A New Trend: Frontline Labor Management in Manufacturing

Submitted by: Kronos

Increased competition, a drive to reduce operating costs, and a trend toward streamlining plant operations, has required manufacturers to challenge and adapt the manner in which they do business. As companies respond to the pressures of a competitive global economy, new challenges in labor management have arisen that demand action to support and manage change. Manufacturers have attempted to respond to this demand by implementing Enterprise Resource Planning (ERP) systems. Those who have successfully implemented ERP solutions have realized significant returns on this investment.

The benefits of the implementations have typically not been realized in the production operations area, however. As manufacturers look to improve efficiency in the plant, they have increasingly realized that this is not the traditional realm of ERP. Instead the need for greater labor productivity has identified requirements unique to the needs of the frontline labor force. These needs can only be met through the development of integrated business applications that capture, process, and analyze frontline labor data.

ERP implementations have primarily focused on automating and integrating "back office" applications such as finance, sales order processing, and production planning. The result is a streamlined and integrated administrative, planning, and support operation. The systems have therefore tended to remain centralized corporate activities. In fact, a recent survey conducted by Industry Week and PricewaterhouseCoopers concludes that plant adoption and implementation of ERP is approximately half that of corporate operations, with only 13.2% of plants having implemented ERP. Let's examine what this implementation approach has meant for manufacturers.

The key implementation benefits have been in the areas of the company that "touch" customers. As a result, manufacturers are able to deliver levels of customer service, which greatly surpass their capability of just a few years ago. This has led to heightened customer expectations. In effect, we have "raised the bar" of what our customers expect of us. Manufacturers are pressed to deliver product within their lead-time, while at the same time providing finished products with greater variability based upon actual customer order configurations.

In addition, customers demand higher quality goods at a lower price. The back office systems enable the manufacturers to book sales orders and plan better, but the plants must find other tools to meet these customer expectations. The drive to be more responsive to customers has a direct impact on frontline managers. In response to customer demands, they must make quick changes in the deployment of labor resources. What is needed is an application that addresses the operational labor needs of the plant. This is the realm of frontline labor management.

Solutions for frontline labor management take an "employee-centric" view of the workplace, with a primary emphasis on managing the complete time and labor picture of the workforce. The need for this management, and the resulting benefits can be seen when you consider the example of Subaru-Isuzu Automotive (SIA). SIA is a joint venture between Fuji Heavy Industries and Isuzu Motors Ltd. of Japan. The Lafayette, Indiana based automaker manufactures Subaru's Legacy & Outback, the Honda Passport, and Isuzu's Rodeo & Amigo lines of sport utility vehicles. The challenge for SIA, the smallest of the United States based automakers, is to produce high-quality automobiles and, at the same time, reduce the cost-per-vehicle. Key to controlling costs is managing the time and labor of the people who make the cars.

In the past, SIA has taken a somewhat traditional approach to labor management — the automaker had used time and attendance for payroll purposes only. All labor tracking was done manually via paper and the information was then copied to a spreadsheet. This method was sometimes inaccurate and frequently did not match payroll. In addition, a time and attendance approach alone did not provide sufficient information to truly control labor costs. SIA embarked on an implementation based on more than just time and attendance — it required a system that provided multiple options for collecting data; allowed for pre-scheduling attendance; managing costs through labor distribution; and provided direct and indirect labor charge-back to suppliers. Looking at solutions that were based around the employee facilitated this approach. By moving beyond time and attendance, SIA has been able to consider not only how many hours employees work, but also what SIA works on and how efficient it is. This allows the focus to be on managing labor costs and improving productivity by providing a full cost picture.

Focusing on a system designed for frontline labor management allowed SIA to streamline its processes and remove non-value added labor tracking. SIA has moved to a model where attendance is tracked on an exception basis rather than the conventional clocking-in-and-out model. Group leaders (the company's designation for first-line supervisors) pre-assign each associate to a schedule. At the beginning of a shift, associates check-in via a 'team meeting'. Only exceptions to the original schedules (e.g., absences, tardiness, early leaves, overtime, etc.) are then recorded via a supervisor's PC terminal. The system makes the supervisors more accountable for 'their' employees. Supervisors have to be on the line when their associates show up for their shift. For all practical purposes, they are the ones responsible for ensuring their associates will get paid and get paid correctly.

