– Supply Chain Insight –
Fishbone Friday: Low (or Decreasing) Labor Productivity
Low Direct Labor Productivity Rates
Welcome supply chain leaders, to the eighth edition of Fishbone Friday!
If you missed last week’s edition where we discussed possible root causes for a high (or increasing) overtime rate, you can find it here.
Let’s get into the topic of the week: a low (or decreasing) labor productivity rate.
When we refer to labor productivity, we’re referring to the unit per hour productivity of direct labor tasks such as order selection, pallet replenishments, loading, etc. It’s typically broken down by function, but can also be referred to as a total direct labor throughput rate, with all direct labor functions combined. As order selection accounts for between 50-55% of total direct labor spend, order selection rate is typically the one that operators and executives keep the closest eye on.
There are also two different ways to view this rate: worked and paid.
This is an important distinction because, for an average operation, paid rates are generally 25% lower than worked rates, and this is to account for things like benefits, vacation pay, and other employment costs that are usually outside of the hourly rate.
Worked productivity is important when it comes to monitoring on-shift performance. It’s also a simple way to plan shift requirements if the expected volume output is known.
Paid productivity uses the same unit volume as worked productivity; however, instead of using worked hours (shift length – breaks, etc.), it uses total payroll for a given employee or group of employees to generate an hour total.
Both are different, and both are important. There are also many factors that influence these rates, which is why a root-cause analysis is so important if a downward trend is noticed.
So, without further ado, here are some possible root-causes for a low (or decreasing) labor productivity rate.
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