Category Archives: labor costs

Management By Walking Around

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Wage pressure is here.

Every site I go to the number one issue is “How can we get the people we need to produce at the level we need to produce?”

A facility struggles to find and keep qualified people and then a competitor opens the doors across the street.

What to do.

The short, and expensive answer is to raise wages.  Not just any wages; you need to raise entry level wages if you are looking to attract more employees.  You need to raise all wages if you want to keep employees.

This is Wage Economics 101.

We can get caught up in the “wages solve everything” train of thought but then we lose track of the fact that wages are not the only reason people come to work for you.

This brings me to the subject of this post: Management by walking around.

I was recently at a manufacturing facility where they were struggling with getting people in the door.  There was a lot of local competition for the same level of worker within a 20 mile radius.

This particular site was paying wages slightly below the median level.  This understandably made it hard to compete for new employees.  However, this company was having very little trouble retaining existing employees; employees that knew they could make more money for similar work just a mile down the road.

I was curious about this and went about interviewing people as to why they liked working there.  Overwhelmingly the answer was: “I like the people I work with.”  Nine out of ten gave this as their primary reason for working there.

Now, add to this equation, the plant manager; a young, very bright and energetic man.  He took me on a tour and introduced me to everyone we met.  He knew their first names.  He knew how many children they each had.  He knew who was in school.  In short, he knew everything about the 200 employees there as if they were his friends.

And that’s how he treated them.

It was clear that he was in charge.  If he saw a leak, he’d point it out to maintenance and they got after it.  If a machine was having a problem, he’d ask the operator what he, the Plant Manager, could do to help.

There was mutual respect across the board.

This manager spent a lot of time on the floor.  Mostly, I think, so that his people would see him seeing them.  His presence never had the feel of an inspection.  Rather, he was there to help them do their jobs.  The employees were working hard, but not for some unseen boss behind a closed door.  They were working for the man in the smile that knew them as if they were family.

This was a great place to work and I’m enjoying my time there.

It all started with the Plant Manager.  His positive attitude moved down through the ranks until the newest hire felt like he was an important part of what was going on around him.

Yes, wages are the big player when it comes to attracting and retaining quality employees.  But remember, its not the only game in town.

Jim

 

Staffing? <-Good Question

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Considerations for answering – How Many Do I Hire?

I’m a shiftwork expert so my posts are always centered on shiftwork operations.  That doesn’t mean that there isn’t something that a non-shiftwork operation might find helpful.  My hope is that every reader of every post is able to find value.

Most of my work, about 70%, is with companies that want to expand their operations while minimizing capital investment.  Basically, I help answer the question “How can I get more out of the equipment I already have?”

Once that’s been determined, my bread and butter is “process and implementation”.  I help them find where they want to go.  I valuate that destination and then I help them to get there.

One question is always “How many people do I have to add to get to where we want to go?”

There are short and long answers to this question.

If you are running three shifts, Monday – Friday and want to go to a 24/7 operation, you need to add 33% more operators.  You will also need to add another supervisor.

That was the short answer.

Here is the longer one…

This is really more of a list of considerations rather than The Long Answer.

First we have to land on an overtime number.  This is more than just creating an arbitrary goal of so many days or hours of work in a row.  Try answering the following questions for a start:

  • How much overtime do you want to have?
  • What does overtime cost (cost to company not income to earner) as opposed to fully loaded straight time?
  • What is the workforce’s appetite for overtime?
  • Is the process seasonal in that sometimes you need more people than other times? What is the level of operator specialization?
  • What is your turnover?
  • What is the lead time between needing a new hire to having a fully trained person?

The overtime issue is a big one since, with a fixed workload, overtime is a function of staffing.  More people = lower overtime.

