WHITE PAPER. Improve profitability with real-time tracking of true labor costs

Transcription

1 WHITE PAPER Improve profitability with real-time tracking of true labor costs

2 Executive summary Without true labor costs, you have no visibility into the real cost of your products. How much time does a task really take? Where are your front-line employees spending their time during the workday? Are workers executing tasks that aren t visible time that should be rolled into the cost of your product? Are workers spending non-billable time on tasks that could be eliminated, improving the overall utilization of your workforce? To answer these questions, many manufacturers have spent tens of millions of dollars on ERP systems to obtain true labor costs yet today, most companies still utilize standard cost estimates to price products and invoice customers. Only actual labor costs can ensure that your pricing and billing is as accurate and profitable as possible. That elusive information is now easily within reach by more fully leveraging technology you already have in place your existing time and attendance (T&A) and your Enterprise Resource Planning (ERP) systems. In the following pages of this white paper, you will learn how mobility can be wrapped around your T&A and ERP systems to provide a single set of actual labor data for your payroll and production systems, at long last delivering on a reconciled single truth. The result? A truly lean operation and maximum profitability.

3 For the first time ever, we were able to reconcile production hours with product costing and payroll. Angela Mallory, Controller of Helena Industries comments on the mobilization of their labor management system The issue: inaccurate labor costing In manufacturing, one of the largest variable components in the cost of your products is labor. Labor costs can have a major impact on how you price your products and invoice your customers, ultimately impacting your sales and profitability. Detailed information about time on task and production efficiencies can also help you better manage your workforce. But tracking tasks and the associated actual labor costs can be a very complex, time-consuming and costly effort. As a result, many manufacturers make do with standard cost estimates instead of actual costs, making accurate product pricing a challenge, if not impossible. In fact, in a recent IndustryWeek poll, 75 percent of manufacturers surveyed acknowledged that standard costs do not reflect actual labor costs.* Despite how much is riding on labor costs, many manufacturers manage pricing and the production workforce based on this set of estimated time and costs, without any real knowledge of how close those standard numbers really are to true labor costs. Labor costs affect many other areas of the business, amplifying the impact of data inaccuracies on the financial health of the business. Marketing needs accurate costing data to support the development of pricing that is competitive as well as profitable. Sales needs insight into product margins to ensure that aggressive pricing in competitive bidding situations still yields ample margins. If costs are not accurate, engineering cannot make the best business decisions in the product design phase or search for changes that could enable more cost-effective production. Estimators need accurate costing data to ensure sufficient margins on bids. Accounting needs timely and accurate costing data to issue prompt invoices to generate cash flow. The Finance and Human Resource departments need to reconcile payroll hours with production costs. The manual capture and re-keying of data from paper timesheets adds overhead and expands the opportunity for errors which can translate into inaccuracies in your labor costing that again impact margins and profitability. Moreover, unresolved variances between payroll hours and production leave everyone guessing about production efficiencies and true costs. And finally, the overall financial management of the business is hindered: since actual costs are never really known, senior management cannot pinpoint or create plans to address inefficiencies in the manufacturing process that are dragging down profitability. The common practice of using generalized standards instead of actual labor costing information leaves manufacturers to grapple with a number of challenges: Reconciling payroll and production: Time and Attendance (T&A) and Enterprise Resource Planning (ERP) The inability to integrate time and attendance and payroll with ERP systems forces the maintenance of two disparate silos of information. Significant time and expense is associated with the duplication of effort to capture data for these systems. There is also no way to easily reconcile the two systems, and neither system on its own is equipped to track time on task by employee or by work team either for a specific work order or a specific task. Your T&A system, which primarily enables the capture of employee arrival and departure times, may show that an employee worked 40 hours. But a second set of costing and tracking numbers entered in your ERP system may only show 30 hours as the labor estimate. The manufacturer is left without the ability to determine how those additional 10 hours were spent and management is left to wonder what costs were not captured, where charges may be inaccurate, and whether profit margins may actually be smaller than they appear. * IndustryWeek poll, conducted during a webcast hosted by IndustryWeek; Webinar title: Mobile Labor Tracking: Capture & Control Labor Information to Drive Efficiency and Accuracy Across Operations; Webcast date: 9/13/07; Webcast archive: ( 1 WHITE PAPER: Improve profitability with real-time tracking of true labor costs

