How lean manufacturing makes labor more valuable

Last week I flew to Chicago to attend LeanFab Workshop & Tours, a continuous improvement event devoted to the metal fabrication business, organized by the Fabricators & Manufacturers Association International. Dick Kallage of Barrington, Ill.-based KDC & Associates (and monthly columnist for this magazine) led the two-day event, which entailed roundtable discussions and several shop tours.

One question asked last week continues to stick out in my mind: Why do manufacturers use labor cost reduction as a metric for improvement?

The question sounds odd because the metric is so common. As an industry, manufacturers are forever trying to “get the labor content out” of a part. The thinking goes that if you can produce the part with little or no labor costs, you can compete with China and the rest of the world.

That seems logical, but according to some at the event last week, there’s a fallacy in this logic, at least when it comes to using it as a core improvement metric. Consider the value-added time, when a part is being cut, deburred, bent, welded, ground and polished, powder coated, assembled, and packaged. Add all that time up, and you’ll probably find that all these value-added processes add up to a matter of a few days, hours, or even less. Nevertheless, it can take weeks for some jobs to make their way through the floor. That’s thanks to all the nonvalue-added time: searching for tools and parts, material handling, and queue time.

As Kallage and others discussed last week, when a shop looks to reduce labor costs, it may invest in automation and other machines that reduce the processing time. That reduces the value-added processing time even further, and perhaps some of the nonvalue-added material handling time, thanks to some material handling automation. But the investment doesn’t address the remaining nonvalue-added time, which in reality represents the majority of time it takes to process a job.

This has driven many machine tool manufactures to tackle quick changeover in bending and dynamic nesting in the blanking area, allowing for kit-based part flow. The evolution of metal fabrication technology points to an adage Kallage says at most of his seminars: “You’re not in the manufacturing business. You’re in the changeover business.”

When searching for improvement opportunities (Gemba walks, in lean parlance), Kallage said he has rarely seen a situation in which poor employee performance was actually a root cause of a problem—and almost all of those usually involved people with personal issues or drug problems. He instead traces most inefficiencies to areas unrelated to job performance.

Employees may spend a long time on setup not because they aren’t working hard, but because the shop environment makes it very difficult to do their jobs well. Tools or material may be missing, unlabeled, or unavailable. Material handlers may spend hours transporting large batches from this process to that rack, to another process, to another rack, and so on. A machine may sit idle because one operator called in sick—and there’s no one on the clock who knows how to run it. The result: Parts go missing, and welders sit idle until they receive all the parts they need to start their work. Employees upstream were just doing their jobs. They weren’t idle.

This is why Kallage and others focus not on labor costs, but on machine availability to produce jobs that are due immediately. The more time a machine sits idle as it waits for material, tools, or operators, the less productive the operation is.

At the same time, the more time that machine produces parts ahead of schedule, just to amortize a setup over more pieces—overproduction, in lean parlance—the less time that machine is available to produce parts that are needed immediately. This makes life for a material handler and other workers that much harder, because they have to lug huge batches of parts to the next process. Work-in-process mounts, parts get lost. That makes already lengthy nonvalue-added time grow even more. On-time delivery suffers, and customers get angry.

Focusing improvement on machine availability, changeover, 5S, and avoiding overproduction helps focus improvement away from the “getting labor out of the product” perception, and toward what really matters for people on the floor: Giving them the tools to make their jobs easier. No longer must they search for tools, lug huge batches to the next operation, or spend hours on a press brake setup. Overall manufacturing time decreases and capacity increases. This in turn reduces various costs, including (yes) labor.

As Kallage and others described it last week, labor cost reduction is a result of continuous improvement, not a cause. It’s not about getting rid of labor. To the contrary, continuous improvement is about making that labor more valuable.