Direct labor cost analysis in metal fabrication industry

Project principle investigators: Manea Al-Ghufaili, Qasim Khan, Rizwan-Ul-Hasan Khan
Supervisor: Dr Muhammad Al-Salamah

Course: ISE-304 Principles of Industrial Costing

Institution: King Fahd University of Petroleum and Minerals

INTRODUCTION
The Metal Fabrication Factory (MFF) started in 1984 and became one of the leading companies in producing a variety of metal product here in the Kingdom of Saudi Arabia and the Gulf. The company products have a high quality that meet the international quality standers which allow them to become one of the major suppliers for many huge companies and teaching institutions such as Saudi Armco, SABIC and KFUPM among many others. The company specializes in producing the following:

1. Lab systems
2. Playgrounds
3. Metal fabrication

Where each of these three products has its own product line.

We visited the factory in Dammam Second Industrial City where they produce lab systems which includes: lab benches, base cabinets, wall cabinets, tall storage cabinets, laboratory fixtures and accessories. The company offers standard types of benches and cabinets but mostly the company receives an order from the customers that have its own layout and dimensions or the company is asked to visit the customers and take the measurement and details. The procedure for producing these orders will be demonstrated in the following sections.

Since there are many types of benches and cabinets we decided to focus on one type of product to do our labor cost analysis project on which is wall cabinets and although the layout and dimension of the wall cabinets and the quantity of raw material are different the procedure and work force needed are almost fixed which allow us to conduct our analysis.

OBJECTIVE
Our project objective is to calculate the direct labor cost for producing an order of 52 wall cabinets and to do so we did the following:

A) Conducted a time study to find the standard time to produce one unit of wall cabinet in every stage and then find the job time needed to produce the order in every stage this will imply the following:

1. Divide the production line of wall cabinets into stages the starting and finishing points for each stages are given to us by the production engineer and its was also clear when we visited the production area.
2. Divide each stage into elements and identify the starting and finishing point of every element.
3. Calculate the standard time for each stage where we did that for three stages of the production line the one we where able to observe the rest of stages the standard time and the elements it was given to us by the production engineer.
4. Find the job time needed to produce 52 units of wall cabinets for every stage.

B) Analysis of work force size, working hours, worker payment policy, over time policy and incentive plans to find the hourly wages for the worker in every stage for  that particular production line.

C) Find the total direct labor cost associated with the production of 52 units of wall cabinet by multiplying the job time for each stage by the hourly wage for the worker at that stage and then sum it up to find the total direct labor cost.

PRODUCTION AREA LAYOUT
The figure below shows the layout of the production area where all stages take place, and the stages will be explained in detail in the procedure part.

Fig: 1 Layout design of the Production area

PROCEDURE
As we said in the introduction in most cases the company either receives an order from the customers that can fit the dimensions of plant or the workers visit the customer and do their own measurement. When this part finished they do the following:

1. They print the layout and dimension on blue print and send it to the management for approval.
2. When the approval comes they send the order to the production line where the order contains beside layout (the quantity, the types required, due date among other details).

In this case the order is 52 wall cabinets.

A) Time Study

In our project we conducted a time study on the production line of wall cabinets where the process of producing one wall cabinets after finishing the previous step is divided into the fallowing stages and elements:

Stage 1

CNC Punching: Where CNC stand for computer Numerical Control Machine. In this stage the worker enters the design into the machine of the wall cabinets so that the machine will punch the metallic sheet in order to mark the position from where they want to bend it. This stage contains the following elements after discarding the machine time:

1. Worker picks the metallic sheet and places it on the rollers
2. Worker inserts the metallic sheet into the machine
3. Worker starts the machine
4. Worker releases the metallic sheet from the machine
5. Workers grab the bunched metallic and place it on trolley

NOTE: When the production starts the CNC is previously feed with the design so we will not count feeding design as an element.

The timing for these elements and the calculations for standard time is shown in calculation part.

Stage 2

CNC Bending: In this stage a second machine will bend the punched metallic sheet from the positions where the CNC punching machine punched the metallic sheet the angels and direction of bending is feed to the machine before the production starts this stage contain the following elements after discarding the machine time:

1. Workers pick the bunched metallic and place on the machine
2. Workers install the metallic sheet and prepare it for bending
3. Workers uninstall the bended sheet and remove it from the machine
4. Workers pick the bended sheet and place it on trolley.

The timing for these elements and the calculations for standard time is shown in calculation part.

Stage 3

Fabrication: This is the longest stage in the production line. In this process the values that make the wall cabinets is useful to the customers are added, such as preparing the metallic sheet to insert the shelf's in the cabinets by adding railings and also adding joints to install the cabinets doors. In the assembly stage the element of this stage and the standard time (average) was given to us by the production engineer because he has to work and he can not allow us to observe the production line by our self.

The elements of the stage are:

1. Workers pick the metallic sheet from the trolley and place it on the ground. (2 minute)
2. Surface finishing includes (cutting, welding the remaining part of the cabinets, polishing). (80 minute)
3. Installing railings and joints into the cabinets. (35 minute)
4. Preparing the cabinets for moving. (4 minute).

Thus the standard time for stage 3 is = 2 + 80 + 35 + 4 = 121 minute per unit.

The order standard time = 52 * 121 = 6292 minutes.

Stage 4

Powder coating: This stage includes adding a special type of powder and heat treatment to prevent a chemical reaction between the metal surface and the chemical liquid, that may spill on it when the customer stores chemical substance. The heat treatment time in the furnace was discarded. The elements and standard time is given for this stage as follows:

1. Place the cabinets on the ground. (4 minute)
2. Spread the powder over the cabinet's surface using a spreading gun. (10 minute)
3. Rubbing the surface using a special instrument. (15 minute)
4. Inserting the cabinets into the furnace. (5 minute)
5. Removing the cabinets from the furnace. (5 minute)
6. Inspection for defects. (5 minute)

Thus the standard time for stage 4 is = 4 + 10 + 15 + 5 + 5 + 5 = 44 minute per unit.

