have a strong team. But underneath all of that, something else is happening. It feels like you're running on a treadmill that's gradually speeding up. Listen to that again. It feels like you are running on a treadmill that's gradually speeding up. At first, it feels manageable, then it feels demanding. Then eventually you're just running just to avoid falling behind. That's efficiency drift. How does efficiency drift

How Efficiency Drift Shows Up Day-to-Day

Tolani 2:30

show up? It doesn't announce itself clearly. It shows up in small familiar ways, where you've normalized over time, not just occasionally, but it becomes an expected part of business. Setup times stretch, not because people are careless, but because there is more variation, more changeovers, and more complexity. Schedules are getting tighter but less reliable. There is more expediting and more reshuffling. And teams are spending more time coordinating, fixing, reacting instead of executing smoothly. Individually, none of these feel like major issues. But when you put them together, they create a system where more effort is required to produce the same or sometimes

The Rowing Team Analogy: Misaligned Effort

Tolani 3:15

less output. So the rowing analogy, let's look at that. Let me give you a way to visualize this. Think of your operation like a rowing team. When everything is aligned, everyone rows in sync, the boat moves smoothly. Energy translates directly into speed. Now imagine where your timing is slightly off. Some people are adjusting mid-stroke while others are compensating. The team is still working hard, or even maybe harder than before, but the boat doesn't seem to move as efficiently because some energy is lost. Some effort cancels out the other effort. And that's what efficiency drifts look like. Inside a business, the work is happening. The effort is real, but the system isn't aligned.

Why This Is a System Problem, Not a People Problem

Tolani 4:05

So productivity suffers. Why does this happen? This is really important for us to understand. Efficiency drift is not a people problem, it's a system problem. It happens when volume increases, but processes don't evolve. Complexity will increase in your business, but the scheduling system stays the same. Demand is growing, but the capacity planning doesn't keep up. So this gap gets filled with the only way it can, the human effort. So people are staying late, they're working weekends and solving problems in real time just to keep things moving. In the short term, it feels like this is working. But over time, that effort becomes the system. That is where your margin

When Effort Becomes the System

Tolani 4:50

starts to erode. Because labor cost isn't just hours, it's how effectively those hours translate into output. Just like pricing, there's a visibility challenge here. Most businesses track total labor hours or total output, but they don't always see where time is actually going. And this is where you're looking at your value added versus non-value added. How much time is spent waiting, adjusting, and reworking? So the assumption becomes we just need more capacity. When the reality might be we're not using the capacity

The Visibility Gap in Labor Efficiency

Tolani 5:25

that we already have efficiently. And without that visibility, it's easy to solve the wrong problem. So what does strong operational efficiency look like? Strong operational efficiency does not mean people are working flat out. It means the system is working smoothly. It looks like clear, repeatable processes, predictable setup times, and schedules that are realistic and stable. It means that problems are reduced, not just managed. Viration is controlled, not just absorbed. And importantly, effort and output move together. When effort increases, output should increase

Value-Added vs Non-Value-Added Work

Tolani 6:00

proportionately. So that's the opposite of the drift. If you want to test for efficiency drift, start with something simple. Look at your labor trends over time. Is overtime increasing? And if it is, is output increasing at the same rate? Then let's go one level deeper. Pick a few recent jobs or production run and ask those questions again. Did it take longer than expected? Where did the extra time go? And was it predictable or reactive? Did you know in advance that you were going to spend all that extra time? And then ask the most important question:

What Strong Operational Efficiency Looks Like

Tolani 6:35

are we solving the problems repeatedly? Because repetition is a signal. It tells you that the system hasn't been adapted. If you're using the manufacturing profit leak diagnostic, turn to the labor and efficiency section and let's walk through the section together. You're going to look at overtime reliance, setup and changeover consistency, workflow interruption, scheduling stability, and remember that you're not looking for perfections. What we want to see are patterns. Where does work feel harder than it should, and where does effort feel disconnected from the outputs?

How to Spot Efficiency Drift in Your Business

Tolani 7:10

That's where efficiency drift is happening. Efficiency drift is one of those very deceptive profit leaks because it hides behind effort. Your team looks busy, committed, engaged, but if the system isn't supporting them, that effort becomes expensive and over time it erodes margin quietly. But even if you address pricing and improve operational efficiency, there is another place where profits can still get trapped. Not in how you price and not in how you work, but in how cash moves through

Identifying Patterns and Repeated Problems

Tolani 7:45

the business. In the next episode, we'll look at inventory and purchasing, where working capital expands quietly, and where profitable businesses can still feel cash constrained. Before you go, take a moment and look at your operation today. Not how busy it is, but how smoothly it runs. Because smooth systems scale. Strained

Why Efficiency Drift Quietly Erodes Margin

Tolani 8:10

systems don't. I will see you in the next episode. And if you need some help with understanding your labor efficiency or what we call your labor drift, you can always reach out to us, go on our websites www.fiscal12.com, and book a call with us where we will walk you through those steps at no cost to you. See you in the next episode.

Closing Thoughts and What’s Next: Inventory & Purchasing

VoiceOver 8:36

Thanks for spending time in The Manufacturing Money Room. If this episode gave you something to think about, let us know. Drop Tolani a voice note or leave a comment or review. And hey, if you like what you heard, share it with your friends. If you didn't like what you heard, share it with your enemies. You'll find the links in the show notes to connect with Tolani. And if you want to watch the episode on YouTube, that's there as well. Join us next time in The Manufacturing Money Room, where it's all about better numbers, better decisions, better manufacturing.