Chapter 4
Estimating and Reducing Labor Costs
A Labor Intense Process (Novacruz Case)
Finished Xootrs
Components
Activity 1
13 minutes
Activity 2
11 minutes
Activity 3
8 minutes
Xootr Task Durations
Worker 1
Worker 2
Worker 3
Prepare cable 30
Assemble brake lever 110 Inspect & wipe off 95
Move cable 25
Trim and cap cable 59
Apply decal 20
Assemble washer 100
Place first rib 33
Insert in bag 43
Apply fork 66
Insert axles, cleats 96
Assemble carton 114
Assemble socket head 114
Insert rear wheel 135
Insert Xootr & manual 94
Steer pin nut 49
Place 2nd rib 84
Seal carton 84
Brake shoe, spring 66
Apply grip tape 56
Insert front wheel 100
Insert deck fasteners 75
Insert axle bolt 30
Tighten axle bolt 43
Tighten brake pivot 51
Assemble handle cap 118
792 seconds
648 seconds
450 seconds
Measures of Labor Productivity
Labor content  activity times with direct labor
labor cont ent
Labor utilizatio n 
labor cont ent  direct id le time
Total wages per unitof tim e
Cost of direct labor 
Flow Rateper unit of tim e
Time to Process X Units Starting Empty
Time to finish X units  Time through empty 
X 1
Flow rate
What dictates flow from one step to the next?
Time through empty worker paced  activity times
Time through empty machine paced  (# resources)  (bottleneck time)
Lifecycle Demand Trajectory for Xooters
1200
1000
800
600
Weekly
400
200
0
March
July
November
Scaling Up to Higher
Volumes/Increasing Efficiency
• Line balancing
– Takt time
• Line replicating
• Task specialization
• Adding workers
operating time
Cycle time 
desired output
task times

Minimum # Stations 
Cycle time
Balancing an Assembly Line (Fig 4.5)
Activity time [seconds]
Cycle Time Before Line Balancing
900
800
12
700
10
11
600
8
500
7
400
6
5
300
200
4
3
100 2
0
20
19
18
9
17
1
Activity time [seconds]
Step 1
900
800
700
10
600
500
400
300
200
100 2
0
16
14
13
15
23
26
25
24
22
21
Step 2
Step 3
Cycle Time After Line Balancing
9
8
7
6
5
4
3
Step 1
17
15
1
16
14
13
12
11
Step 2
23
26
25
24
22
21
20
19
18
Step 3
1: Prepare cable
2: Move cable
3: Assemble washer
4: Apply fork, threading cable end
5: Assemble Socket head screws
6: Steer pin nut
7: Brake shoe, spring, pivot bolt
8: Insert front wheel
9: Insert axle bolt
10: Tighten axle bolt
11: Tighten brake pivot bolt
12: Assemble handle-cap
13: Assemble brake lever + cable
14: Trim and cap cable
15: Place first rib
16: Insert axles and cleats
17: Insert rear wheel
18: Place second rib and deck
19: Apply grip tape
20: Insert deck fasteners
21: Inspect and wipe-off
22: Apply decal and sticker
23: Insert in bag
24: Assemble carton
25: Insert Xootr and manual
26: Seal carton
Productivity Measures 1/2
Activity Time
Overall Performance Measures
Bottleneck
a4
a2
Number of Resourcesi
Capacityi 
Activity Timei
a1
a3
Flow Rate
Utilizationi 
Cacpacityi
1
=Idle Time
2
3
4
Process Capacity  Min{Capacityi }
Productivity Measures 2/2
Activity Time
Labor Productivity Measures
• Labor Content=a1+a2+a3+a4
Bottleneck
• If one worker per resource:
Idle Time=(a4-a1) +(a4-a2) +(a4-a3)
a4
a2
a1
a3
• Average labor utilization
labor content

labor content + direct idle time
1
2
=Idle Time
3
4
•Cost of direct labor
Total wages per unit of time

Flow Rate per unit of time
Key-points to remember:
Work Methods Design Exercise
Calculations:
Where process times & cost estimates
Determining resource requirements to
quoted by production managers
support a volume target.
come from
How to make labor related decisions
• pricing
• hiring
Estimating direct labor content.
Calculating direct manufacturing cost
Adjusting for idle time
Impact of process design on productivity
• Line balance
The Importance of Process DESIGN
• Idle time
• Direct labor content
Mechanics of a worker-paced line
• Cost of direct labor
Mechanics of a work cell
4.1 Consider a process consisting of three resources in a workerpaced line and a wage rate of $10 per hour. Assume there is
unlimited demand for the product.
Resource
Activity Time
# Workers
1
10
2
2
6
1
3
16
3
a. How long does it take to produce 100 units starting with an
empty system?
b. What is the average labor content?
c. What is the average labor utilization?
d. What is the cost of direct labor?
4.5 Geneva Watch makes watches on a conveyor belt with six stations; one worker stands at each
station and performs the following tasks:
a. What is the capacity of the assembly line?
b. What is the direct labor content for the processes on this line?
c. What is the utilization of the worker in station B?
d. How many minutes of idle time will the worker in station C have in one hour?
e. What time will it be when the assembly line has processed 193 watches on any given day?
A: Preparation 1
Heat stake lens
Inspect bezel
Clean switch
Install Set switch
14 seconds
26
10
18/ 68 seconds total
B: Preparation 2
Check switch
Clean bezel
Install module
23 seconds
12
25/ 60 seconds total
C: Battery installation
Install battery clip
Heat stake clip
Install 2 batteries
Check switch
20 seconds
15
22
13/ 70 seconds total
D: Band installation
Install band
Inspect band
45 seconds
13/ 58 seconds total
E Packaging preparation
Cosmetic inspection
Final test
20 seconds
55/ 75 seconds total
F: Watch packaging
Place in box
Place cover on box
Insert owners manual
20 seconds
14
30/ 64 seconds total