Are you fully benefiting from your investment in Engineered Labor Standards?

For many people, Engineered Labor Standards ("ELS") are synonymous to workforce management. It is true that ELS is the cornerstone of workforce management but it is much more than this. In the late 1990s I was asked to contribute to the latest edition of the Maynard's Industrial Engineering Handbook by writing an article on the purpose and justification of engineered labor standards. The fundamental reason for developing engineered labor standards is to have a scientific understanding of "How much time should it take for a qualified person to accomplish a specific task at a normal pace of work". By replacing guessing, historical data, negotiated times and other unreliable methods with a scientific approach, companies can have a reliable means to establish the time for any given operation.

Therefore, any business function that relies on time would greatly benefit from a more accurate measurement of time. From this perspective, engineered labor standards should be considered more as an information system that provide a key component to many key managerial decisions. In essence, if time is a variable that you need to understand, you will benefit from the accuracy of the data provided by engineered labor standards. This article will present an overview of important functions that will benefit from the use of engineered labor standards.

Workforce management

As previously mentioned, it is to the point that many confused "workforce management" and "engineered labor standards" as being the same. It is well established that engineered labor standards provide credibility to any workforce management initiative. This credibility is directly linked to using an engineering based approach to develop the times that are used to hold associates accountable and that those times can be verified independently to assess both accuracy and fairness. Workforce management will only succeed when a company is capable of demonstrating to the associates -- and their union in an unionized environment -- that the performance measurement is fair.

The majority of engineered labor standards implementations are linked to workforce management initiatives, and can be financially justified on this sole purpose. That does not mean that the investment made in the development of the ELS should be limited to the original initiative. Once a company has the ELS in place, the smart thing to do is to leverage those ELS into improving or excelling at other management functions.

Process improvement

Through the years, process improvement has become a business in its own. Today, every organization is involved in some kind of process improvement, whether it be continuous process improvement, lean, six sigma, etc. But how do you measure the success of such initiatives? Is it as simple as comparing where you were prior to the initiative versus today? Or, should we be concerned with where should we be and how does this improvement impact the company's bottom line?

To maximize the impact of process improvement initiatives you first must be able to assess the new level of productivity attributable to the initiative. You also need to ensure that the associate will be achieving these new levels of productivity. Too often we have witnessed technically successful improvements that resulted in very limited financial success due to a lack of measurement of the potential associated to the improved process. In other words, the improvements just don't materialize into savings.

If engineered labor standards are used as part of the process improvement, not only will it contribute to enhancing the actual process but they will set the new level of productivity that is associated and expected from the new process.

Incentive compensation

At the core of most incentive compensation program is productivity level of associates. The productivity component of the program should be the first step to establish the base level that determines when an incentive payment will be available to a particular associate. This threshold has to be accurately calculated and this can only be done with engineered labor standards.

Unfortunately, it is common to see incentive programs where the base productivity level was essentially guessed, or based on a simple performance increase over current levels reported. This typically results in programs that create a level of incentive payment that is way beyond what is financially acceptable. When this happens, it can be very tricky to back out of the program without making other concessions that will undoubtedly negatively affect the financial performance of the company.

ROI justification

Any project that is justified through a reduction in labor hours should use engineered labor standards to calculate the savings. The saved labor hours should compare the difference between the current process and the considered process. Both data sets should consider the hours to achieve 100% productivity as measured by the ELS.

Engineered labor standards will remove any emotional reaction that often skews judgement when people consider alternatives that "look cool". As part of the justification process, budget should be set to investigate the real potential savings by developing ELS for the new process. In fact, one specific work measurement technique, referred to as Predetermined Motion Time System ("PMTS"), offers the advantage of being capable of developing ELS based on the layout of a work environment and the methods that will be used. In this case investing in engineered labor standards up front will improve your decision process as well as giving you a head start on implementing ELS on your new process.

Resource planning

Planning resources adequately is key to operating efficiently as well as providing a high service level to customers. To effectively plan, the amount of work hours required to execute a certain activity must be carefully calculated. Well designed ELS will provide all the information required to create a resource plan that will meet labor demands. This becomes even more important in environments where the demand or the product mix is constantly fluctuating. For example, high mix / low volume manufacturing environments can greatly benefit from the accuracy offered by engineered labor standards in scheduling work. The same holds true for most retail oriented distribution, such as food distribution centers that see major daily differences in order profiles as well as outbound shipping volumes.

In the absence of good planning, customer service levels will undoubtedly suffer from incomplete and/or late orders. Poor resource planning will also impact profitability in different ways. Overtime may be required to complete the work, which means higher wage rates will be incurred. Penalties may be levied by customers for late or short/incomplete deliveries. In the long term, this can result in losing customers due to poor service or associates leaving from being overworked through constant overtime.

Simulation

Simulation can be a powerful tool, but only if the correct inputs are provided. The simulation software available today offers so much more possibilities than those used years ago. Unfortunately, the same can't be said for the quality of the time related data that is gathered to run the simulation models. Most young engineers graduate with the skills to use at least one of many simulation software packages, while at the same time very few are familiar with work measurement. As a result you can look at impressive simulation models that have no real value given the poor quality of the data.

Final thoughts

By understanding how important time related data is to so many management functions, we can appreciate why investing in engineered labor standards is not only limited to workforce management; it will lead to improved results in many other critical functions. Look for future posts discussing in more detail how engineered labor standards will improve your ability to excel in each of the business functions described in this post.