For labor intensive industry, increament in minimum wages will impact the business sustainability of that industry. In Greater Jakarta area, the highest minimum wages in Indonesia, the increament of labor cost from 2012 to 2013 is 38%, and from 2013 to this year is 15%. To survive, some companies has relocated their factory to the area where minimum wages still acceptable, such as central Java where the minimum wages is only half of Greater Jakarta area.
As a productivity specialist, I will say it’s not necessary and indeed would create more risk in your investment.
As a productivity specialist, I will say it’s not necessary and indeed would create more risk in your investment.
Most of you will easily guess that I must propose productivity improvement program. And I believe, most of you will say that the program would be the best solution, but not in this time. And I know the reason why.
The percentage of direct labor in labor intensive industrial sector is about 20-30% average. With this figure, the projection for Greater Jakarta area would be:
The percentage of direct labor in labor intensive industrial sector is about 20-30% average. With this figure, the projection for Greater Jakarta area would be:
The variance 18.4% for 4 years ahead from year 2011 is very tough to be adjusted by any company.
However, I can say we can. The productivity improvement program I did in the labor intensive manufacturer located in Tangerang area is working well. The program started in 2012 up today. Please see the table below:
However, I can say we can. The productivity improvement program I did in the labor intensive manufacturer located in Tangerang area is working well. The program started in 2012 up today. Please see the table below:
Instead of increase 17.6%, it decrease 2.6% indeed up to July 2014. The only investment is build a 420 sq. Meter finished goods warehouse in anticipating more output as a result of the program. The program is focus on labor productivity. We also applied materials management and process engineering improvement in supporting the program.
The basic concept is quite simple. Let say the minimum wages per manhour is $1.0. The selling price is $5.0 per piece. So the labor cost percentage is 20%. Now, the minimum wages increase 30%, from $1.0 per manhour to $1.3 per manhour. To keep your labor cost percentage 20% without increase your selling price, then you must improve your productivity from 1 pce per manhour to 1.3 pcs per manhour, or in another way, you can reduce your manhour from 1 manhour per 1 pce to 0.77 manhour per 1 pce.
As the nature of labor productivity program, when the program implemented effectively and continuously improved, by the time, the result even better as you can see from the table above.
The basic concept is quite simple. Let say the minimum wages per manhour is $1.0. The selling price is $5.0 per piece. So the labor cost percentage is 20%. Now, the minimum wages increase 30%, from $1.0 per manhour to $1.3 per manhour. To keep your labor cost percentage 20% without increase your selling price, then you must improve your productivity from 1 pce per manhour to 1.3 pcs per manhour, or in another way, you can reduce your manhour from 1 manhour per 1 pce to 0.77 manhour per 1 pce.
As the nature of labor productivity program, when the program implemented effectively and continuously improved, by the time, the result even better as you can see from the table above.