The order standard time = 52 * 44 = 2288 minutes.

Stage 5

Assembling: This is the final stage to produce one unit of wall cabinet. In this stage the final cabinet is assembled and inspected. Here some other part are added to the cabinet such as shelf's, glass doors, plastic holders for the doors, plastic accessories, screws for installing the cabinet on the wall.

The elements for this stage are:

1. Place the cabinet on the ground
2. Fixing the shelf's into the cabinets
3. Assembling the glass door component
4. Installing the door
5. Drilling to install the screws
6. Installing the screws
7. Inspecting and testing.

The timing for these elements and the calculations for standard time is shown in calculation part.

B) Workers Analysis:

In this part we analyze the work force in the production line for wall cabinets and since the worker’s payment system in the factory is monthly salary, the calculation for hourly wage for each worker in each stage will be shown in the calculation part. In this part the working hour of the factory, the number of workers at each stage, and the workers salary in each stage is presented.

The working hours are: Saturday – Wednesday from 8 am – 5:30 pm and Thursday from 8 am – 1:30 pm.

The salary for each stage is given in the following table:

NOTE:

1. We will not consider the over time hour here since we don’t have a deadline for finishing this order.
2. Incentive payment policy does not depend on the number of unit produced it depend on the worker discipline and skills.

CALCULATION
In this part we calculated the remaining standard times left from part A in the procedure part. We found the job time needed for every stage, also we determined hourly wage for workers in each stage mentioned in part B in the procedure part. Finally we calculated the total direct labor cost for producing 52 units of wall cabinets as mentioned in part C in the objective part.

A) Time Study:

Stage 1) conducted using stop watch in mobile phone.

PFD = 1 / 8.3 = 12%

Fa = 100% / (100% - 12%) = 1.136.

Standard time for stage 1 = 10.615 * 1.136 = 12.1 minutes. (15 minutes given by the production engineer).

Job time for stage 1 = 52 * 12.1 = 629.2 minutes.

Stage 2) conducted using stop watch in mobile phone.

Standard time for stage 2 = 14.4935 * 1.136 = 16.4646 minutes per unit. (15 minutes given by the production engineer).

Job time for stage 2 = 52 * 16.4646 = 856.15 minutes.

Stage 5) conducted using stop watch.

Standard time for stage 5 = 21.6165 * 1.136 = 24.5563 minutes. (27 minute given by the production engineer)

Job time for stage 5 = 52 * 24.5563 = 1276.92 minutes.

So we calculated the standard time and job time for each stage in the production line.

B) Workers Analysis

In this section we calculate the hourly wage for the worker at each stage of wall cabinet's production line.

We applied the following formula = salary / working hours per month.

Where the daily working hours = 8.5 hours Sat - Wed and 5.5 hours on Thu.

Weekly working hours = 8.5 * 5 + 5.5 = 48 hours.

Working hours per month = 48 * 4 = 192 hours.

Applying the previous formula, we obtain the following table:

So we calculated the hourly wage for workers in every stage in the production process.

C) Total Direct Labor Cost:

In this section we will calculate the total direct labor cost associated with producing 52 units of wall cabinets and to do so we applied the following formulas:

• Direct Labor Cost at Stage n = job time for stage n * Hourly wage for stage n.

• Total Direct Labor Cost = the sum of all labor costs for all stages.

Applying these two formulas, we obtain the following table:

Thus the total labor cost = 1673.34 riyals for this order.

In the following pages we added some picture (CNC Punching, CNC Bending, Wall cabinet) we also added the job cost sheet used for calculating the over all cost so the customer has an idea on how the cost has been assigned.

CNC Punching Machine

CNC Bending Machine

Wall Cabinet

CONCLUSION

As we saw in the previous parts, the process of calculating, the cost of one aspect in one production process is quite long and not easy to find because it had a lot of parameter. Some are hard to quantify, such as the starting and finishing point of an element. Also some parameter such as hourly wage and it can be complicated to calculate specially if we include over time hours and incentive plans. The procedure of calculating the labor cost for massive production processes, with huge number of worker and multiple machines could be quite difficult for one team. In over all, we noticed some points while visiting the factory and the production area. These points are:

1. Ideal production plans that follows exactly the standard time, is hard to meet, because of the delays and different ability of workers.
2. The layout of the production area could be crucial for the efficiency of production line, especially, if the product is too heavy.

For our project we were able to find the following:

1. The standard time for producing one unit is 218.121 minute, which is equal to 3.64 hours.
2. The margin error for the calculated standard time was:
   Stage 1: (12.-15) / 15 * 100% = 19.33 %.
   Stage 2: (16.464-15) / 15 * 100% = 9.764%.
   Stage 5: (24.556-27) / 27 * 100% = 9.1%.
3. The hourly wage for the production of one unit of wall cabinets has been established.
4. The total direct labor cost of producing 52 units is 1673.34 riyals.

SUGGESTIONS

MFF can improve their production efficiency by overcoming the following drawbacks:

1. The layout design has to be improvised to make the production faster and efficient.
2. Although, the standard times that were given to us were almost the same as we calculated, at some stages the standard time has to be reduced to some reasonable time to make the production faster.

دراسة تكلفة العمالة المباشرة في صناعة المعادن
الباحثين الاساسيين: منيع الغفيلي، قاسم خان، رضوان الحسن خان
المشرف: الدكتور محمد السلامة
المادة: مبادئ حساب التكاليف الصناعية
المؤسسة التعليمية: جامعة الملك فهد للبترول والمعادن