We recently completed work with a customer where we were able to reduce their overall cost of labor and measure the results as well. The goal was to reduce the use of temporary workers (Temps).
Temps are an ideal resource when balancing the ups-&-downs of production demand with a finite labor capacity. Using Temps is more cost-effective than having to fill open jobs with overtime. So eliminating the use of Temps altogether is not practical. However, relying on Temps indicates that one’s existing work force is not being used in an optimal manner. And this is an indirect indicator of labor waste. If you can meet your production demand by using your existing work force in an optimal manner, the use of Temps is reduced and your overall labor cost goes down.
How? We used optimization to find the best possible match between the skills inventory available with the customer’s hourly workers and, on the other side, the labor demand required to meet their production requirements.
Tugboat’s customer operates a prepared-meals manufacturing facility with about 800 regular hourly workers. They were using 20 to 40 Temps every day. Using Tugboat’s scheduling engine to do the crewing automatically the number of Temps was cut to 10 a day.
Measuring Labor Waste
In this case, the cost of labor waste is very easy to measure. Before Tugboat’s solution 20 to 40 Temps. After, 10. Temps may not sound expensive, but. The savings calculates out to at least $207,000 per year. (How would you like to take part of that home as a bonus?)
Here’s how we arrived at that number. Using the conservative estimate for reducing Temps from 20 to 10, that’s 10 fewer Temps. At $10.35 per hour, the cost of a Temp comes to $82.80 for an 8 hour work day. Multiply by 10 Temps, 5 days a week, and 50 weeks and we get to $207,000 per year. And, this should be easy to verify. Finance can report the cost of their temporary labor force from any prior period and compare it to the costs for the current period.
Posted by Terry Schilling, VP Marketing & Sales
It is sometimes the case that the variability of production demand of a wide range of product SKUs on a day-to-day basis can be a major contributor to ‘labor waste’ and the demand for temps. Certainly, an immediate call for a particular product must be addressed. However, within a week’s timeframe, the ability to juggle which products are run on a particular line on a particular day can provide a very real savings opportunity. Testing such scenarios to evaluate the optimum combinations which minimize the use of overtime or temps adds real value to production planning.
Resistance from front line managers when implementing a labor scheduling solution happens for a variety of reason. One reason being that the order has been brought down by corporate, unfortunately there is always resistance to any software solution that is sent down the pipe from corporate whether it be a good solution or not. Often front line managers feel their current practices are adequate. They do not realize there may be better alternatives and they might not buy into the big picture benefits. They need to get product out the door and don’t have the time to focus on what looks like a lot of work for little improvement.
Let’s face it if they can’t see how the solution affects the bottom dollar of their labor budget right away they see no point in focusing on a new project. This can lead to a setback for the project and can contribute to a downfall for the facility. This is unfortunate because the long term benefit – controlling labor cost – far out ways the short term impact on front-line managers.
Besides, there are other very sort-term benefits. Schedulers have more time to focus on operations and other management responsibilities. Getting the right qualified worker on the right job is much simpler. The labor scheduling is done according to the rules that the facility has agreed on. Managers and production planners have the ability to make last minute changes and create “what if scenarios”. Analysis of your labor utilization can be done with reports. All of this is impossible to do when you are managing labor scheduling by hand. Altogether, the solution saves time for H.R., payroll, supervisors, and schedulers. It is not easy to put a dollar value on these kinds of savings and flexibility.