To Actual Labor or Not To Actual Labor?

Posted on: June 22, 2017 | By: Andrew Hall | QAD Financials, QAD Manufacturing

One of the process design sessions that I always look forward to is the one that addresses production execution and shop floor control. This is a favorite of mine not simply because of my love for production, but because most the time it includes a key decision around reporting labor time. Specifically, should the client report actual labor on the shop floor against a work order or repetitive schedule, or should labor simply be absorbed based on the routing standard.

Granted, there is no one-size-fits-all answer to this question. If it were, then ERP applications would only provide one method. But, there are a couple of key questions that an ERP user can ask herself to aid in the ultimate choice on reporting:

1.      Can you accurately determine the amount of labor time spent on the operation? In the vast majority of the implementation projects I have been a part of, there is no automated method for actual labor capture, at a detailed level, within the scope of the project. Instead, where actual labor is attempted, the expectation is that floor personnel will keep track of their time manually, then enter it into the ERP system. The net result of this approach is that you aren’t measuring efficiency against a standard, you are measuring your shop workers’ ability to calculate hours and apply it to detailed operations. Therefore, considerable transaction overhead is being consumed capturing data that cannot be used to truly measure how product is being made, or where efforts can be focused to improve things such as tooling, etc.

2.      Can you effectively use the actual labor time reported to drive business decisions and behavior? Is the business going to use the detailed data, efficiencies, and variances resulting from these transactions to make business decisions? Too often we focus on capturing a lot of data that serves no real purpose to the business. Perhaps a focused effort on time studies and kaizen events is a more effectively use of time and energy

Again, there is no one-size-fits-all approach. Though the above may seem overly pessimistic regarding actual labor reporting, we have seen many instances where it is done correctly and provides real value to the organization. However, it isn’t the guaranteed win that many assume. Design backwards from the goal, as there may be more efficient and effective methods to determine efficiency improvement opportunities without collecting actual labor by employee and operation.

 

About Logan Consulting

Logan Consulting is a leading consulting firm with strengths in strategy, project management, business process design, ERP and CRM implementation, recruitment and training.  Since 1992, our business process-based delivery techniques and tools have helped our clients build a solid business process and information technology foundation to support their business.  Our clients count on us for objective, unbiased analysis, recommendations and project work.  To learn more and hear what our customers are saying about us, please visit our website (www.logan-consulting.com).

Logan Consulting is headquartered in Chicago, IL with global services reach.



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