Those dispatch companies which have acquired expert knowledge on rules governing the industry, will be leaders of the industry.
There are two ways for a company to use outside manpower: worker dispatch and outsourced work service. Outsourcing has some merits compared to worker dispatch but has many rules that must be followed. In fact, nowadays not many persons in charge of placing orders for outside manpower are familiar with them.
Nevertheless, companies have to pay close attention to such rules to prevent being recognized as rogue operators or run afoul of the government. In this interview let me elaborate on some points of caution concerning the outsourced work service.
What is the objective of the Revised Worker Dispatch Law (WDL)?
The revised WDL appears to have some clear objectives.
Outsourced work services must comply with many rules and regulations and companies which breach those rules are regarded as renegades. In fact, many such cases have happened in the past. Let me explain by using actual examples, without disclosing company names.
Let’s assume there is a manufacturer, Z. Z divided its production line into several processes and outsourced the work on five consecutive processes, from A to E, to five outsourced work providers, A, B, C, D, and E. Then, the Labor Department conducted on-site inspections and recognized this work scheme as bogus.
In this case, several practices were regarded as problematic. One such practice was not to have Company Z being involved between the processes performed by different outsourced work providers.
Specifically, the work-in-progress was directly handed over from the A process production line to the B process production line. Based on the rules of outsourced work provision, Company A, upon completion of its work process, is required to deliver its work to Z, which then inspects the work done, keeps it as half-finished product in its inventory, and hands it over to Company B to do the next process.
In this case, however, the half-finished product between the A process and the B process was not recognized as inventory. That is, inventory was under-recorded and under-reported. Moreover, Company Z was not involved in between the two sets of processes and the work was directly handed over from Company A to Company B.
Other problems are that when Company Z issued its work orders the amount of “equipment rental fee for manufacturing” was calculated on shaky grounds.
Another problem was that the attendance record of workers was attached to invoices from the service providers.
You may wonder what was wrong with this. Well, the price of outsourced work service is legally supposed to be fixed “based on each work.” By attaching the attendance record of workers, this was recognized as proof that the cost was calculated “based on per-hour cost” just like the work dispatch, which is another workstyle category.
In this case, Company Z’s insufficient understanding of laws and regulation of outsourced work services caused problems.
On the other hand, even companies which place orders pay close attention, some cases could be recognized as bogus outsourced work.
For example, Company X outsourced multiple processes of a production line to outsourced work provider F. However, due to increase in production, F became understaffed and subcontracted a part of its work to another company, G, and engaged a dispatch agency H.
This type of subcontracting could occasionally happen in manufacturing in general. However, if each part of the subcontracting work did not satisfy appropriate requirements, Company X is liable to be penalized or accept certain obligations through administrative guidance from government officials. In a more serious case, Dispatcher H may use another dispatch agency as a subcontractor. As control thus becomes weaker and compliance is threatened, this means that Company X must be extremely careful in selecting the good trustworthy service provider
Rules for outsourced work service are wide-ranged and detailed
The basic form of outsourced work in manufacturing is to separate the production line into multiple processes and to outsource a part or the entire processes to specialized outsource service companies. In the past, dispatch workers had been used to undertake such work. However, demand for such work has become bigger in scale and more manufacturers have shifted to use of outside manpower for their processing. Due to complications in training and work instructions, and, foremost, the problem of the limited duration for each dispatch worker assignment, the shift from use of dispatch workers to adoption of outsource work services has accelerated.
However, manufacturers must be aware that outsourced work services are subject to a wide range of many detailed rules. As an example, manufacturers must clearly separate the production line to “own processes” directly operated by their employees and “outsourced processes” undertaken by the outsourced service providers.
This is intended to make clear differentiation of areas to everyone involved. The staff of outsourced service companies must wear different uniforms and caps, or otherwise wear their own name plates or tape different colors on their cap, so that they are easily identified.
Moreover, in order to ensure independence of the chain of command and the operating plan, the companies have to separate documents, follow certain rules regarding the format of their record forms, and regarding positioning and directions of notice boards, and in some instances use of a marked calendar in the workplace.
To be familiar with all wide-ranged and detailed regulations is a great burden for persons in charge at the client company. Moreover, even if they thoroughly understand such information, they may still encounter many contradictions or vague points in practice.
In the first example of Company Z, which was inspected on-site, it was recognized as illegal that the half-finished product between the A process undertaken by Company A and the B process by Company B was not temporarily in possession by Company Z. However, how long and how much half-finished products have to be kept by Z? Neither practical criteria nor an explicit answer are available.
Here comes a role of UT Group companies. Companies engaged in outsourced work service, such as UT Group, should be prepared to provide appropriate answers in all cases.
This requires the company to coordinate views of related government agencies which actually implement laws and regulations.
This means that we make frequent visits to these agencies, ask about specific cases, and try to obtain clear and complete answers. We believe that when we coordinate with various agencies and promote appropriate business and production operations, it will result over time in raising our value. Moreover, this kind of practice will result in more sound operation and improved compliance for the sake of client companies, dispatch companies, and all of their workforce concerned.
Raising professional awareness of the overall industry
Going forward, after the Revised Worker Dispatch Law became effective, work styles will continue to drastically change. In the meantime, client companies will continue to want to have stable manpower and some will shift from worker dispatch to outsourced work services, partly due to the revised law’s new constructive scheme that obliges the dispatch company to offer the dispatch worker direct employment if any rogue dispatch practice has been discovered. A high degree of familiarity with related laws and regulations is requisite for a dispatch company to stay in business, whether dispatch or outsourced service.
If some dispatched companies’ outsourced work service by a few hundred workers were recognized as rogue behavior, those companies, as a corrective measure, must directly employ them as regular workers. How much would their personnel costs jump up? What could be the damage to their corporate image?
In order to prevent such a disaster, companies engaged in dispatch and outsourced work service must enhance compliance in addition to having sufficient knowledge and know-how for both types of business.
As one of such initiatives, the Japan Production Skill Labor Association, which comprises manufacturing personnel service companies as members, set up a council of outside advisors and established the system to recognize blue-chip companies in manufacturing dispatch and outsourced work service. In addition to compliance with laws and regulations, the criteria include whether the company improves employment management and enhances its service system. At present, around 50 companies, including UT Group, has been recognized by this system. This, however, represents merely 0.06% of the industry of 75,000 companies across Japan.
We believe that these blue-chip companies will be leading the entire industry to improve.
Often, at a large-scale production line, more than one dispatch company has people working in the same factory floor. If there is one blue-chip company, it can influence other companies via the client.
If the client has to cut production and thus to drop one of those outsourced service providers, I think that a recognized blue-chip company should be less vulnerable than others.
Competition based on better quality has started up in our industry.
While it would take time for the efforts made by one company to resonate with peers and then with the overall industry, changes will happen slowly but surely.
“Accumulated knowledge, know-how through actual experiences, and always-ensured compliance.”
This is our weapon to prevail in the industry and our reason to be the company of choice. I believe this must also be a driving force to develop the overall industry.
Materials for downloading
Reference materials on the Revision of Worker Dispatch Law are available.
* The link site is only available in Japanese text.
Companies who are thinking about termless dispatch (regular employee dispatch) and companies who are considering corporate transfers or sales should please feel free to contact the Business Development Department of UT Group.
Available from 9:00 to 18:00,
except Saturdays, Sundays, and holidays
* The link site is only available in Japanese text.