• Roy Strauss

Supply Chain Profitability – Labor Productivity Standards

What They Are

Labor standards involve the use of objectively derived metrics of job performance to evaluate the efficiency of operations. These standards are to represent work being performed using best practice under normal operating conditions over the length of time the work will be performed for a work shift.

Why They Are Needed

Business managers use labor standards to assist with a variety of applications in virtually any type of working environment. These applications include estimating labor requirements, scheduling jobs among operators, providing measures of productivity, evaluating alternative operations or alternative methods of performing manufacturing and/or warehousing tasks, improving warehouse and/or manufacturing operations, budgeting labor costs, and providing values for simulation analysis.

The Process Steps

The first step in the development of labor standards is to define the functions to be studied and the cycle time in which these functions occur. The cycle is a finite period with distinct start and end times within which a series of motion elements are performed.

The second step is to break down the function into simple, definable elements, which are typically groups of basic motions that are long enough to be conveniently timed (such as stocking a shelf or unloading a pallet from a truck).

The next step is to determine the time standard for each element of the function, using actual stopwatch timing.

This is followed by determining the frequencies of occurrences for each element in the operation. These frequencies are largely dependent upon the volume flowing through the operation.

Finally, unanticipated delay must be factored in. This allowance factor accounts for the percentage of time that the operator is unable to continue at a normal pace because of personal reasons, such as fatigue, restroom or other breaks, and other delays. By identifying and defining these parameters, an accurate and reliable measurement can be obtained and customized to the specific environment.

Developing the labor standards for a particular operation or series of operations is typically just a portion of the requirement for resolving an overall operational issue.

The following are a series of applications in which labor standards can be crucial:

> Estimating Labor Requirements – The developed time standards can be applied to each job function in an operation. Once established, each standard has to be multiplied by the average volume for each function. Dividing this number by the available working hours will determine the amount of labor and therefore staff required.

> Scheduling Jobs and the Workforce – Determining time standards for each operation will also help in scheduling jobs and allocating the workforce. Knowing the how long it takes to perform all operations, the manager can allocate workers in advance to utilize them better and to reduce idle worker time.

> Providing Measures of Productivity – The performance index, one of many measures of productivity, bases its calculation on time standards. The number of pieces or jobs that the worker finishes daily is multiplied by the standard time to finish a piece or job. The performance index is the ratio of the total standard time to the actual number of available labor hours.

* Pieces Finished X Standard Time/Piece

* Performance Index = Available Labor Hours

> Evaluating Alternative Operations – Another effective application for labor standards is the evaluation of alternative methods of performing warehouse tasks. An example would be picking orders to carts vs. picking to a takeaway conveyor system. Standards can be developed for each potential operation to determine the labor required and compare that cost to the cost of installation and maintenance of the conveyor system. Another example would be comparing the potential productivity to be gained by using a paperless picking system with bar code scanning vs. a conventional paper-based system.

> Improving Warehouse/Production Operations– With an element-by-element breakdown of a task, establishing time standards requires the analyst to scrutinize any task and perform a methods study. Obstacles to productivity can then be determined. Labor standards for alternative processes, equipment and/or information systems upgrades can be evaluated to determine the benefit of the improvement. Best practice for all jobs can also be determined and used to train the team.

> Providing Values for Simulation Analysis – Statistical distributions of different parameters, such as arrival rates of trucks, profiles of orders, picking times, etc., provide the data to run simulations. To approximate reality, labor time standards of basic elements are used to provide the time value input into the simulation.

> Creating future budgets. Labor costs are essential to budgeting. Therefore, the labor productivity standards x rate per labor hour x number of workers x the time period will produce the cost of labor for the budget period.


By implementing labor standards, a company will be able to plan better, improve efficiency, reduce costs, and very often outperform the competition.