Know About the "Ghost Labour" in your Factory?
Know About the "Ghost Labour" in your Factory?
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Let us look at Ramesh, a skilled machine operator in your factory that makes machine parts. On a typical eight-hour day, he spends just two hours actually making a part.
The remaining six hours he might spend:
Waiting at the machine to receive the materials needed to make the part
Fixing a jammed feeder at his workstation
Searching for a new gauge to measure the finished part because the old gauge has worn out and is not dependable.
These six hours, which is included under Direct Labour because Ramesh is a 'direct' labourer engaged in producing the product, are actually unproductive "ghost" hours.
A cost auditor reviewing conventional records would have concluded that Ramesh was too "expensive." Actually, it was the ghost hours, which were beyond Ramesh's control, that made him expensive.
It is also possible that instead of Ramesh, the machine repair and checking the finished part are done by other, "indirect" labourers. In this case, instead of Direct Labour, it gets included under Factory Overheads. Even in this case, the labour is "ghost" labour because it was uproductive labor to correct "mistakes."
Where the Ghosts Hide: The Root Causes
Where the Ghosts Hide: The Root Causes
In the above example:
Material requirements for planned production should have been estimated in advance, procured in time and made available to Ramesh when he needed it
Preventive maintenance should have detected the problem with the feeder and attended to it before it affected production
Worn out measuring gauges should be have replaced before it affected regular production operations
Ghost labour is typically caused by:
Information Ghost: Time spent on seeking clarifications, say about an incomplete instruction or blueprint
Logistic Ghost: Time spent on searching for things that should have been at the needed location, or moving things that shouldn't have been where it is now
Quality Ghost: Time spent inspecting, sorting and re-working (or scrapping) bad parts.I
t can be defined as the work performed by everyone to fix, move, or apologize for a mistake, but which never shows up on a specific product's cost sheet. More often it gets buried under General Overheads of Indirect Labour, escaping close scrutiny.
Show Ghost Labour Costs Separately in Cost Computations
Show Ghost Labour Costs Separately in Cost Computations
Total Labour Costs = Regular Work Cost + Total Cost of Fixing all Errors
Regular Work Cost is the standard expected cost when there are no errors.
Cost of Fixing Errors is computed by:
Applying the labour rate to the recovery time per error, and
Multiplying it by the number of errors.
The error-recovery labour rate could be higher than standard regular rate because of the specialized nature of the work.
Conclusion
Conclusion
Ghost labour is not just unproductive labour; it is STOLEN PROFIT. It is money that should have been in your business's bank account.
And the ghosts are inescapable without good PLANNING, ORGANIZATION and MONITORING systems in place.
Start minimizing ghost labour by:
Computing error-fixing costs separately as shown in the formula above,
Identifying the errors that led to the extra "fixing" costs,
Analysing the factors that led to each kind of error, and
Taking specific actions to address the identified factors.
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