Let’s look at how we get more from our people – labour productivity. The first step is to apply Lean to eliminate or reduce all of the non-value-added activities that waste people’s time and effort.
Then we need to motivate and incentivise people to maximise their output.
We need to establish performance benchmarks. We do this by determining the rate at which a competent trained operator can perform a task, working at a level that they can maintain over a full working shift and a full working week.
In a future article my colleague Jeff Holt will be explaining this in more detail.
Once we’ve established standard times for key operations we can measure actual performance against these.
The first step is to record the hours attended by each production worker over a given period (usually daily) and record the standard hours of work/product produced over the same period (often called the “Hours Recovered”). dividing the hours produced by the hours attneded gives a measure of performance. This can be analysed at various levels – by operator, by work centre, by department, and so on up to factory / plant level. Often, a reasonable target is to expect an overall level of performance for a team, cell or plant of about 75-80%.
Keeping a cumulative / Year to Date figure will tell you exactly what your true labour costs are. Just be careful when you’re calculating this – don’t try to average percentages (it doesn’t work!) but always divide the cumulative Hours Recovered by the cumulative Hours Attended.
A number of clients that we’ve worked with recently found that they appeared to be achieving performance levels around this figure. BUT – and it’s a massive BUT – the standard hours used in the factory weren’t the same as the hours used for costing / estimating / pricing!
Sounds obvious but many manufacturers don’t have this properly nailed down.
It’s simple, really –
Make sure that you can cost / estimate labour hours sufficiently accurately. Build in the appropriate performance factor (eg 75%).
Set these times as targets for production staff so that they know what to aim for. Don’t fall for the trap of either not giving targets or of setting higher targets “so that they work harder”! (if you can’t work out why this is, you might just be in the wrong job).
MONITOR performance daily, provide feedback and take improvement action as required.
That way you can be confident that you’re in control of your labour costs, and that you can achieve the margins that you plan for.
If you’d like some simple free spreadsheets that you can use to perform these calculations, email me at email@example.com