One of the most
overlooked costs of production
is indirect labor. Everyone is
aware of what indirect labor is
and everyone can show you a
number which they have
associated to it, but how many
of those numbers are truly
accurate? Most people are
astonished once they are faced
with the true costs of their
indirect labor.
It is easy to
dismiss indirect labor as a
necessary evil that all
companies must endure and,
therefore, not pay much
attention to it. Once you
actually track the amount of
indirect labor being performed,
categorize who is actually
performing it, and assign a real
dollar value to that total, you
will see a very quick and easy
means of lowering your
production costs while improving
your productivity. The following
are ten brief descriptions of
what can be accomplished by
simply optimizing your indirect
labor.
1.)
MINIMIZE LABOR COSTS -
When your employees are being
paid to perform a specific
manufacturing function, but
instead are spending time doing
other tasks, you are adding
inflated labor to you
manufacturing costs. Why pay an
experienced operator a high
salary to sweep floors when you
can pay a much lower wage to
keep your floors swept. You are
paying for that experience
level, so why not have those
high paid employees performing
the task they excel at?
2.)
MINIMIZE PRODUCTION
INTERRUPTIONS - Each
time a production employee
performs some other task such as
shipping, receiving or
housekeeping, your main
production process is
interrupted. This means your
costs to produce go up and your
efficiencies go down. If you can
assign these other duties to a
specific person or persons,
other than your line operators,
you will minimize the amount of
downtime in your production
process. This not only reduces
costs, but improves throughput
and scheduling as well.
3.)
IMPROVE EFFICIENCIES AND
UTILIZATON - By
ensuring that your production
employees are spending their
time producing you will increase
your efficiencies and
utilization. Your hours to
produce one standard hour will
be minimized and, therefore,
your throughput will be
maximized. You want that highly
skilled and highly paid employee
continually producing parts not
doing menial tasks that can be
performed at a much lower cost
by someone else. By having your
skilled labor perform those
essential tasks, you reduce the
number of employees needed to
meet your production demands.
Additionally, when you do need
to add to your workforce you can
add where it is actually needed.
You won’t need to hire another
machine operator because you
have more trucks that need to be
unloaded. By hiring a clerk or
two you can put off hiring a
programmer or operator for some
time.
4.) EASE
TRAINING OF NEW EMPLOYEES -
By assigning indirect
duties such as housekeeping to
you new and lower paid personnel
you will minimize the time and
effort needed to get a new
employee up and running. This
will allow the employee to grow
into your organization. You will
find yourself providing the
higher skilled training to those
employees who have demonstrated
they are both deserving and
capable. As you promote from the
bottom up you are replacing the
lowest skilled workers in the
chain. This minimizes time and
expense greatly.
5.)
IMPROVE EMPLOYEE RETENTION -
If you allow your
highly skilled employees to
perform the highly skilled
duties which they enjoy, they
will be much more apt to remain
with your organization.
Likewise, if you are promoting
from within, from the bottom up,
then your workforce will realize
that they can grow with the
company. This will make them
happier and will decrease your
turnover rates.
6.)
IMPROVE THE CAPABILITIES OF YOUR
WORKFORCE - As your
employees grow with your
organization they will be
acquiring more and more skills
of a higher and higher caliber.
Your workforce will be happier
and considerably more skilled.
This makes your workforce much
more capable, not just at their
specific duties, but at a larger
variety of duties. They will
understand the requirements and
skills needed to perform their
current duties and many others
in the process as well. They can
be more readily trained for new
positions as well as being
available to train others in new
positions.
7.)
IMPROVE QUALITY - When
your highly skilled workers are
performing the highly skilled
tasks you will find that your
scrap rates will be greatly
reduced. When they can
concentrate on the task at hand,
rather than be distracted by
other duties, they will make
fewer mistakes and often times
will be more prone to catching
those mistakes they do make.
When you have less skilled
operators performing skilled
tasks and being continually
distracted, the level of quality
will be reduced significantly.
8.) DELAY
NEW EQUIPMENT PURCHASES -
If your machine
operator spends half the day
performing duties other than
operating the machine, then you
will need twice as many machines
to make the same number of
parts. If you can keep that
operator machining parts the
entire shift you can put off
those expensive capital
equipment purchases for a much
longer time.
9.) DELAY
PHYSICAL EXPANSIONS -
Just as indirect labor takes
away from your capacity and
requires you to obtain more
personnel and equipment; you
will also need more floor space
to accommodate the increase in
equipment and personnel. Keeping
your indirect labor in check can
delay the need to add that
costly manufacturing space.
10.)
INCREASE MARKETSHARE -
By keeping your indirect labor
costs at a minimum you will be
able reap the benefits of
increased productivity and
efficiencies as well as minimize
your labor and capital expenses.
This allows you to decrease your
sale price while maintaining
your profit margin, thereby,
gaining market share over your
competitors.
Stop accepting
all that indirect labor.
Understand what your indirect
labor truly is and optimize it
so you can start reaping the
rewards of a cost effective
labor force.
Mr. Cavalluzzi is
the founder and owner of
CONSOLUTE, LLC engineering
support and consulting services
providing site search,
industrial, manufacturing and
design engineering support. His
extensive background in
engineering dates back to 1978
and includes the robotics,
automotive, aerospace, metals
and plastics industries. Visit
Consolute, LLC –
Engineering Consulting Services
