Lean Labor As a Competitive Advantage

May 5, 2011
If employee paychecks were considered a product line, it would rank as one of the largest products at most companies.

You have two choices. To outsmart your competitors you can improve your internal processes or you can look externally to find lower cost sources. Gregg Gordon, author of Lean Labor: A Survival Guide for Companies Facing Global Competition, wouldn't advise you to chase lower wages from country to country. What he would suggest is using Lean strategies to transform your workplace.

"Companies that practice Lean rely on their employees who know the process best to identify unproductive activities and replace them with productive ones. This additional productive time results in higher output with the same pace of production using the same capital investment," Gordon explains.

One reason lean is not routinely deployed in the area of workforce management is due to the challenge of measuring the workforce, says Gordon. While machines and materials are easily measured, the inherent nature of the variability of the workforce makes metrics difficult. However it's a step worth taking. "Companies that reduce the variability of the workforce while still providing a fair and equitable place to work will receive more value from their workforce than those companies that do not," says Gordon.

Extending lean concepts into Lean Labor, via the Seven Wastes of Lean, produces the following analysis:

  • Transport: Unnecessary movement of people such as call-ins.
  • Inventory: More people than required for current order
  • Motion: Manual paper processes than can be automated, such as timekeeping.
  • Waiting: Unplanned absenteeism.
    Too few skills or experience to efficiently perform a process.
  • Overproduction: Using a person too highly skilled for a specific role.
    Providing too much information to individuals, causing them to search through this detail for the information they require.
  • Over Processing: Entering data multiple times into different systems
    Decisions that are made, questioned, and then reviewed against because of ambiguous supporting information.
  • Defects: Payment to employees that is not intended
    Expired or missing employee skills and certification that causes quality and performance issues, safety hazards or regulatory infractions.

Drilling down further, Gordon looks at specific areas concerning the workforce where waste can be eliminated. "If employee paychecks were considered a product line, it would rank as one of the largest products at most companies," says Gordon. Mistakes made by producing a paycheck inefficiently can inflate payroll on average by 2.4%, he explains.

If you were to apply work standardization methods to the task of paying employees, a company could deliver the "perfect paycheck." Try holding a Kaizen says Gordon. He cites the example of a manufacturer of industrial gases that has a distributed production and delivery environment. "Over the years, people with good intentions had built in undocumented processes to ensure that paychecks were delivered on time. By doing this employees had built in extra overtime hours that could be eliminated with a well defined, automated process."

Another target of improvement is in the area of scheduling. While most manufacturers are accustomed to getting equipment and materials together at the right time and place, the same isn't often true of the workforce. Overtime fills in the holes. Gordon suggests using the Lean technique of "Single Minute Exchange of Die (SMED) to manage daily labor variability. He prescribes converting internal processes to external processes and mechanization.

Gordon expounds on other aspects of labor that can be measured using lean techniques to understand, quantify and manage labor costs. These aspects include: Balancing Labor and Demand, Using Labor Information to Make Operational Decision and Increasing the Productivity of the Entire Workforce.

He does this taking the reader through the plight of Graham, an operations manager, who must reduce unit costs by 10% or his division will be moved to China. The reader is able to listen in to how Graham moves through the process and ends up achieving his goal. As Graham walks through the plant which remained open he "listened to the familiar sounds of production, his greatest satisfaction came from knowing that he had kept his plants open by tapping in to the employees' ability to innovate rather than chasing low wages."

For a copy of the book click here.

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