If production is going to run more days, what does this imply for support operations?  Will quality, maintenance and sanitation requirements be expanded? Often the answers is something like this:

  • Quality will be affected slightly.  They will need more people but not 33% more.  Maybe something like 10% more.
  • Maintenance will actually become more efficient as you no longer have to be staffed at a level where you can fix everything on a weekend.  When running 24/7, maintenance is often spread out on the more productive weekday shifts.  This may actually lower your maintenance staffing.
  • Sanitation crews sometimes drop to zero staffing.  This is because 24/7 operations no longer sanitize in accordance with a fixed day or time of day schedule.  Instead, they run for as long as they can and then the operators simply become sanitors and clean up their own lines; starting back up as quickly as possible.

You don’t need 33% more Plant Managers, HR Managers or Engineers.  There is definitely a “cheaper by the dozen” affect when it comes to many of the higher level non-direct labor positions.

Clearly, if production goes to a 24/7 pattern, not everyone at the plant needs to do so as well.  In fact, there is a good chance, depending on your operation, that not all of production needs to go.  It’s not unusual for some lines to go to 24/7 while others remain on a 5-day schedule.  In some instances, running your high volume equipment more hours will actually take fewer people instead of more if you are able to retire some of you older, more labor intensive capital.

So there you have it….the longer answer.

The point here is that you need to do your homework.  Look at the fully loaded cost of a single employee.  Hire too many and things start to get expensive in a hurry.  My rule of thumb is to initially staff lean when in doubt.  If you are wrong, you can use overtime until you get the staffing right.  Coming in with too many people to start with will cause “income shock” to those that just lost all of their overtime AND you run the risk of overstaffing which is expensive and only fixable by painful layoffs.

If you have any questions, you can reach me at:

Jim@shift-work.com

(415) 265-1621

 

 

5 Signs that you may need a new shift schedule

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Shift schedules rarely fail overnight.  Typically, there are plenty of warning signs; signs that tell you to take action before it’s too late.  Here are the 5 biggest warning signs.

#1: You have idle equipment while still not producing enough to meet customer demands.  There can be a lot of reasons for this; nearly all of which point to a schedule that does not have the right people in the right place at the right time.  Product flow, staffing, maintenance and production order variability can all be addressed with the right shiftwork structure.

#2: Maintenance is blaming equipment availability for a downward trend in equipment up-time.  You can’t fix something while it’s running.  The result is often and solution like “We’ll wait until the weekend to fix it.”  This is fine until you find that leaving too much to the weekend ends up with an overly fatigued maintenance group with not enough hours on the weekend to fix everything.  Scheduling equipment, like scheduling people, can improve maintenance accomplishment while still getting the production hours you need.

#3: Absenteeism is going up as overtime starts to wear down your workforce.  As overtime goes up, two things will happen.  First of all, your workforce will start to get tired.  Secondly, they will notice that they are now making a lot of money and can afford to take time off.  This is a “death spiral”  situation in that it is self-perpetuating and will only get worse.  Staffing will impact overtime but to do so effectively, you must have a shiftwork structure to support the newly resized workforce.

#4: Local competition for labor is causing problems with recruitment and retention.  I can’t tell you how many times I’ve heard something like “Amazon just opened a mega-facility down the street and is hiring all of our employees away from us.”  The right schedule, one that is a good fit for your workforce as well as your business can help with this.  If wages are a concern, look for ways to get overtime to that 20% of your workforce that wants all they can get.  Overtime costs your company about the same as fully loaded straight time.  This means when you pay overtime, your employees make 50% more but your cost per hour is virtually unaffected.  Don’t lose your workforce because of wage pressures or quality of life issues.  The right shiftwork structure can help.

#5: Productivity metrics are dropping as equipment runtime-hours are on the rise.  If you are running more an more hours with the same old schedule, then you are probably seeing an increase in overtime.  While overtime is not a bad idea in many instances, it can eventually lead to worker fatigue.  This is especially true if you spread it evenly across all shifts.  Remember, not all employees want the same amount of overtime.  As fatigue goes up, so will accidents, quality issues and absenteeism.  You make find, for example, that running 6 days a week yields more output than running 5 days.  However, if you didn’t change schedules, a 20% increase in runtime will yield significantly less than a 20% increase in output.

