Typing HR Analytics in Google will give you around 3.8 million result. When you search for 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 KPIs in a manufacturing environment?
Here are my 2 cents on the WHY, WHAT and HOW of HR KPIs in a manufacturing environment
HR is responsible to manage and report People Data
Data is driving all business. Most business or management decisions are based on data or data analysis.
It seems obvious that HR will take the lead when it comes to people data. In practice however, the contrary is often the case. I still come across a lot of people working in HR who do not want to be responsible for people data and HR reporting. “FTE’s, okay, we can do that, but labour costs – that’s finance’s responsibility.” Why I strongly disagree? HR is at the forefront of hiring new people, HR sees trends and HR can influence the numbers proactively. Finance can only report the result when all the decisions have already been made (reactively). So if you want to move from reactive to proactive 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
Start by implementing a proper HRIT system
An HRIT 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 at all the locations across your company.
Not everything can be done in your HRIT system and sometimes you need to combine data from different sources. This is why HR needs to have at least medium Excel knowledge: Excel is the most suitable tool to make fast analyses and present them in an attractive and understandable way outside your HRIT system. Every HR business partner should know how to make a pivot table and how to use VLOOKUP.
It all starts with Sales and Production Volume and forecast
The company’s sales and production volume & forecast should be at the core of all HR Business Partners in any production facility. Sales and Production volume combined with 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 labour 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 KPIs I came across for manufacturing companies is labour cost as a percentage of sales. This KPI immediately shows how your business is performing and what happens if sales increases or decreases. For example: if you target a 20% labour cost percentage, you know exactly how much money you need to save on labour when sales/production volumes are declining – or how much more you can spend on labour when sales are increasing.
In any manufacturing environment the worked hours of your direct employees will give you valuable insight in how your business is doing. With worked hours analytics you will be able to compare similar factories and steer better.
In a worked hours analysis, look at the amount of direct labour hours available in a given month. For example: 100 operators work 160 hours per month, equals 16,000 hours at a specific facility.
Then you want to find out where you lose some of these hours (vacation, absenteeism, training, factory stop, etc.) and where you add any hours (mainly overtime).
The third step is to include sales volume forecast. This will reveal which months are efficient and which ones are not.
If you have these numbers, you can provide all kinds of data that would help you to improve plant efficiency:
Sick leave: with worked hours you can also calculate sick leave hours as a percentage of total worked hours, and if you know your hourly rate, you also know what the costs of absenteeism are.
Volume per effective hour worked: This KPI shows how efficient your facility is. Also include the forecast and, as mentioned above, you will see which months are efficient and which 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 particularly efficient month?”
Overtime hours as % of total hours: This KPI compares the amount of overtime hours in relation to total hours worked. You will be stunned by the amount of overtime in your production facility and the costs they incur. It is often possible to reduce overtime tremendously (and save money), if only you have insight in the data.
Real world example
When I worked at one of my previous employers, we were truly focussed on reducing working capital. So as soon as volumes declined, we dismissed factory workers. More often than not, volumes increased three months later, and we would be hiring new operators. The big disadvantage was that every new employee needed four weeks of training. Their learning curve costs precious time and money, especially if you consider that new operators make more mistakes in comparison 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. One of the measures we took to deal with sales decrease, was asking all agency workers to work one shift less in a month and asking our fixed employees to take their holidays when volumes declined. Secondly, we agreed with finance to keep production slightly above demand, increasing stock just a bit – and this did the trick. We did not have to lay off people and as soon as volumes increased we were able to respond immediately and efficiently.
Good luck and now go get the data!