There are many different facets and approaches to labour control.
Essentially the aim is to build a standard for each individual product and, subsequently, make sure that the standard is adhered to.
Setting the standards accurately, so they are challenging and drive profitability, but at the same time not creating an unattainable standard, which will cause a continuous negative operational variance, is the balance to attain
AFSI can help you make sense of the labour costings.
There are many levels of labour mapping, the most basic labour mapping starts with labour blue print, which is a map of all the departments and the associated operators. In a business with a very low level of complexity a blue print may be adequate. Imagine an abattoir, that is always producing the same product, e.g. they are only slaughtering one type of animal at the same line speed, with the same number of operators, then establishing a labour cost per unit is not complicated. However, once the animal is taken apart then mapping out the labour for each individual product becomes more complicated. What labour spend is recovered on which product and where should it be recovered?
The labour blueprint can still be used as a template for labour spend and it can also be used for labour planning, so it's a good tool. However, when butchery starts, and packing takes place, the labour blue print will have to be on a product by product level, for it to be accurate. Once the labour is mapped out the next challenge is to follow the activities of the operators, so spend per product can be established.
The spend at a product level is relevant to the profitability of each individual product. If a product has been costed incorrectly and the labour variance is not repairable, then following the labour usage at product level assist business decisions. The product will stand out as making a loss, which will encourage management to investigate the variance.
Time & motion
Time & motion is, as the name implies, a study of the time consumption of a task. The task studied is broken into several subsets for each task cycle. The task cycle is defined as the time it takes from starting the task until starting the same task over again. The reason the cycle is not the end of the first task is, that the study aims to map out all the time spent, including any transport, so each sub task can be examined to identify areas of improvement.
Studying time in isolation is not always adequate to establish a standard for a task, which is were the motion part of the name becomes relevant. A skilled operator will complete a task in less time than an operator with less skills. moreover, a hardworking operator with less skills may complete a task quicker than a highly skilled operator that is tired or disengaged.
To overcome the differences in effort and skill, a work-rate can be applied to the calculation in order to standardise the timing studies. AFSI can help you set up standards for your business. The standards will be created in your context, based on your raw material prices and your labour prices. AFSI will initiate a database with the labour standards, for each product type, that your company can use for reference for coming calculation. The data base will be set up and the calculations handed over, so your company has the ability to maintain and evolve the standards.
The calculations will be set up, so you can verify work rate in any new timings automatically, so establishing the work rate becomes very scientific, and can be maintained precisely as per the original standard.
Incentive payments have several benefits. It ties the performance of the operational members to the performance of the company. If productivity is low payment is lower. if productivity is hight, payments are higher but, in turn, revenue is higher.
It encourages a level of self-governance in the team, as their interests are aligned with the interests of the company, which results in less requirement for supervision and use of performance sanctions. A bonus system also enables a business to offer higher wages and be a more attractive employer from a wage perspective.
Creating a bonus system that encourages the right behaviours can be challenging. The bonus element has to be attractive for the team members to want to strive for it, but at the same time it has to be low enough for the products final prices to remain competitive. Only focusing on productivity as the driving force of the bonus system may encourage unwanted behaviours in other areas as; quality or safety, so ideally the bonus should incorporate other elements of wanted behaviours.
Finally, the bonus has to be transparent and attainable. The team-members, being paid the bonus, have to be able to follow the calculations behind the bonus, so they don't feel deceived in any way.
At AFSI we have experience with a number of different incentive schemes and can help you develop a system that is right for your context. We can help you design, calculate and implement:
Production target bonus
the bonus is triggered when the overall production target is met for a set period.
The bonus is triggered for each unit produced and makes out 100% of the bonus
Basic rate and piece rate bonus hybrid
The bonus is triggered for each unit produced but a proportion of the pay is made up of basic rate.
Omni performance pay
The bonus is triggered by each unit produced, however, it incorporates other operational aspects as, e.g. yields, safety, quality or any other parameter, that is relevant to your context.
Shift and break patterns
For various reasons, for an example sweating an expensive asset, short term capacity constrains or capital expenditure restrictions, it can be a benefit to extend capacity through additional efficient time.
The efficient time can be extended by adding more labour through alternative shift patterns. Continuous production through a working day can be put in place, so rather than having the whole team on break at the same time, there is a rolling relieve of the operators and the line continues running. Before venturing into a continuous production system, establishing the cost implications first is advisable, as continuous production is difficult to balance as precisely as it is with a line setup where break is had together.
