Standard Hours – Anything but Standard!

Being a successful manufacturing company isn't only about hours, but hours are very important. And according to Milwaukee-based engineering consultant James Cavalluzzi, most companies don't have a good handle on them.

"Jaws usually drop," he says, describing the reaction that many owners and managers have when, aided by an outsider's eyes, they take a good, hard look about how long it takes who to do what.

One major problem has to do with establishing standard hours. It's not uncommon for an owner to low-ball a bid in order to start a relationship with a customer, and then find that bid being used as a template over and over again for similar jobs, with exactly the effect you'd expect on the bottom line. Inaccurate standard hours can also result from poor measurement. Timing someone on a Saturday to find out how long it takes to perform a task, for example, can result in a distorted measurement.

When a company is small, it's easy to stay in touch with what's happening on the floor and make adjustments. But with success and growth, that may no longer be possible. In some cases, Cavalluzzi recommends a technology solution that actually tracks start and stop times on an ongoing basis. There are several benefits to such an approach. The first is accurate data on the relationship between standard hours and actual hours. The second, in some cases more important, is a picture of how many hours are being spent on indirect labor. "You don't want a highly-trained $18 dollar-an-hour individual sweeping floors," says Cavalluzzi.

Dan Luria of the Michigan Manufacturing Technology Center, has a similar opinion. Getting a handle on even a small company's numbers "is not trivial" in terms of the time it takes, says Luria, but again and again it is an eye-opening experience for owners who are confronted with numbers that don't make sense. In particular, manufacturing companies are prone to under-estimate lead times.

So here's the unwelcome message: Your numbers are probably wrong.

Having run a business, I know how difficult and expensive it can be to measure any process accurately. It can also feel as though you're spending more time measuring the process than actually making product you can sell. But if you could increase your bottom line 15 percent with better time measurement, wouldn't it be worth it?

I recommend three courses of action:

1. Compare your WIP inventory, expressed in days, with your lead times. If the two numbers don't jibe, you've got a problem.

2. Explore technology solutions. The price of technology keeps going down, and there may be a system that will pay for itself.