Best Practices for collecting direct labor

We are making a push to ensure we have accurate direct labor by creating a closed loop process where at the end of the day we ask techs to verify their direct labor for the day has no major discrepancies. Our motivation being with accurate direct labor we can evaluate staffing needs, we can more accurate predict delivery dates, and we can identify parts that may not be so profitable.

Would appreciate any advice on best practices from others that have already went down the path we are starting down.

One question I’m struggling with right now is how to handle “parallel” operations. What I mean is we have pack operation to capture direct labor for packing as some parts have significant labor. Although in practice if we have an order for 10 different parts all being packed together, the tech will start pack operation on all 10 jobs at the same time and finish all 10 pack operations once everything is packed… We’re trying to be conscious of not going overboard and asking techs to log labor every time they sneeze but I suspect that’s not always obvious until you gain some experience(e.g. we don’t collect labor for jobs of qty 10 or less).

in the years prior to 1999 (Before Epicor), I worked for a company that did “Actual Cost” and full Lot tracking. We gathered EVERY piece of labor for each job. No Backflushing… 100% data collection. We could account for ever minute of every person’s day.
That said, I have a love/hate relationship with such tracking:

  1. Love that you can go back and find out who did what, and when they did it.
  2. Hate that the volume of data is so huge, you must collapse it down to see any value from the data.
    With any collection system, you will have outliers. We did analysis of the outliers, and found that
  • some of those were simply reporting errors…
  • Some were due to quality of material and/or previous operations
  • some were due to lot sizing.
  • but the strange ones were when some FAST employees would help out Slower employees so that they would Help Their Friends “make standard”… (we had an incentive system).

Over the years, i have come to the realization that setting good STANDARDS and having Shop Supervisors know their people is sometimes better. I have observed many companies setup a simple standard and then use backflushing. No, you cannot find out which jobs are bad this way… but the supervisor can look at the standard and watch to see if it is correct. Also, you can compare the Standard “earned” hours to the Payroll hours. If manufacturing has higher than 80% utilization, then maybe the standards are too low.
Standards can be set during the first builds of a part, and then continually monitored.
If you DO choose to use Actual time collected, you can also compare the “earned” hours (based on Operation Standard) to the actual… but you should probably set an acceptable variance amount that you will allow before studying the time difference.Otherwise, you can spend so much money studying why you were inefficient, you loose all the profits.

One division of the company I worked for didn’t do ANY labor collection, No backflushing, Nothing… I asked them: “How do you know how much labor is in the product”… they answered: “We don’t know specifically, but we do know that “on average” we finish 20,000 parts per day. If one day, it drop to 15,000, we investigate.”
Their tactic was to use SPC to control their labor costs… only worry when the totals changed.

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@timshuwy thanks for sharing your experiences! We do not want to go as far as you describe :slight_smile: If there is a scale of how diligent a business is in tracking labor we’re on the other end of the spectrum / scale as compared to what you describe :slight_smile:

We’re a low volume high mix aka job shop type operation. We don’t have accurate labor standards. Our techs should be entering direct labor(all jobs > qty 10) but the data shows this rarely happens(huge discrepancies between payroll and direct labor). The thought was if we give them feedback at the end of the day of direct labor hours when they clock out and ask them to review and report problems we should start to get accurate direct labor(weekly reports showing % discrepancy between direct labor and payroll hrs). Assuming % discrepancy converges(I don’t know 80%?) then we could assume we were getting accurate direct labor. Give it some time(significant sample size) for us to build up accurate direct labor for parts then use that direct labor(average throwing out outliers?) to define labor standards. Once we have labor standards use that for planning purposes. We have no plans to do away with backflushing, and we want to keep things efficient but our hope is we can be both efficient and have pretty accurate labor to help us plan ahead.

Any feedback / suggestions based on what we are thinking/planning for someone who is attacking this for the first time?

OK, then the “normal” procedure I would suggest (as one option)…

  1. set system so that all labor must be APPROVED before posting.
  2. create BOMs that are as accurate as possible.
  3. daily entry of labor.
  4. End of day, run the “Labor Edit Report”, This can be done by department if you like. Distribute to staff for their review.
  5. ADJUST the labor in Labor time (and quantity) in Time& Expense Entry as needed.
  6. Mark the records as Approved.

Note that the Labor Edit report shows the number of hours charged… if you are backflushing, this will show earned hours. You may want to look at the LaborDtl table, and write your own BAQ/Dashboard to better show how the number of hours earned matches (or doesnt match) the time spent.