Study of production incentive scheme at ABB, Nashik to increase productivity

Abstract

ABB, Nashik is one of the Business Areas (BA) of ABB, India (INABB) . The BA manufactures Medium Voltage Switchgear Cubicles, Circuit Breakers and Current Transformers. Although the company has the facilities of subcontracting, majority of its production is done in-house where the following shops are existing: Machine Shop Fabrication Shop Plating Shop Painting Shop Cubicle Assembly Shop Breaker Assembly Shop Current Transformer Shop The workers in the above shops are considered to be Direct Workers while the workers in The Stores and Maintenance Department are considered as Indirect Workers. The BA has an existing Production Incentive Scheme which works as Group Incentive on the basis of the Performance Index of the individual shops. The present scheme has been in force since 1987. The trend in the recent years shows that there has been continuous increase in the workmen's overtime earnings (ranging from 18% to 38%) whereas the Production Incentive remains hardly about 5% of their income. The study of the Present Production System, the wage analysis and interaction with the concerned executives of the plant suggests that the workers have gotten used to overtime earnings which is a very substantial portion of their take home payments. The present standard times have been looked at and found that the same does not express the realistic standards and are actually more than what these should have been. The continuous rise in the overtime has been seen as a very unhealthy trend from the company's point of view which needs to be stopped. However, in order to do the same the workers would at least ask for protection of their existing salary levels. The time standards of various operations were found to be very liberal. Since the time standards could not be used to ascertain the level of production in the normal working hours, the desired production level is taken on the basis of Managements perception that the workers are presently putting in only about 5 hours of effective work in spite of being present in the factory for 12 hours including 4 hours of overtime on an average. The wage analysis shows that the company's expenses in terms of workers salary and wages are as below Salary without OT and PI Rs. 8,815,791Overtime Rs. 3,854,215Production Incentive Rs. 658,942In addition, the company also employs trainees in various departments for which it spends Rs. 1,129,634 as salary and overtime to them. The study suggests that the company should completely do away with the overtime by allowing the workers to earn at the similar level as their present earning and ensure that the present level of production (including normal and overtime hours) is maintained by the workers in the normal 8 hours of working period. Any additional production by the workers in the normal 8 hours of working may be covered under an Incentive Scheme by which the worker could earn at a rate worked out on the basis of their present calculated production during overtime. This is done with the assumption that the rate of production is uniform during both normal and overtime hours. Since the company has a number of products in terms variation in specification, three standard products have been taken and based on their time standards the production has been defined in terms of standard hours of a switchgear cubicle. The definition accordingly works out as Standard Cubicle 1 unit Breaker .3 unit Current Transformer 0.11 unit Having worked out the new salary level of each worker by merging their OT and PI earnings, the company could save financially in terms of labour overhead and outgo in the form of salary and wages of the trainees. A financial analysis could be carried out to project the extent of the said savings once the level of improvement in different shops is ascertained.