Continuing my new blog series about some of the oxymorons imbedded in the “traditional” manufacturing world …
Just to remind you: an oxymoron is a figure of speech that combines contradictory terms. We hear these all the time in common speech, things like “exact estimate” or “deafening silence” or “definite maybe.”
Today’s example: Labor Efficiency
Here is one definition of Labor Efficiency from the internet:
Labor efficiency is a measure of how efficiently a given workforce accomplishes a task, when compared to the standard in that industry or setting. There are several different ways to measure labor efficiency, depending on the type of products and services being produced, and the end goal. Companies periodically assess efficiency along with other characteristics to identify weak points in the labor force and determine where they have room for improvement, with the goal of improving the overall quality of goods and services while keeping costs down.
One typical way to look at Labor Efficiency is to compare the time actually required to produce a given product or service with a “standard” or “usual” time required. If the workforce is producing products and services faster than the usual rate, it is operating with high efficiency. The thinking is that production time, and costs, are both being reduced. So far so good.
The definition of the standard time is usually subject to an interpretive definition. Who defines the standard time and exactly what is included in the standard work time? Here are a few examples:
- Is set up (or change over) time included in the standard time?
- Is the time producing scrap included in standard time if the yield rate is known?
Time studies are usually done to define the standard time, but as the above examples show, the definition of “work time” can be different.
When calculating Labor Efficiency, it’s typical to include what Lean people would consider waste (change overs, scrap) in the definition of work time because if change overs are “good” or scrap is less, then the Labor Efficiency variance will be positive.
But there are 2 things that are inefficient about using Labor Efficiency as a performance measure.
First, it takes a long time to get the information and it’s usually difficult to ascertain exactly why the variance was positive or negative. Labor Efficiency is usually reported monthly or possibly weekly at some aggregate level (department or whole plant). This level of reporting makes it very almost impossible to understand what really happened.
Second is the myth that Labor Efficiency somehow is an indicator of costs increasing or decreasing. If a manufacturing department has 5 people in it, and today they work one shift and are 50 % efficient and tomorrow work one shift and are 50% inefficient, the salaries paid each day are the same.
Lean companies want something entirely different from their people. I heard Jeff Liker speak a few months ago and he summarized it quite well. He put it this way: a lean company considers its people an appreciating asset and wants its people at all levels to do the following:
- Understand the needs of the customer
- Solve problems
- Make improvements
This means people need the right performance measures to identify and solve problems. It’s not helpful for a Lean company to look back and know that last month Operations created an unfavorable Labor Efficiency variance. The Lean company wants to know the exact reasons why there were problems with change over, scrap, rework and downtime.
Finding problems creates opportunity. Daily and weekly lean measures of quality, flow, delivery, lead time and productivity will focus a workforce on understanding the needs of the customer, because any problem in any of these areas prevents them from meeting customer needs. And the frequency and timeliness of reporting make it easier to identify the root causes of problems, which makes it simpler to solve problems.
So here’s the oxymoron: you become “efficient” by eliminating Labor Efficiency as a performance measure and implementing Lean Performance Measures.