ERP systems excel at automating back office processes. But their batch process design used to facilitate communication between modules, especially labor information, limits their ability to provide complete and timely information required to calculate accurate labor costs, shop floor status and identify waste within a process.
In an effort to better obtain this information, a growing number of manufacturers have leveraged best-of-breed workforce management systems to extend the value of their existing ERP systems.
Workforce Management systems can bridge the gap in unexpected ways. While workforce management is often thought of as a back office process to track and schedule labor, one of its main benefits: accurately tracking labor hours down to the minute to produce a paycheck can also be easily extended to allocate those labor hours into production. And once a manufacturer can determine the actual time and labor cost tied to an activity and its results; performance, costing and continuous improvement insights are not far behind.
Timely Performance Information
Data collection has always been a stumbling block in shop floor performance systems. Dashboards abound, but the cost of collecting and integrating the data always seems to make these projects difficult to justify.
The labor tracking component of workforce management has an inherent advantage. Every employee knows how to interact with this system and already uses it two or more times a day to track his or her paid hours.
By interfacing the system to an ERP to automatically reconcile labor hours and production results against a production schedule, a manufacturer can identify labor utilization, labor performance, and quality. In addition, other non-labor information becomes visible such as Work-in-Process Status, estimate-to-completion of a work order as well as machine downtime and other variances and unproductive hours.
With labor details and production information all in one system and reconciled, separate but interdependent issues can be analyzed more effectively. For example, Performance and Quality have long been known to be dependent metrics. But since most manufacturers measure them in different systems and in different ways, such as performance of a team compared to quality levels of a product, it is difficult to understand the impact they have on each other when one changes.
As Elliot Co., a large capital goods manufacturer serving a worldwide market found, according to John Russo, senior business systems analyst, "By interfacing our time and attendance and activities applications with our ERP system for updates every 15 minutes, supervisors can view real-time data on jobs, operations, work centers, labor hour standards, and labor expended."
Accurate Labor Costing
Understanding the actual cost of producing a particular product or service is valuable to any company when making strategic decisions such as pricing, discounting and product mix. And the decisions are improved with better cost information. But as with everything, there are diminishing returns in collecting all the actual costs in production. ERP systems often find a balance by delivering standard costs.
For labor costs this is defined as the production results multiplied by a labor standard multiplied by a wage standard to determine standard labor cost. But there are variances in production; material delays, tardy employees, labor performance issues and machine downtime are all examples of situations that cause production costs to differ from the standard estimate. Wages can also vary dramatically. Individual wages differences, premium pay such as shift differentials and overtime all cause wages to fluctuate for the same work performed. And while manufacturers attempt to collect and cost these variances, they are often unknown and wind up in overhead, later applied "peanut butter" style across all products in the burden rate.
Once again, savvy manufacturers using workforce management systems have realized their timekeeping systems are calculating exact labor costs minute-by-minute to ensure accurate payroll. By adding the pay rules to the performance information collected as described above this accurate, existing information can be used to cost labor to products or production lines. Thus manufacturers can allocate productive and unproductive time and costs as they see fit.
Paramount Farms has found that this capability allows it to price its products more accurately. Said Gregg Maggioli, director of engineering, "Because our workforce management solution links customer orders directly to work schedules, we know exactly what it cost to complete an individual order. There may be some orders we aren't making money on. This will be a big plus for us in weeding out products that are priced too low or trimming prices on others."
Identifying Waste & Defects
With actual performance and labor costing information available through a workforce management solution, manufacturers can perform trend analysis through reporting and analytics to identify defects and waste in the process that can be removed. Questions that were answered through anecdote and experience can now be answered with facts, such as "What is the frequency and duration of machine downtime? What is the right mix of tenure on a line to balance cost and performance? Are changes Im making to utilization, performance and quality really improving my effectiveness or am I just pushing the problem around the plant?"
This fine-tuning helps manufacturers improve overall performance. As Heat and Control, Inc., one of the worlds leading manufacturers of food processing and packaging equipment found, according to Chen Wen, CIO, "While our ERP system has provided us value with a range of back-office processes, we realized that we needed a best-of-breed time and attendance solution to truly drive performance."
Reduce Labor Costs and Improve Workforce Productivity
By allocating actual labor time to production, workforce management systems enable manufacturers to extend their ERP systems in a manner to determine the actual time and labor costs that go into an activity and its results. With this information, they can continually reduce labor costs and improve overall performance.
As Yogesh Zope, Vice President, IT Services for Bharat Forge Limited of India noted, "We have been looking for a truly good integrated time and attendance solution to replace our existing system, which had a lot of reconciliation issues during pay runs -- one that could meet all our requirements and prevent the leakages in payroll and better manage labor costs centrally. A best-of-breed solution was selected, which we found unique in the Indian market meeting all our requirements."
Kronos Incorporated is a provider of workforce management solutions that enable organizations to control labor costs, minimize compliance risk, and improve workforce productivity. www.kronos.com.Interested in information related to this topic? Subscribe to our Information Technology eNewsletter.