The amount of time gained from a continuous production system can be anywhere from 6 - 25% depending on the amount of break the staff have. The amount of staff required to implement the system will vary with the length of days and amount of break.
When creating a break system it is also important to create a balance where there is no compromise of quality, safety and food safety parameters. Therefore there must be an operator at each station continuously. Reducing the speed could be an option, but not advisable as it disrupts the normal working rhythms, it makes it harder to measure production efficiency and there is a risk of losing time if the speed is not increased exactly when the break is to finish or a quality & safety impact if the line speed is not reduced when there is a lower number of staff on the line.
Shift patterns with extended work days, a working day is extended by 20% in order to have one weekly day off work. The remaining day in the week is covered by additional staff so the site continues operating. The work pattern system is less difficult to balance if the operators continue to have their breaks together, but this rolling day system could be combined with the continuous production system. There could be a requirement for proportionally more break as the operators will fatigue towards the end of the shift.
To implement the rolling days an additional 20% of staff is required and the capacity will increase by a similar proportion depending on break requirements.
There are a number of other ways to increase the efficient time
The working week is extended with 3-5 hours and the employees bank the hours to have time off with pay at another point in time. The additional staff required will depend on the extension of the week.
4 on 4 off
The staff work their weekly hours in 4 days and have 4 days off.
Team 1 works day day 1,2, 3 & 4
Team 2 works day 5, 6, 7 & 8
Team 1, day 9 -12
Team 2, day 13-16 etc.
The system doubles the staff requirement and doubles the capacity depending on the length of days chosen. The 4 on 4 off system tends to be an expensive solution as there is more need for more management hours.
6 on 2 off
The operators work 4 days of a 6 day week. The system enables an uplift in capacity of 40% with the same amount of staff uplift. This will depend on the length of days and the amount of breaks.
Indirect labour mapping
In practice, there is no difference in how to arrive at the cost of indirect wages or direct wages. The cost of the activity is evenly distributed across the specific products in the timeframe it takes to produce the products specific to the timeframe. The level of cost per unit can be identified by dividing the cost with the number of units produced in an area or on a line.
However, allocation of labour not directly connected to the line, like service functions, can be more difficult to decide how to allocate. When costing labour, the objective is to represent the cost of the labour as accurately as possible so the customer paying for a product pays for the associated activities and no more. This allows full cost recovery from the activity, but it also ensures that the cost of the product can be measured accurately and assists in maintaining a competitive price on the product.
Where an activity can be directly linked to a product, it should be a direct cost. e.g., in a butchery department, there is a service operator for each butchery line, then the cost is direct as it can be directly associated with activity on the line in a one to one manner.
if a there is a service operator servicing more than one line, it becomes an indirect function, but can still recovered as a direct wage. however, the distribution of cost is no longer; one to one and a proportion of the operators wages have to be recovered on each line at the rate the product is produced at.
If it should be recovered as a department overhead or not depends on the complications involved in updating the bill of materials for the individual product codes.
If an activity based overhead recovery model is in place, then how the cost is recovered makes no difference to the cost price of the final product.
If the indirect labour is recovered as an overhead, it should be recovered at a department levels as long as there are no activities crossing over into another department. e.g., a service operator only servicing the abattoir, should be recovered as a direct or indirect cost of the product of the abattoir. A team member from the quality department, that carries out activities across all the sites departments, should be recovered as a site overhead, as it is not directly liked to one product code.
how site overheads are recovered is a political decision. (read more about overhead recovery)
Management activities and requirements can be difficult to measure and associate directly with a product, which is why the management costs are usually recovered as an overhead.
Setting up a structure for management and establishing a hierarchy where roles and responsibilities are clearly defined, while at the same time avoiding overlap of responsibilities, can be a challenging task. Layers of management and a definition of what management includes also needs to be established.
There is no size fits all. The more complexity the operation has, the more supervision will be required. further to this, the level of automated management systems, i.e., MOM / MES systems, report accuracy, operative incensement schemes, shift patterns and the size of the operation will influence the requirements.
Less is always more when it comes to cost, so a balance has to be achieved between having too much idle management time and having operational issues. By building a hierarchy of the responsibilities and what level of authority is required to execute the tasks.
When defining the tasks of management, the amount of time the individual managers are to spend on employee engagement has to be considered. If the focus on engagement is high, it should be built into the management schedule when it is established.
AFSI can help you set up a structure that fits your company, based on the level of engagement, tasks and automation relevant to you. We can also help you define the hierarchy and the area of responsibility at each level.