Performance Measures in Manufacturing- Cost Effectiveness Through Labor Efficiency
Without a doubt, for manufacturers the biggest payback from computer and software investments is in the area of performance measurement. Such metrics allow management the ability to be flexible, to make better decisions about what will make an enterprise operate at the greatest level of efficiency.
Upfront efforts in the elimination of waste in all operations of the plant—from administration to shipping—results in greater sales levels, lower overall costs of operation, and shortened cycle times for inventory. Perhaps the greatest benefit of all from performance measurement is found in the maximization of human resources; that is, by adhering as closely as possible to standard costs for production.
As a tool for providing labor performance measures for manufacturers and job shops, enterprise resource planning (ERP) software systems employ metrics designed to see at what level of efficiency a plant, work center, or individual employee is working at. Through a variety of labor analysis reports, a robust ERP system measures labor performance with the ultimate goal of improving profitability. By providing a manager with labor management information, labor resources can be optimized to meet production and budget objectives.
For example, an ERP system will separate labor into direct and indirect status, monitor employee time and attendance through payroll records, analyze employee productivity, and provide for entry of regular and overtime wages. These factors are then weighed against the generation of standard hours for both the job and for the entire plant. To this end, then, managers are able to answer the basic performance questions of whether or not an operation is profitable, and what is the breakeven point per day for the standard hours.
A sophisticated measurement tool for labor performance, ERP software provides insight into company operations that would otherwise go either unchecked, or at least delayed in analysis. In today’s highly competitive manufacturing environment, any cost saving advantage inversely translates into increased profit margins. Therefore, the cost effectiveness gained through increased labor efficiencies means lower costs and improved on-time delivery. In short, the maximization of labor efficiency while the worker is on the clock is what makes the difference between a company that continues to play a guessing game with their indirect costs, and a company that realizes a greater bottom-line by having a complete grasp of what is going on their shop floor.