| Now compare
this to the true cost in just one TDC category; labor
cost. First with the overhead bucket gone, the
employees hourly cost is actual cost to the company.
With insurance, retirement, training, admin, etc.
double the hourly wage ($200) is a safe figure. As
long as you are not dealing with a bottleneck, we need
only take into account the indirect labor factor.
Let’s see in our example, there was a QC inspection
at startup, the tool setup person, the line
supervisor, maintenance supervisor, the plant manager,
the parts procurer, to name the most apparent
employees involved.
A little more detail
into the scenario, and we can calculate the indirect
labor cost. The 15 minute QC inspection ($5), setup
person also 15 minute ($5), the supervisor was taken
from his normal duties the entire hour ($30). Doing
what? Why supervising of course, well okay, he had
logistics, reassigning employees, rescheduling, etc.
For the sake of argument we’ll say the production
demand was high. This demanded two more high dollar
employees, normally hidden in the overhead. The
maintenance manager was summoned for coordinating,
($30) and the plant manager was on the scene for 15
minutes to set the priorities and get the facts first
hand ($25).
The grand total of TDC
for labor is $200 direct labor + $95 indirect labor,
for a total of $295. We all know in the industry, most
would not bat an eye at $295. There are two points to
made by this example. One is the commonly overlooked
“overhead” cost, which is hiding almost 66% of the
true cost in the labor category alone. The other point
known to upper management and accountants, is indirect
labor, which is a large part of the picture, yet only
considered on a daily basis by very few.
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