Manufacturing Focus: Our Weekly Feature Article on Topics Related to Manufacturing Management  
 
 

- April 29, 2010-

Supply Chain News: Time for Labor Optimization for the Factory Floor?

Labor too often taken as a Given; Challenge of Keeping up with Today’s Dynamic Schedules; Difference between Staying Viable or Moving Plant to Mexico?



 
 

 

 
 


SCDigest Editorial Staff

SCDigest Says:

Flessas says he has seen real example of companies that have closed down US factories and moved them to Mexico because those plants were viewed as no longer cost competitive, when in fact by optimizing factory labor the plant could have easily remained profitable..


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When it comes to the supply chain for manufacturers, is labor – human capital – the key piece often absent from the discussion?

 

Factory labor deployment, it seems, is often not a core part of the manufacturing supply chain dynamic – yet how well it is deployed can often be a huge determinant of a factory’s ability to deliver the right product, at the right time, at the right cost to its customers.

 

While there is frequent attention on optimizing such supply chain elements as inventory, transportation, and the factory schedule itself, the labor needed to support all those other plans is often simply taken as a given. In the end, however, labor optimization can be just as important as those other factors in supply chain efficiency, and even determine whether a factory can remain viable in the hyper-competitive global environment.

 

“For years, factory labor was thought of not only as inflexible, but as not being in need of flexibility,” Greg Flessas, CEO of ScheduleSoft, said in a recent Thought Leaders discussion on The Supply Chain Television Channel. “(To see the video interview, go here: The Overlooked Role of Manufacturing Labor in Supply Chain Performance.)

 

This has to change, he says, for manufacturing supply chains to reduce costs and smooth the flow of product to consumers.

 

There are a number of dynamics impacting the role of labor in manufacturing today, including increasingly volatile demand, a focus on reducing inventory buffers at the same time, and the growing use of temporary labor at many manufacturers, which further complicates scheduling.

 

“What’s happening is that companies, especially in the process manufacturing and consumer packaged goods sectors, are under-staffing, over-staffing, they don’t have systems to efficiently put people into productive positions to make the product consumers want to buy,” Flessas says.

 

Flessas adds that the trend for more frequent changeovers in the factory to meet volatile demand and reduce finished goods inventories is another complicating dynamic. That puts an increasing burden on labor scheduling, especially to make sure the minimal amount of unproductive labor hours are incurred during changeovers and schedule changes.

 

In many process and consumer goods plants, he says, the pressure to meet unexpected demand and achieve fill rate targets often means that it costs more to make the product than it is being sold for, especially if companies can’t optimize the labor plan to support these schedule changes dynamically.

 

Manufacturers Underestimate the Opportunity

 

Many manufacturers sense they have a problem with labor scheduling, and can see the challenges even very good schedulers have keeping up the complexities of today’s factory schedules when using largely manual, spreadsheet type approaches.

(Manufacturing Article - Continued Below)

 
     
 
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But, he says, they frequently underestimate the total cost impact from getting the labor schedule consistently optimized and doing so not only for the start of each shift but as the schedule changes throughout the day. When that schedule changes, is the current labor plan automatically re-optimized, or is it handled almost manually out of the factory floor, for example?

 

Flessas says most plant managers probably would estimate the potential savings from consistently executing the right labor plan at 5-10%. In reality, the savings can be as high as 20-40% in terms of labor costs, he says, not only dramatically improving profitability, but maybe making the difference between a given factory remaining profitable and competitive versus being closed down and the equipment sent to some offshore location.

 

One contributing factor is the nature of cost accounting systems, which generally produce average factory and labor costs over some period of time, such as monthly or quarterly.  Those “averages” often mask the true nature of what is happening with factory labor costs, Flessas says.

 

“The aggregate, average costs do often mask what really happened on a given shift or for a specific production run,” he says.

 

At the core, you need to include a more comprehensive and optimized view of human capital in the larger supply chain models that are running from when a consumer buys a product to when it is replenished, Flessas said.

 

“Can you get the right product, at the right cost, on the shelf at the right time, that’s the question,” Flessas added.

 

He says he has seen real example of companies that have closed down US factories and moved them to Mexico because those plants were viewed as no longer cost competitive, when in fact by optimizing factory labor the plant could have easily remained profitable.

 

A new generation of factory scheduling software that can handle a complex array of variables and connect them dynamically to the actual schedule during the daily production planning process and as changes are required is really necessary to truly optimize plant labor Flessas says.

 

Is labor the often overlooked dynamic in the manufacturing supply chain? Do cost accounting systems and averages really mask what is happening in terms of labor costs? Do you see the need for better smarts in terms of factory scheduling? Let us know your thoughts at the Feedback button below

 

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