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The Importance of Tracking Indirect Labor Costs in Manufacturing

In the fast-paced world of manufacturing, understanding and tracking indirect labor costs can significantly impact your bottom line. Let’s delve into why it’s crucial and how it can benefit your organization.

Definition of Indirect Labor

Indirect labor refers to any labor that supports the production process but isn’t directly involved in converting materials into finished products.

Ramifications of Not Tracking Indirect Labor

  • Inaccurate Labor Reporting: Without accurate tracking, labor reporting to the manufacturing process becomes unreliable.

  • Inaccurate Part Costing: This leads to inaccuracies in part costing, with actual setup and production times overstated.

  • Disrupted Part Scheduling and Shop Loading: Inaccurate tracking affects part scheduling and shop loading, leading to inefficiencies.

  • Inability to Reduce Indirect Labor: Without proper tracking, it’s challenging to identify areas for improvement and reduce indirect labor costs.

  • Understated Shop “Burden Rates”: Failure to track indirect labor results in understated shop burden rates, impacting overall cost calculations.

A Real-Life Example: The Impact of Tracking Indirect Labor

Let’s explore a real-life example of a manufacturing shop in Minnesota that experienced significant improvements after implementing a system to track indirect labor.

Case Study: Transforming Shop Operations

This shop, prior to implementing a computerized Shop Control (ERP) system, faced challenges in understanding the true cost of indirect labor. Employees would routinely shut down machines and engage in cleanup activities, but the management lacked visibility into the actual time and cost associated with these tasks.

Implementation and Results

After implementing the Shop Control system and encouraging employees to report their labor efforts accurately, management gained insights into the inefficiencies of having highly skilled production workers engage in cleanup activities. By analyzing the indirect labor reports provided by the system, management realized the significant waste of time and money involved in this practice.

Optimization and Savings

With this newfound understanding, the company optimized its operations by reallocating cleanup tasks to a dedicated employee, freeing up skilled production workers to focus on core tasks until the end of their shifts. This simple change resulted in substantial cost savings, increased productivity, and improved adherence to delivery schedules.

Partnering with EstesGroup for Manufacturing Efficiency

At EstesGroup, we specialize in optimizing and streamlining manufacturing operations to maximize efficiency and cost savings. By leveraging tools available in Epicor to produce detailed indirect labor reports, we help businesses identify areas for improvement and implement actionable strategies for success.

Our Approach

  • Comprehensive Analysis: We conduct a thorough analysis of your indirect labor reporting to identify inefficiencies and opportunities for improvement.

  • Tailored Solutions: Based on our findings, we develop customized solutions to streamline operations and reduce overhead costs.

  • Implementation Support: Our team provides hands-on support to implement new processes and technologies, ensuring smooth transitions and tangible results.

Let Us Help You Unlock Efficiency and Savings

If you’re ready to optimize your manufacturing operation and unlock potential cost savings, partner with EstesGroup. Contact us today to learn how we can leverage technology and strategic insights to drive efficiency and improve your bottom line.

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