Engineered Labor Standards 101
We rely on numbers every day to run our operations. But, many executives don’t know the difference between these “numbers” and engineered labor standards. These numbers, often referred to as “standards,” typically are defined through the following methods in order to establish production expectations: - An informal number that workers set for themselves and with which management feels comfortable.
- A number negotiated between workers and management.
- A number based on historical data—often run through some sort of “data smoothing” to make us feel more comfortable with it.
- A number based on recognized work measurement techniques.
This article focuses on the last approach—the basis for creating engineered labor standards. What are engineered labor standards?The International Labor Office defines work measurement as, “…the application of techniques designed to establish the time for a qualified worker to carry out a specified job at a defined level of performance.” Today’s industrial engineer (IE) has four basic work measurement techniques available from which to build engineered labor standards: - Time study
- Predetermined motion time systems
- Work sampling
- Standard data
Anyone involved in the process of selecting and utilizing labor standards should take the time to understand the advantages and disadvantages of each of these tools before pursuing a specific path. It is also important to not confuse quotas and minimum expectations with engineered labor standards. This is not to say that using such techniques is incorrect; for instance, the use of professional estimates and historical times is, in some cases, a valid alternative to standards. But, these techniques do not lead to engineered labor standards. Finally, it is important to understand that building engineered labor standards is part of a more complex process—one that involves designing a work measurement program that supports process improvement and facilitates maintenance of the standards. Why do companies use engineered labor standards?Tracking wasted time is an elusive process. We have come quite a way technologically, but we have yet to invent a “wasted time detector”—you cannot look for a pile of wasted time as you would for other resources. To manage labor costs, therefore, you must apply some type of work measurement system. Whether you have engineered labor standards or not, you organization likely uses time-based information to manage its daily operations. Engineered labor standards simply give you access to an accurate and consistent source of information—they are a tool, but not a substitute for managers and supervisors. When used properly, they will greatly enhance the productivity of these two groups by: Illustrating the potential of current processes. Two major problems can arise from making decisions based on current process output rather than on labor standards: - Even though a solution appears justifiable when compared to current output, it might not be quite as attractive when compared to the potential under engineered labor standards; for example, a favorable payback period might not look quite as good once you are using the right numbers.
- Your current process, once under standards, might yield results superior to those of the envisioned solution.
By knowing where your processes stand, you can set achievable goals. Engineered labor standards greatly enhance your planning capability toward different technologies, such as process automation. Supporting basic management functions. It is difficult to think of one major operational decision that is not influenced by time. When dealing with any costing, planning, or scheduling, would you rather base your decision on assumptions or numbers developed through tested work management techniques? Supporting other production systems. For the last ten to 15 years, industry increasingly has focused on minimizing inventory. In manufacturing, we have seen an influx of manufacturing resource planning (MRP) systems and later JIT systems. In warehousing, we have witnessed the emergence of warehouse management systems (WMS). The basic concept behind all of these systems is to improve planning and minimize inventory levels by having better timing between operations and job functions. For these systems to do an effective job, they need to use current and accurate operation times. A well-established work measurement program supplies this type of information on a consistent basis. Providing the backbone for wage incentive systems. Output of the worker or workforce is usually a major component of wage incentive systems. Many companies see wage incentives as an easy way to increase their throughput; thus, they prematurely adopt an incentive system that is not backed by solid standards. Their results will probably be in line with those expected of an incentive program—an output gain of 15 to 35 percent. The problem is, that gain will be above the current production level but not above the standards level as it should be. The company will probably be happy with the increase in its output, but chances are it will never realize that it is paying incentive compensation for non-incentive performance. Backing up labor control functions. Engineered labor standards provide the necessary information to effectively control labor. Managing labor cost is as important as controlling any other production costs. It might be an unpopular initiative, but it is nonetheless necessary to create an efficient operation. Ultimately, the survival of a company will depend on its ability to keep its costs down. Through many implementations of standards, touching thousands of workers, we have seen direct labor savings ranging from 15 to 50 percent and a payback-period that seldom exceeds six months. Managing without standards is like flying without instruments. Managing without standards is a little like trying to land a plane at night in a thick fog and without instruments or radio controls. It can be done, but most of us would rather fly with a little more guidance. As such, engineered labor standards should no longer be considered a “nice to have.” Rather, they should be a key requirement for bottom-line success. Work measurement is the key tool in delivering these results by providing the basis for engineered labor standards. West Monroe Partners helps organizations apply work management techniques to establish and implement engineered labor standards. For more information, please contact George Bishop,
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