# Chapter 4 Estimating and Reducing Labor Costs by hcj

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```									             Chapter 4
Estimating and Reducing Labor Costs
A Labor Intense Process (Novacruz Case)

Components                                           Finished Xootrs
Activity 1   Activity 2   Activity 3
13 minutes    11 minutes   8 minutes
Worker 1                        Worker 2                    Worker 3
Prepare cable 30                 Assemble brake lever 110 Inspect & wipe off 95
Move cable 25                    Trim and cap cable 59        Apply decal 20
Assemble washer 100              Place first rib 33           Insert in bag 43
Apply fork 66                    Insert axles, cleats 96      Assemble carton 114
Assemble socket head 114         Insert rear wheel 135        Insert Xootr & manual 94
Steer pin nut 49                 Place 2nd rib 84             Seal carton 84
Brake shoe, spring 66            Apply grip tape 56
Insert front wheel 100           Insert deck fasteners 75
Insert axle bolt 30
Tighten axle bolt 43
Tighten brake pivot 51
Assemble handle cap 118
792 seconds                  648 seconds                450 seconds
Measures of Labor Productivity
Labor content   activity times with direct labor
labor content
Labor utilization 
labor content  direct idle time

Total wages per unit of time
Cost of direct labor 
Flow Rate per unit of time
Time to Process X Units Starting Empty
X 1
Time to finish X units  Time through empty 
Flow rate

What dictates flow from one step to the next?

Time through empty worker paced   activity times

Time through empty machine paced  (# resources)  (bottleneck time)
Lifecycle Demand Trajectory for Xooters

1200

1000

800

600
Weekly
400

200

0
March   July   November
Scaling Up to Higher
Volumes/Increasing Efficiency
• Line balancing
operating time
– Takt time          Cycle time 
desired output

• Line replicating
Minimum # Stations 
Cycle time

Balancing an Assembly Line (Fig 4.5)
Cycle Time Before Line Balancing                   1: Prepare cable
900                                                          2: Move cable
800                                                          3: Assemble washer
Activity time [seconds]

12
700                                                          4: Apply fork, threading cable end
10   11                                                  5: Assemble Socket head screws
600                   9             20
19                       6: Steer pin nut
500       8                         18
7                                        26           7: Brake shoe, spring, pivot bolt
400       6                         17
25           8: Insert front wheel
300       5                                                  9: Insert axle bolt
15        16          24
200       4                              23             22   10: Tighten axle bolt
14
100 2     3
13                       11: Tighten brake pivot bolt
1                            21
0                                                           12: Assemble handle-cap
Step 1                 Step 2         Step 3        13: Assemble brake lever + cable
Cycle Time After Line Balancing                14: Trim and cap cable
900                                                          15: Place first rib
800                                                          16: Insert axles and cleats
Activity time [seconds]

700                                                          17: Insert rear wheel
10                                         26            18: Place second rib and deck
600               9
8                    17              25            19: Apply grip tape
500
7                                    24            20: Insert deck fasteners
400                       15   16        23
6                                            22    21: Inspect and wipe-off
300       5                    14                            22: Apply decal and sticker
13              21
200       4                                    20            23: Insert in bag
12              19
100 2     3
18
24: Assemble carton
1            11
0                                                           25: Insert Xootr and manual
Step 1                Step 2         Step 3         26: Seal carton
Productivity Measures 1/2

Overall Performance Measures
Bottleneck
a4                                            Number of Resourcesi
Activity Time

Capacityi 
a2                                               Activity Timei

a1
a3                                               Flow Rate
Utilizationi 
Cacpacityi
1       2   3     4
Process Capacity  Min{Capacityi }
=Idle Time
Productivity Measures 2/2
Labor Productivity Measures

• Labor Content=a1+a2+a3+a4
Bottleneck
a4
Activity Time

• If one worker per resource:
a2                                 Idle Time=(a4-a1) +(a4-a2) +(a4-a3)

a1                               • Average labor utilization
a3                                                labor content

labor content + direct idle time

1    2    3     4        •Cost of direct labor
Total wages per unit of time
=Idle Time                              
Flow Rate per unit of time
Key-points to remember:
Work Methods Design Exercise
Calculations:
Where process times & cost estimates
quoted by production managers        Determining resource requirements to
come from                            support a volume target.

Estimating direct labor content.
How to make labor related decisions
• pricing                                Calculating direct manufacturing cost
• hiring
Impact of process design on productivity
• Line balance
• Idle time                           The Importance of Process DESIGN
• Direct labor content
Mechanics of a worker-paced line
• Cost of direct labor
Mechanics of a work cell
4.1 Consider a process consisting of three resources in a worker-
paced line and a wage rate of \$10 per hour. Assume there is
unlimited demand for the product.

Resource    Activity Time   # Workers
1             10            2
2             6             1
3             16            3

a. How long does it take to produce 100 units starting with an
empty system?
b. What is the average labor content?
c. What is the average labor utilization?
d. What is the cost of direct labor?
4.5 Geneva Watch makes watches on a conveyor belt with six stations; one worker stands at each
station and performs the following tasks:
a. What is the capacity of the assembly line?
b. What is the direct labor content for the processes on this line?
c. What is the utilization of the worker in station B?
d. How many minutes of idle time will the worker in station C have in one hour?
e. What time will it be when the assembly line has processed 193 watches on any given day?
A: Preparation 1                Heat stake lens                 14 seconds
Inspect bezel                   26
Clean switch                    10
Install Set switch              18/ 68 seconds total
B: Preparation 2                Check switch                    23 seconds
Clean bezel                     12
Install module                  25/ 60 seconds total
C: Battery installation         Install battery clip            20 seconds
Heat stake clip                 15
Install 2 batteries             22
Check switch                    13/ 70 seconds total
D: Band installation            Install band                    45 seconds
Inspect band                    13/ 58 seconds total
E Packaging preparation         Cosmetic inspection             20 seconds
Final test                      55/ 75 seconds total

F: Watch packaging              Place in box                    20 seconds
Place cover on box              14
Insert owners manual            30/ 64 seconds total

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