SIA fully leverages this team-based approach to frontline labor management. The team orientation serves as an effective tool to improve quality since the individual's performance reflects on and impacts the entire team. The team orientation supercedes the more typical "workers in a department" mentality and is essential for improving production efficiency. Equipped with the appropriate tools, group leaders are able to manage their people and be accountable for them. By moving to a team orientation, Subaru-Isuzu is able to eliminate superfluous and unnecessary labor reporting. The focus is instead placed on tracking only the "value add" labor activities.

The frontline labor management approach allows SIA to better manage the labor force. SIA knows where people are and why they are there Additionally, SIA is able to match employees' time spent on particular tasks to what they're paid — plus, based on efficient schedule creation and real time feedback, SIA knows this information ahead of time. One immediate benefit SIA has realized from this approach is that it is able to track the amount of labor expended on correcting faulty parts from suppliers for charge back purposes. Not only does this result in cost savings, but it also serves to raise the suppliers' quality awareness.

The approach taken in a frontline labor management implementation differs from an ERP approach. The employee-centric viewpoint looks at shop floor operations from the worker's perspective as he or she works throughout the day. Traditional activities such as time accumulation and attendance tracking for payroll purposes must be performed. However, frontline labor management also facilitates the interaction with supervisors as available leave is accrued and leave requests are processed. These become the basis for integration with payroll and human resources applications. While there are efficiencies and savings that are realized by this integration, the real operational improvements come when the labor data is used to drive productivity improvements.

Labor decision support tools provide the supervisors with the visibility to make real time labor decisions. Numerous factors can arise which require immediate supervisor intervention including absence, material shortage, machine downtime, and unfavorable production variances. When these factors threaten attainment of the production schedule, referring to an ERP generated dispatch list is not adequate! Subaru-Isuzu relies on the frontline labor management application to provide accurate and timely information to manage labor resources most effectively. Relevant information is then made available to other systems as needed. ERP applications allow a manufacturer to create a plan based upon standards and reasonable assumptions. Frontline labor management tools help manufacturers more effectively execute the plan given the dynamic nature of the shop floor.

Frontline labor management tools complement an ERP implementation by providing labor specific information while working within the ERP "backbone." ERP planning applications generate schedules and become the repositories of supporting data such as cost and engineering information. Labor specific applications add additional dimensions such as labor assignment and scheduling. Schedules can be combined with employee skill information to assure that only qualified employees are assigned to specific tasks. This enhances both safety and regulatory compliance.

As work is performed throughout the day, automated data collection devices can be used to capture real time production feedback. This is a key component of up to the minute WIP tracking. The specialized nature of the frontline orientation allows both direct and indirect labor hours to be compared and reconciled with payroll hours. By placing this capability directly in the supervisors' hands, discrepancies are corrected immediately. By implementing this approach, Subaru-Isuzu has been able to compel group leaders to review their associates' time on a daily basis rather than just at the end of each bi-weekly pay period as they had done in the past. This has significantly reduced the payroll error rate, and reports are current and timely.

This real time collection and reconciliation of employee production information allows labor data to be handled much the same as machine information is collected in a Manufacturing Execution System (MES). This "labor-centric MES" approach allows a manufacturer to gain an accurate handle on the complete labor picture. By arming frontline managers with immediate feedback on how work being done compares to standards they can affect the outcome. By giving them the tools to deploy their workforce optimally, they can better manage their labor costs and deliver quality products and service. The information is then made available to the planning application so that operational improvements can be realized over time.

Manufacturers today have access to unprecedented amounts of information in order to make better business decisions. This information has been leveraged in ERP back office applications to capture market share and keep pace with increasing customer demands. The advent of advanced planning and scheduling capability allows manufacturers to generate near optimal schedules in order to meet customer commitments. The next challenge for manufacturers is to align the execution systems with the back office applications. It is not adequate to "keep score" as to the reasons a well conceived plan was not executed. Instead, progressive manufacturers are looking to frontline labor management tools and practices in order to assure compliance with customer expectations and commitments. This new trend holds great promise as manufacturers seek to become more competitive through greater operational efficiencies.

Paul Hoy and John Wallace