4 Inaccurate labor variances Labor variance is the difference in labor costing reported by the ERP and T&A systems. While the goal of today s manufacturers is to keep labor variances under five percent, the reality is generally 20 to 30 percent or higher. This variance can be the result of many factors. For example, the ERP system may be utilizing standard costing, which states that a specific product takes five hours to manufacture. But the plant manager may be aware that newly implemented lean initiatives have reduced that time to three hours. In this situation, the company s profit margins are actually higher, but not visible. Without a single truth one consistent set of numbers driving both payroll and labor costing product may be priced higher than necessary, impacting competitive positioning. And sales will not realize they have leeway to lower pricing to win an order. Controlling labor variances is even more challenging in dynamic manufacturing environments, where the collection of data is more complex: all day long, employees move between jobs and manufacturing lines, working on different products and different tasks. In addition, there may be tasks that workers are executing that are not captured, creating the opposite scenario estimated labor costs are too low, reducing margins and profitability. Both situations are detrimental to the business yet impossible to correct without an efficient method to track and monitor actual labor costs. Guesstimate pricing models Standard costing is really a best guess at labor costing these numbers are often inaccurate, incomplete or out of date. Accurate job costing requires the capture of all tasks associated with a specific product or job, including direct and indirect labor in setup, production and customer service. And inaccuracies in the collection of time allocated to machinery and the use of materials can result in the inability to properly pass those charges through to the customer, reducing company profitability. Reduced operational efficiencies The traditional methods used to collect labor costing information can significantly reduce efficiencies throughout the enterprise, affecting manufacturing line workers as well as plant managers and administrators. Time consuming manual business processes silently erode worker effectiveness. For example, workers on the production line are forced to either spend time completing paper timesheets or traveling to and from a wired time clock or PC workstation to punch in and out, while many plant managers attempt to manually compile labor costs to improve job costing accuracy and workforce utilization. The use of spreadsheets and paper and pen is very costly to the company managers can and often do spend as much as one full day per week on these calculations, using valuable time on this duplication of effort. And finally, there is all the time and cost associated with administrators in payroll entering and processing paper-based time sheets, as well as the inevitable errors inherent in the double-touch of data due to mistakes in keying or the transcription of handwritten information. Under-utilization of the workforce: you can t manage what you can t measure A highly efficient workforce is a key component in lean manufacturing initiatives. But when standard labor costs are utilized and no real-time, real-world data is available, companies cannot see where the workforce is efficient and where efficiency can be improved. Basically, you can t manage what you can t measure and you can t measure what you can t track. So the inability to track time-totask ultimately inhibits maximum utilization of the workforce. Unproductive activities remain hidden from sight managers don t have the information needed to understand where wasted time exists, and therefore cannot create an action plan to remove it. Lack of visibility into real-time labor metrics can lead to: Overstaffing and understaffing of production lines, leading to unnecessary labor costs, reduced manufacturing throughput, and the increased maintenance and administrative costs associated with a larger workforce ultimately increasing overhead costs that can further threaten profitability Reduced profitability due to the lag time between when labor is completed and when labor time and costs are finally available often well after product has been produced, too late for managers to re-allocate workers as needed to minimize overtime to protect margin and profit Inability to compare the performance of teams or individuals, hindering the creation of incentive programs to drive continuous improvement into the workforce 2 WHITE PAPER: Improve profitability with real-time tracking of true labor costs

5 A recent AMR study of current usage and planned adoption of mobile technologies in manufacturing and supply chain operations revealed that plant labor and asset productivity is driving today s mobile investments. The next wave will include mobile applications for tracking costs, compliance and manufacturing performance. amr Research; AMR Study: Manufacturers Invest in Mobility; Chris Fletcher and Colin Masson; 12/20/07 The solution: mobilize your existing labor management system So why don t more of today s manufacturers track labor in real time? One reason is the assumption that such a system would be very costly, would take a long time to implement or that it would be highly disruptive to the business. However, virtually every manufacturer already has the foundation in place today to support real-time labor tracking: their existing Time & Attendance and ERP systems. While these back-end systems are capable of granular tracking of labor activities, most manufacturers are only utilizing the T&A system to collect attendance information. Wired T&A systems require employees to travel to and from a time clock or desktop computer to enter data on individual tasks a process that is very time consuming and disruptive for workers on the production line. Paper-based T&A solutions require redundant work processes which are time consuming and error prone: workers first collect the data via paper and pen on a time sheet, which is then entered into the computer. But mobility enables manufactures to fully leverage the hidden functionality of your existing T&A system. Mobility effectively untethers the T&A system, allowing its extension to the point of activity. Using a handheld mobile computer or laptop, line supervisors and line workers can capture and transmit the information required to reveal the real cost of your labor in real time right from the shop floor, as it happens. By leveraging mobility, enterprises can build on existing technology investments to create an accurate real-time labor costing system. The functionality of the existing T&A system is expanded. Instead of collecting only the time an employee arrives and leaves the facility, the system collects detailed labor costing data for individual employees as well as teams, including time on task, indirect hours and quantities produced. In addition, a solution at the point of activity can also track other information related to costing activities for the ERP system, such as materials consumed, equipment utilization and inventory. This single set of labor costing information is utilized to populate both the T&A and ERP systems, effectively integrating these two long-disparate systems and enabling reconciliation of payroll and production hours at long last delivering on the elusive search for the single truth. In addition, mobile labor tracking solutions are extremely flexible and able to integrate easily with your existing or desired workflow. The solution can be deployed for each employee, or for line leads and supervisors, regardless of whether they are on the production floor, out in the yard or even at a customer site. When workers have access to a simple-to-use application on a mobile computer, you can automate and error-proof the collection of the exact amount of time spent on any given task. Well-designed front-line applications do much more than attempt to squeeze a browser window onto a mobile device. Developed to meet the requirements of the mobile device as well as the data collection requirements of the business, these applications combine available device functionality and best-inclass application automation practices, providing workers with easy-to-navigate screens and menus; pre-populated dropdown lists of valid values; bar code scanning of work orders and other paperwork as well as employee badges; and the ability to scan an RFID tag on equipment and materials. The result? Accurate labor costing information is collected easily, cost-effectively and with little opportunity for error with all information available in real time. Angela Mallory, Controller of Helena Industries comments on the mobilization of their labor management system: For the first time ever, we were able to reconcile production hours with product costing and payroll. 3 WHITE PAPER: Improve profitability with real-time tracking of true labor costs

