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Ten Reasons to Optimizing your Indirect Labor


Jim Cavalluzzi

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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.

© by James Cavalluzzi: February 12, 2008

About the Author

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 over 30 years and includes the robotics, automotive, aerospace, metals and plastics industries.

Visit them at: Consolute, LLC – Engineering and Consulting Services

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Article Published/Sorted/Amended on Scopulus 2009-07-28 11:22:01 in Business Articles

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