Typing HR Analytics in Google will give you around 3.8 million result. When you search on HR Big Data it even expands to 12.5 million results. And it is true, HR Data is becoming available fast and business is demanding HR to take the lead. But… how do you do this and what are the must track KPI’s in a manufacturing environment?
Here is my 2 cents on the WHY, WHAT and HOW of HR KPI’s in a manufacturing environment
WHY?
HR is responsible to manage and report People Data
Data is driving all business. Most business/management decisions are made via data or data analysis.
Seems obvious HR will take the lead when it comes to People data. However the contrary is true. Still I come across a lot of people working in HR that do not want to be responsible for People data and HR reporting. “Okay, FTE’s we can do that, but Labor costs that is Finance responsibility.” Why I strongly disagree?: HR is at the forefront of hiring new people, HR sees trends and HR can influence the numbers pro actively. Finance can only report the result when all decisions are made (reactively). So if you want to move from reactive to pro-active and be able to influence your business, HR must take the lead. By the way it will also change your HR role in the (Management) team
HOW?
Start by implementing a proper HR IT system
An HR IT system like Workday will make your life so much easier. Such a system removes most of manual work which is prone to errors and gives you great REAL TIME dashboards. So if you have the change implement it fast and implement it in all locations of your company.
Learn Excel
OK, not everything can be done in your HR IT system and sometimes you need to combine data. Here is why HR needs to understand medium Excel knowledge: Excel is the tool to make fast analysis and present it in an attractive and understandable way outside your HR IT system. Every HR Business Partner should know how to make a Pivot table and how to use VLOOKUP.
WHAT?
It all starts with Sales and Production Volume and forecast
The company’s’ sales and production volume & forecast should be in the heart of all HR Business Partners in any production facility. Sales and Production volume and the coming months forecast will give you good insight in the challenges and opportunities your manufacturing facility has. Most manufacturing companies determine the amount of direct labor hours based on sales volume. HR and management often focus on indirect staff. However being able to better adjust your direct workforce to sales volumes delivers your company millions of euros annually.
Labor cost as % of Sales
One of the best KPI’s I came across for manufacturing companies is Labor costs as a percentage of Sales. This KPI shows immediately how your business is performing and what happens if sales increases or decreases. For example: if you target to be at a 20% labor costs as % of sales you know exactly how much money you have the save when sales/production volumes are declining or the other way around when sales is increasing.
Worked hours
In any manufacturing environment the Worked Hours of your direct employees will give you tremendous insight in how your business is doing. With Worked Hours analytics you will be able to compare similar factories and steer better.
In your Worked hours analysis you should look at the amount of direct labor hours that you had available in a month. For example 100 Operators work 160 hours per month equals 16000 hours in that facility.
Than you have to find out where did you lose your hours (Vacation, absenteeism, training, factory stop etc) and where did you add hours (Mainly Overtime)
Third step is including sales volume forecast. This will reveal what efficient months are and what are not.
If you have this you can show all kinds of data which helps you to improve Plant efficiency:
Sickness: With worked hours you are also able to show sickness hours as percentage of total worked hours and if you know your hourly rate you also know what the costs of this absenteeism are.An example:
Volume per effective hour worked: This KPI shows how effecient your facility is. Also include the forecast and as mentioned above you will see what efficient months are and what are not. Key now is to find ways to improve your efficiency. The question you can ask in your MT is: “What did we do differently in that very efficient month? ”
Overtime hours as % of total hours: This KPI compare the amount of overtime hours in relation to total hours worked. You will be stunned to see how much overtime there is in your production facility and what the costs are. Often it is possible to reduce overtime tremendously (and save money) if you insight.
Real example
When I worked at one of my previous employers we had a true focus on reducing working capital. So as soon as volumes declined we dismissed factory workers. Often three months later volumes increased and we would hire new Operators. The big disadvantage was that every time a new employee started it would take four weeks before they were fully trained. This learning curve costs precious time, money and new Operators made more mistakes compared to fully trained operators. By introducing the worked hours dashboard we had much better insight and found innovative ways to cope with temporary decline or increase in volumes. For example; One of the measures we took is asking all agency workers to work one shift less in a month and we asked our fixed employees to take their holidays when volumes declined. Secondly we agreed with Finance to have a slightly higher production and increased stock just a bit. But it did the trick. We did not have to lay off people and when volumes increased we were far more efficient immediately.
Good luck and now go get the data!
