Aircraft builders, engine makers and weapons manufacturers all tell the same story: defense contracts are not particularly profitable, and labor overruns eat up what little profit there might be. Yet, many aerospace and defense companies struggle to track and control production labor costs, leading to erroneous or out-of-date costs that erode margins and prevent contract compliance.

Two ledgers, one workforce

Engineers and manufacturing employees usually record their working hours separately in different systems, even though they are both working on the same program. Engineers do it based on proposals, change orders, or design tasks on a PLM system or a standalone timesheet. On the other hand, manufacturing employees enter the labor based on a work order and routing step into an MES or a shop floor data collection terminal. These systems don’t usually talk to each other.

This split isn’t a training issue. It’s structural. Engineering thinks in tasks and deliverables. Manufacturing thinks in work orders and routings. The cost pools that matter to accounting – touch labor, indirect labor, overhead – get assigned differently depending on which side of the wall you’re standing on. When the two ledgers finally get compared, usually weeks later, the mismatches show up as labor variances nobody can fully explain.

The bridge is point-of-work data capture

The solution is not to remove your ERP or replace your MES systems. Since most of those systems’ worth is already embedded in how your business operates production and finance, the answer lies in creating the layer in the middle that is missing – which will capture labor in real-time and route it to the right project, work order, and cost pool prior to entering the ERP or MES.

This is where automated time collection technology comes in. A badge scan or clocking-in at a terminal can be mapped directly to the correct cost code, based on rules that have been developed from the engineering schedules and production routings of your program. A tool like AutoTime fits in here – it is available where the work is done, it uses the labor distribution rules that your program is already running on, and it forwards clean, coded data to the systems of record instead of leaving it for an accounting clerk to unravel three weeks later.

It is an important difference: you are not creating a new system of record. You are fixing the handoff.

Why this matters more in aerospace and defence

Most industries can absorb a sloppy labor variance and move on. Aerospace and defence contractors can’t. DFARS requires an auditable, compliant accounting system, and CAS governs exactly how labor costs get accumulated and allocated across contracts. If your engineered labor standards don’t match what actually happened on the floor, that’s not a footnote – it’s the kind of finding that triggers a cost accounting disclosure statement review or a contract dispute on a fixed-price program.

AS9100 adds another layer, since it requires traceable records for the processes that touched a part, including who worked on it and when. Add ITAR restrictions on which personnel can even access certain programs, and you’ve got a labor tracking problem with three separate regulatory tripwires attached to it.

The scale of what’s at stake shows up in the numbers. The GAO’s 2021 assessment of major defense acquisition programs found the Department of Defense’s weapon system portfolio had grown by more than $160 billion above original cost estimates. A meaningful share of that growth traces back to labor mischarging, weak cost accounting controls, and production data that never lined up cleanly between primes and their suppliers. That’s not an abstract governance issue. It’s the direct result of engineering and manufacturing labor data living in two disconnected worlds.

Rolling it out without disrupting the floor

A few things make this work in practice.

First, standardize your labor activity codes. If engineering and manufacturing call the same cost pools something different, no amount of automation makes that reconcile cleanly.

Second, train shop floor staff on why the cost code matters, not just how to punch it in. People charge time accurately when they understand it affects program billing, not just when they’re told to.

Third, pre-populate time entries from the production schedule wherever you can. It reduces manual selection errors and speeds up the clock-in process on busy lines.

Finally, set a weekly cut-off for time approval and stick to it. Waiting until month-end to catch discrepancies guarantees you’ll catch them too late to fix anything.

What you get once the gap closes

When engineering and manufacturing labor data finally reconcile, program managers receive a luxury they typically are not afforded: a reliable assessment of as-bid versus actual labor cost that is accessible while the program is still in progress, not just after the fact.

The downstream value is real. The bid team immediately has access to a cleaner slice of history upon which to work the next proposal. The cost accountant is no longer a detective, armed with mundane aggregations of disparate financial statements and an interminable schedule of indirects. Instead, she becomes an analyst armed with timely, meaningful aggregates in which most of the variances are the deltas, not the unknowns. The auditor finds a defensible trail of breadcrumbs rather than one that must be reconstructed. Most importantly, labor does not enter the equation after-the-fact as an administrative input. Instead, it becomes one of the most considered and reliable inputs as to how the business proposes to price and manage risk on each and every contract in the future.