6 Real-time real labor costing information can provide benefits throughout the enterprise: on the manufacturing floor: With shop floor labor tracking, we can reconcile production hours into product costing and payroll and have total accountability of labor dollars. in the warehouse: Now we can track labor accurately in the DC what each team is doing, for how long, with what results without all the hassles. in field service: in facility services: Our maintenance and service personnel are more productive they always know what to do next, and we always know what they did so we can bill our customers accurately. on location at job sites: This mobile solution gives us an efficient way to track and manage labor, materials and project costs for our crews at job sites without guesswork or delays. We can track labor and job costs in the field, automate on-site inspections, and manage work orders in real time. Affordable and easy to deploy with a rapid return on investment (ROI) By building upon the T&A and ERP systems already in place, manufacturers are able to implement a real-time labor management system quickly and easily. The addition of a front-end application running online or offline on a mobile computer provides an anywhere anytime extension of these core business systems, effectively leveraging the value of existing technology investments. Instead of a multimillion dollar solution that takes years to implement, employees can be up and running in as little as a handful of weeks, with minimal or no changes required to payroll, T&A or ERP systems. The increases in accountability and productivity typically deliver a full return on investment in less than 12 months. And the ROI is further improved if there is an existing mobility infrastructure that can be leveraged, such as mobile computing devices handhelds or laptops and a wireless network. Benefits The resulting real-time labor management system enables collection of accurate labor costing data throughout the enterprise from workers on the plant floor, in the yard, warehouse and distribution center as well as service technicians performing installation and maintenance on site at customer locations. Benefits include: Increased job costing accuracy With mobility, you can now track detailed labor and other associated expenses for each task and every work order, providing the accurate data needed to drive profitable and efficient operations. Improved productivity The elimination of paper forms and the need to re-key data improves the productivity of workers and supervisors on the production line. The time savings can enable the re-deployment of administrative staff to more business critical tasks. In addition, managers no longer need to manually compile data in order to obtain a true picture of labor costs, delivering as much as a 20 percent gain in productivity time that is much better spent managing the workforce. Total accountability of labor hours Enterprises now have insight into labor accountability for every employee, every hour and every line with negligible variances. You now know how each employee is spending time on the job, with visibility into time spent on all billable tasks including time spent on activities that were previously invisible as well as non-billable activities such as time spent in safety meetings or assisting customers, and even idle time and downtime. In addition to full accountability, this detailed data enables the easy identification of where and how operational efficiency can be improved. 4 WHITE PAPER: Improve profitability with real-time tracking of true labor costs

