THE ROOT CAUSE

Your real problem is labor, and not labor in the sense of the volume of labor, or the quality of your work force, but the means, or the lack thereof, as it applies to monitoring and managing the labor portion of your production processes. When you were smaller you could easily see the problems start to arise and you could quickly address these issues with a short term fix, but as your production increases dramatically, you find you are overburdened by these daily hiccups as they begin to snowball out of control. You are certain that the problem is not your workforce; they all work hard, they all work steady and they all work efficiently, but in nearly every case, once you actually start to manage your labor correctly, you will see that this misconception could not be farther from the truth.

There are four main components to your product sell price: overhead, raw materials, labor and profit. Of these four items the most volatile and usually the largest percentage of your costs will be labor, yet this is more often than not the most overlooked component of your process.

How can you verify your productivity and efficiency if you do not track and monitor your labor? How can you accurately estimate your costs if you do not monitor, measure and control the labor portion of your costs? How can you effectively address your production problems if you cannot accurately pin point where they are? How can you schedule your workload to meet your demand if you do not have a handle on what you demand is? And lastly, how can you determine if the time and money you spent on improvements actually made a positive impact if you cannot measure the results?

THE SOLUTION

You need to map your processes and measure the actual time spent on each and every activity within that process. You need to record those times on your routings or travelers and within your MRP system. You need to monitor and verify those times against your estimates. And most importantly, you need to control and adjust those times on a continuous basis. Only then will you be able to estimate accurately, plan accurately, and ship on time. Only then will be able to determine where and what your real problems are. Only then will you be able to verify your improvements and justify those new expenses. Only then will you truly know your capabilities.

Monitoring labor accurately:
# Will provide checks and balances to estimating
# Will allow for efficiency monitoring (across stations, groups, shifts, locations)
# Will allow for productivity monitoring (across stations, groups, shifts, locations)
# Will allow for production and process scheduling / loading
# Will allow for production and process monitoring and control
# Will allow real time access to actual part / process status
# Will allow real time access to actual part / material / process location
# Will facilitate future labor / process planning

Implementing a labor reporting system:
# Determine if current MRP can be reconfigured to add labor or if a new system would be required

Automating a system to track labor
# Use bar coding, RFID, etc. to input labor
# Employees would scan at start providing location, start time, employee, physical location of in process materials
# Employees would scan at end of each completed part providing location, end time, employee, physical location of in process assemblies
# Employees would scan last part at end providing sequence end time
# Real time location of components and all in process / completed assemblies is now available to all with MRP access (i.e. one part in shipping staging area, one part in inspection, three parts in process at assembly station, etc.)
# Will allow for determination of bottlenecks
# Will allow for determination of needed process improvements
# Will allow for audit of process improvement effectiveness

USEFUL TOOLS

The following are a few useful indices:

LABOR PRODUCTIVITY MEASUREMENT: Based on routed standards
# Performance / Utilization
# Hours to produce (1) Standard Hour

PERFORMANCE: Performance = (Earned Hours) / (Actual Hours on Standards)
Earned Hours = (Standard Hours / 100*) X (QTY Produced) [ * or other quantity dependent on your volume]
Actual Hours on Standards = only hours clocked on Direct Labor which have established standards. They can be measured or estimates.
Measured Standards = must have documentation to back up the numbers through actual time studies, YTD data, or standards data.

Estimates are based on:
# similar to
# educated guesses, or
# unverified data.

Cost Standards: can be measured or estimates.

Utilization:
Utilization = (Hours on Direct Labor) / (Hours at Work)

Hours to Produce (1) Standard Hour:
This index reflects the total labor hours, direct and indirect, expended at a plant, measured against the hours earned on cost standards. It is a useful index in that it allows you to benchmark your percentage of labor hours against your billable hours.

EXAMPLE: YTD / Weekly department performance analysis:
DL = Hours on Direct Labor
EH = Cost Standard Earned Hours
IL = Hours on Indirect Labor

Direct Labor Hours to produce (1) Cost Standard Hour = DL/EH
Indirect Labor Hours to produce (1) Cost Standard Hour = IL/EH
Total Labor Hours to produce (1) Cost Standard Hour = (DL/EH) + (IL/EH)
# Reliance upon accuracy of standards and reporting practices. These are not always very accurate, but you can look at trends.
# Things that affect the indices: Changes in standards (increases or decreases); accuracy of reporting, when an operator is on Direct Labor and when an operator is on Indirect Labor.

TAKE CONTROL

Avoid falling victim to the standard excuse that you cannot afford the time necessary to track your labor. The only way you will ever create time to get the job done is to monitor and control your labor. So don’t put it off. Embrace it and start increasing your productivity, lowering your costs, and satisfying your customers. You must fully understand what your earned hours are and what portions of labor make up those hours since it is the earned hours that produce your revenues, not the number of hours your employees are at work! Understand your labor, take control of your production, and start growing your profits, not just your business.  James Cavalluzzi