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12/13/2017 6 Ways to Reduce Labor Costs in Manufacturing

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6 Ways to Reduce Labor Costs in Manufacturing


Posted by Steven Brand on Jun 5, 2017 12:39:07 PM

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Labor costs are likely the largest line item


on your company balance sheet.
Therefore, a successful cost reduction
strategy must adequately balance
resourcing and cost controls.

While laying off part of the workforce


may seem like the quickest and easiest
solution to reducing labor costs in
manufacturing, it may not be the best way
to resolve the issue. The cost of nding
and training new employees is extremely
highso it makes more nancial sense to
hold on to your employees and keep them
happy.

But this begs the question, "is there a way


of reducing labor costs in manufacturing without laying off the workforce?"

Luckily, there are several. Here are six methods for reducing labor costs in manufacturing:

1. Cost Reduction by Design


Product development drives around 80 percent of the product's cost. Of that cost, the concept
and program architecture drive about 60 percent. Therefore, manufacturers can save a
signi cant amount of money on parts, materials, quality and labor by considering cost
reduction during the design phase of the product.
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12/13/2017 6 Ways to Reduce Labor Costs in Manufacturing

Several of the most important considerations include:

Design for Manufacturability. This involves considering manufacturing issues - such as


raw material selection, secondary processes, dimensional requirements, and even the
nal packaging -at the concept stage to reduce material, overhead, and labor costs.
Design for Lean.Lean design is ideal for companies that have high product values tied to
labor costs. Manufacturers can consider factors such asdesign simpli cation, design for
assembly, and standardizing processes to reduce direct labor costs.
Design for Quality.Thisassures high quality and reliability within the products to
eliminate rework, which increases labor costs per unit.

2. Eliminate Overscheduling
Overscheduling is a considerable source of labor costs in any operation. When management
has access to imperfect information about the production demands, their scheduling is just a
"best guess." However, using predictive scheduling software based on sophisticated
algorithms, you can optimize your employee scheduling efforts.

With this software, managers are able to look ahead at the incoming production demand and
make the scheduling decisions from that data. This ensures the business is adequately staffed
to meet the demand and eliminates excessive/unnecessary labor hours.

3. Lean Production
Lean production eliminates non-value added processes within manufacturing. When
implemented ef ciently, lean production doubles the labor productivity, reduces inventory
and cuts production throughput times signi cantly. Essentially, with a more ef cient
production process, employees are able to produce more unitsthus lowering your labor cost
per unit.

In addition to eliminating non-value added processes, lean production also helps eliminate
bottlenecks within the typical production line. Bottlenecks will reduce output and cause the
productivity of some line workers to decrease signi cantly.

Download our Lean Manufacturing ebook to


learn more about the bene ts of Lean

4. Standardization
Process and part standardization can result in economies of scale and automation. With
automation, there are fewer employees on the assembly line and the equipment manages the
assembly. Bene ts of this option include more consistent quality, quicker output and
signi cant savings on labor costs.

Leveraging factory automation, manufacturers can produce around-the-clock without paying


for bene ts, hourly wages, sick days, etc. If you decide not to automate but still implement
standardization best practices, bene ts such as higher production output and reduced labor
costs can be realized.

5. Technology Implementation

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12/13/2017 6 Ways to Reduce Labor Costs in Manufacturing

Furthermore, with technological advances that aid in automation, there are some jobs where
machines can do the work of a human more ef ciently and effectively. Systems such as
automated inspection, automated picking of componentsfor assembly and automated
assembly will all aid in reducing labor costs in manufacturing.

With the occasional bit of preventative maintenance for the machines and maybe a few
operators and mechanics to monitor the equipment, you can have an automated process
which eliminates the full cost of some humans on the manufacturing line with similar or better
output. With countries like China, Indonesia and other low-wage locations offering
competitive labor rates, many companies are modernizing their equipment to keep jobs
domestic in order to compete with the low-wage countries.

6. Utilizing Part-Time Labor


By utilizing part-time labor, you are not paying for bene ts, 401K contributions, bonuses and
other perks that a full-time employee is receiving. Many companies use on-call employees as
a method of reducing labor costs in manufacturing. The on-call system involves open
scheduling whereby employees can come to work when they need to make money. Employees
are trained on speci c jobs so they can contribute whenever work is available.

Labor costs are a signi cant portion of the budget for any new launch. However, there are
ways to streamline the process which aids in reducing labor costs in manufacturing. The
aforementioned six areas contribute to a solid production foundation which will help in
reducing labor costs in manufacturing.

Topics: Lean Manufacturing

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