7 The information we re now collecting is a key to success for a company whose margins are made on our ability to be efficient and increase productivity. Angela Mallory, Controller, Helena Industries Reduction in data errors The automated capture of data virtually eliminates data entry errors, protecting profitability by ensuring accurate pricing, invoicing and estimating. Workers can scan a bar code on a work order or select valid values from a pre-populated list, rather than manually handwrite the data. Data must be complete before it can be submitted no more chasing down missing information. And the electronic transactions can be fully audited, providing accountability and the information required to achieve regulatory compliance and reduce potential regulatory issues and fines. Improved payroll accuracy and compliance The automated collection of labor information improves accuracy, reduces the cost of the payroll process and can even reduce actual payroll costs. For example, the ability to track the time spent on tasks that are paid at different rates eliminates inadvertent overpayment. Reduced order-to-cash cycle Since information is now available in real time, the invoicing cycle time is compressed. Invoices are processed faster and with more detail, reducing the potential for billing disputes. The velocity of the payment cycle is accelerated, improving cash flow and the financial strength of the enterprise. Real-time job status The same data that provides accurate job costing also allows managers to view the real-time status of jobs in progress. Expeditors no longer need to scour the shop floor searching for orders the information is just a few keystrokes away. Refined costing management Mining the wealth of data that is collected can provide manufacturers with more refined cost management capabilities, increased insight, and the fuel for additional business analytics. For example, the data is available to monitor piece rate or incentive pay, track the efficiency of different production lines, and measure and compare the true costs of different products. Improved overall workforce management and utilization A new level of visibility into worker activities provides the information needed to control and maximize utilization of one of the largest and most variable business costs in manufacturing today the production line workforce. For example, plant managers may not realize that workers are spending ten percent of their time on non-billable activities such as customer service and set-up. Armed with that information, managers can take steps to re-engineer operations to reduce or eliminate non-billable activities. The real-time information also provides managers with the visibility required to avoid overtime and the resulting impact that overtime can have on general profitability as well as the profitability of a specific job. Finally, the real-time information allows managers to monitor productivity levels for individuals as well as teams. Areas for improvement become visible, enabling managers to develop and implement continuous improvement programs to help maximize workforce utilization. Summary By layering mobility on top of existing T&A and ERP systems, manufacturers can rapidly deploy a cost-effective mobile labor management system capable of delivering many operational, strategic and financial benefits: The ability to automate the collection of actual labor costs ensures the accuracy of the data and improves productivity by eliminating manual paper-and-pen based procedures. The ability to integrate and reconcile information in the T&A and ERP systems provides the long sought after single truth for labor costing a single set of reconciled labor hours. Visibility into actual labor costs protects and maximizes profitability and competitive positioning throughout engineering, pricing, estimating and billing activities. 5 WHITE PAPER: Improve profitability with real-time tracking of true labor costs

8 A more rapid order-to-cash cycle improves the overall solvency of the business. Historical and real-time analysis of workforce activities enables managers to improve general workforce utilization. The ability to detect and strip inefficiencies out of the workforce enables the manufacturing enterprise to increase its lean factor. For more information on how Motorola can provide a mobile window into your T&A and ERP systems for real-time labor costing visibility, please visit us on the web at For inquiries in North America, please call , or for international inquiries, access our global contact directory at About Motorola Motorola s rugged mobile computing products and wireless networking enables the automated collection of granular job costing information right at the actual point of activity. Motorola provides workers with a dependable real-time connection to T&A and ERP systems, eliminating the need for duplicate paper-and-pen based manual procedures to track and reconcile job costing data in these two core business systems. Motorola s end-to-end mobility solutions for manufacturers and more include: a comprehensive portfolio of rugged mobile devices designed for use in the demanding manufacturing environments, with extensive advanced data capture and wireless communications options; a portfolio of private wide area and local area wireless network infrastructure; a partner channel delivering best-in class applications; and a complete range of pre-and post-deployment services to help get and keep your mobile automation system solution running at peak performance every day of the year. As an industry leader, Motorola offers the proven expertise and technology you need to achieve maximum value and a fast return on investment as well as first hand experience in the application of lean manufacturing principles. In fact, Motorola was awarded the coveted Shingo Prize in 2003, in recognition for achieving world-class manufacturing status through the application of lean manufacturing principles. About Passport Passport Corporation provides software solutions and best practices for front-line workforce management. Passport s mobile applications for labor tracking, work order management and job costing enhance the productivity of employees and the accountability of operations. Solutions span both front-line and back-office capabilities, complementing and integrating with Time and Labor, ERP, Work Order and Financial systems. Passport s suite of applications automate information access and communication, data capture and validation, workflow and approvals at the point of activity. All Passport software operates intelligently online or offline, on a range of mobile devices, across any wired or wireless network, and supports GPS, bar code scanning, RFID and signature capture. Founded in 1990, Passport serves customers in manufacturing, distribution/logistics, equipment maintenance, facilities management, construction and energy. For more, please visit or call (800) motorola.com Part number WP-LABORMGMT. Printed in USA 04/08. MOTOROLA and the Stylized M Logo and SYMBOL and the SYMBOL Logo are registered in the US Patent & Trademark Office. All other product or service names are the property of their respective owners Motorola, Inc. All rights reserved. For system, product or services availability and specific information within your country, please contact your local Motorola office or Business Partner. Specifications are subject to change without notice.