In previous articles on demand and capacity, I wrote about the variability of demand and the flexibility needed to cope with it. One of the levers that every manufacturer has is labor flexibility. This is made up of overtime and, for some companies, temporary labor. Unfortunately, problem I’ve seen in many companies is the decision to flex labor is made far too late. Some manufacturers might not work overtime until a customer order is already late. Our goal here is to use our labor flexibility as soon as possible to optimize our on-time delivery.
We need flexibility to meet Variability in Customer Demand
          In this article I’m going to explain a proactive gauge to help you decide when to flex labor from your base plan. Below is an example of a master production schedule from an ERP system, or an excel spreadsheet.
          This list has all the key information for production, but I prefer a more visual MPS.
         Therefore, I like to visualize the master production schedule (MPS) as layers of colored sand in a funnel. Imagine each layer of sand represents a work order, with the different colors denoting different customers or different product families. I picture the sand (production orders) flowing through the funnel, until they are complete. Here’s a diagram.
          I’ve put a few labels on the MPS above to show some key time frames.

                    • Production lead time– The time from when we start a work order to when we finish it.

                    • Supply chain lead time– The additional time on top of the production lead time needed to procure all the parts.

                    • Planning Time Fence– This is the point in time where we are going to freeze the planned work orders in the MPS. In this example above I set                                                              the planning time fence a little bit longer than the total lead time (production+ supply chain lead time) this allows for                                                                  some accumulation of requirements for purchase orders. Some businesses set it exactly to the total lead                                                                                  time. It cannot be set earlier.

                    • Customer Lead Time– The lead time expected from your customers, and the typical lead time given.

          The key measurement for flexing labor is the time between your customer lead time and your planning time fence. The bigger the gap between these two lines, the more room you have for flexibility.
          This stack of these production orders on your master production schedule I define as the MPS Backlog. Create a gauge by adding up the MPS Backlog in hours and compare it to the Planning Time Fence and the Customer Lead Time. The ideal position for the MPS backlog is in the exact middle between the Planning Time Fence and the Customer Lead Time.
          As a result, our strategy is to flex labor to keep the MPS Backlog directly in the middle of the Planning Time Fence and the Customer Lead Time. If the MPS Backlog goes above your Customer Lead Time you will be late. If the MPS Backlog is below your Planning Time Fence you will have a production gap.
Here is a zoomed in view.
          As you receive purchase orders from customers, the MPS backlog creeps over the center line. You will flex labor up by increasing overtime or adding temporary labor. If the MPS backlog creeps below the center line because you are completing orders faster than you are receiving orders you will reduce labor by decreasing overtime or removing temporary labor.
          Increasing labor opens the mouth of the funnel, and the sand flows quicker through the funnel reducing the sand level. Decreasing the labor narrows the mouth of the funnel, and the sand flows slower, increasing the sand level.
          This creates a gauge that you can use at the earliest opportunity to flex your labor plan.
          Reach out if you would like to discuss if this gauge would work for your Operations team.