For many Manufacturing, Trades and Tech Companies labor is the single largest expense item in their operation. Labor costs are often the difference between profit and loss and the quality of life the business owner will enjoy. Here are some approaches to take when looking to reduce labor costs.
First, it is absolutely imperative that labor costs are tracked to the point of micro-managing. Without information it is impossible to make “informed” business decisions.
So how can you reduce labor costs by 30% in 90 days? By reviewing all process and looking for unnecessary steps. I am reminded of a situation where I was reviewing a plant with about 35 production personnel. I stood one day and watched how the product was moved through the facility and noticed that product was moved from one spot to another, to only be moved again a short time later – a couple times. I asked the shift supervisor why this was being done. His answer was, “that’s the way we have always done it”. I asked him to let me know what the impact would be if we removed the steps from the process.
A couple days later the shift supervisor came to me and said “we can reduce our labor cost by 30% without losing any throughput. I have to be honest; I was a little surprised as I only expected to see a 10 – 15% reduction. This example may be a little unusual, but the lesson remains. What unnecessary processes are in your operations? Here are a few tips to get you started.
- Breakdown your processes into every minute step. For each step ask yourself “what value does this step add to the process?” and “what would happen if we removed it?” Keep removing unnecessary steps until the operation is a lean as possible.
- Be prepared to kill “sacrificial cows”. Don’t accept answers like “that’s the way we have always done it”. You will be amazed at how many people always questioned the traditional methods but just didn’t bother saying anything.
- Create expectations. Unless there are external expectations placed on us it is natural to work within our “comfort zone” leaving unused productivity. By establishing productivity expectations you will challenge your team to rise to the occasion and you may be pleasantly surprised by the results.
- Get Out There! Do a ride along with your Techs or walk the shop floor. Keep an open mind. You may notice things that will shock and surprise you.
Running a business is like working on your golf swing or your slap shot. It will never be perfect but if you keep finding ways to improve it every day you will be able to look back and see the significant progress you have made.