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05/25/2012 11:57 AM
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Can some one please help me for the following?
(1) What is ratio of average employee salary and its corresponding loaded cost?
(2) I'm planning to start a kaizen workshop with a local manufacturing company. One of the targeted areas for potential improvements is Warehouse and some health and safety issues. How I can quantify improvement in dollars amount if I reduce safety issues by 70% as well as reduce warehouse space by 25%.
Thanks
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05/25/2012 12:52 PM
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I would look at capacity created rather than attempt to capture cost in this case.
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05/31/2012 04:56 PM
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One of the classic problems with "saving space" is that unless you are able to rent that space out to somebody else, you really didn't save anything. Another way to look at it would be if you were going to rent out additional space for something, but freed up existing space through Kaizen, then you had a cost avoidance.
As for safety issues, what is the cost of an employee lost time day? How many did you have last year? If you reduce lost time days - and not all safety improvements do - there's your cost avoidance.
Tom
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06/05/2012 09:06 AM
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This is a classic question that comes up everytime a lean initative is undertaken. What are my direct saveing because of this "project". The real answer should be we make improvements in the flow of the product and efficiencies will increase. A more wait and see the overal performance increase once we improve areas.
However, in the real work this is not always the case. Health and Safety can really only be quantified, as SetupGuy stated, in lost time savings. Space is tricky, especially when you own the building. If you are not looking to open space for additional production, what makes you money, then the goal is to be more efficient with the space you have. Shorter lead-times from wrehouse can lead to smaller batches, less WIP, etc.
Your loaded cost question is a loaded question. Every where I have worked seems to use a different formula for labor savings. If you have a responsible and helpful financial controller in the company you are working with, I would ask them for guidance on how they value theri labor in that area.
Good luck,
Brad.
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06/05/2012 09:06 AM
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There are so many factors surrounding your first question that it is hard to put a number on it. These include the labor rates, skill levels, benefits, and fixed and variable overhead.
As stated in the other responses Lean is about freeing up capacity which is where you should focus. This creates opportunities for growth. The safety aspect is a straight forward calculation based on the costs to the organization due to lost time injuries. This includes medical expences, associated insurance costs, lost opportunity form that worker not producing, overtime to cover injured emloyees, and cost of training replacements. These would be recorded as cost avoidances.
I have seen organizations try to put a dollar value on freed up space but unless you can rent that space out or fill it in with a profit center, you just have more space. What will occur in your efforts to free up warehouse space that can be measured is the reduction in inventory levels. This frees up cash for the company and will increase the number of inventory turns.
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