In summary, don’t underestimate the impact of having the right shiftwork structure.  Fixing this issue is often the most expeditious and cost effective way of improving your overall operations.

For more information, call me, Jim Dillingham, at (415) 265-1621 or drop me a line at Jim@shift-work.com

How many people does it take to staff your schedule? (Part 2)

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There is a short answer and a long answer to this question.  Here is a link to the short answer.

Now for the long answer:

Take a look at the “short answer” in the previous blog post.  That is a good place to start.

The following should be considered to refine the number you get using the “short answer”:

  1. The cost of full time labor matters.  How much does it cost you to pay someone for an hour of straight time?  How much does it cost you to pay for an hour of overtime?  I am not talking about “how much an employee receives.”  I’m talking about cost-to-the-company.  If you do the analysis correctly, you should find that the two costs (overtime and straight time) are within 10% of each other.  This is important because the amount of overtime you use will play a big factor in staffing levels.  For a fixed workload, the higher the overtime, the lower the staffing level you need.

  2. How much training does it take to qualify an employee for a position.  It is likely that there is a wide variance on this with regards to different positions.  Do Not use and “average”.  If you need an astrophysicist and a box stacker, an average will give you a bad number (4 years of post-graduate study for the physicist and 5 minutes for the stacker = about 2 years, on average, to train an employee).  Long training times lead to an increased use of overtime and less reliance on other labor options such as temporary help.  If your workforce is staffed with highly  skilled people, whose skills are easily transferable to another nearby company, then you will have to bend a more towards compensation scheduling and employee preferences for overtime so as to not lose these people.

  3. How variable is your workload?  If your workload level is flat, you will still have some fluctuations in staffing as people are on vacation or FMLA etc.  When staffing fluctuates, you have have extra staffing available or you can use overtime or you can reduce production.  Cost, degree of variability, employee preference and the nature of your operations will all play a role in determining how you staff for variability.   Its worth noting here that the most expensive option is to over-staff or staff for peak production as this leads to frequent over-staffing which is costly. A highly variable workload tends to mean lower staffing and higher overtime.

  4. How available are alternative sources of labor?  It your workforce pro-overtime or overtime-adverse?  Is temporary or part time labor available? If you are in Memphis and need temporary, highly skill forklift drivers, there are temp. agencies that can give you all this type of labor that you want.  However, if you need those same temporary skill in San Francisco, you may need to “grow your own.”  Can you scale back with seasonality by using shorter work weeks or voluntary layoffs?  Note: If the answer is no, the staff to the lower end and use overtime when things get busy.

  5. What about support activities?  Things like maintenance, engineering, quality shipping/receiving and administration all need to be staffed appropriately as you grow (or shrink).  There is no simple formula for how to staff these as there is often not a “straight line” relationship between staffing numbers in operations and staffing numbers for support areas.  For example, a 30% increase in operation staffing does not mean you need 30% more CFO’s.  In some areas, you may actually find that you need fewer support staff.  For example, maintenance struggles to fix everything on the weekend but if you go to a 24/7 schedule, maintenance can now take place any time in the week; including weekdays where it can be performed more efficiently.

  6. Are you LEAN?  It’s “old school” to think you should stockpile between cells in a value stream ensure you never run out of product either upstream or downstream.  Instead, just-in-time is what modern operations strive for.  Many companies can maximize or throttle production using staffing alone.   This may mean you staff an area below its maximum capacity to enure it does not outrun its value stream neighbors.

  7. What is the opportunity cost of lost time?  This must be a consideration if you are going to staff with as few people as possible.  You may save a lot of money by having fewer maintenance specialists but then you might lose even more money if you suffer downtime because you are understaffed.

Staffing is at least as important as that next piece of equipment you are considering.  The right number of the right people will impact your cost structure at several different levels.  It will impact labor costs.  It will impact quality.  It will impact volume.  It will impact turnover and absenteeism.  It will impact your ability to respond quickly to your customers.

If you have any questions, please give me a call.

Jim Dillingham, Partner

(415) 265-1621 or Jim@shift-work.com