When should Management consider a Shift Schedule Unsustainable?

Most production managers have been there. Demand is higher than their ability to supply ― without the use of overtime.  The logical, and possibly, the best solution in the short-run is to go ahead and produce more by using overtime hours.

What is going on when you ramp up overtime?  What are the costs?  What are the benefits?  Most importantly, if using more overtime is a good decision now, is it still a good decision going forward?  In other words, are the cost-to-benefit rewards consistent over time?

The benefits in the short run should be clear – you are meeting the demands of your customers. Furthermore, you are doing so without additional capital and at only a small inconvenience to your employees. The cost of such an action, using overtime, is minimal.  The actual labor cost of a fully-loaded straight time hour and an hour of labor paid at the overtime rate are probably comparable.  The workforce is likely to tolerate a reasonable amount of overtime.  In fact, our database indicates that you should expect about 20% of your workforce will take all the overtime they can get.

What about the long run?  What happens if you start running your operations every Saturday instead of just a few?  What happens when you start running through the weekend?  In other words, your employees work Monday – Friday, then they work the weekend and then, they work Monday – Friday again. That’s twelve days in a row!

Business leaders recognize occasional overtime is not a problem but they are equally certain that overwhelming overtime is.  The question becomes, “When are you going to do something about this?”  When have you crossed the line from “Overtime is Reasonable” to “Overtime is Out of Control?”  This line can be fuzzy when you cross it but looking back, you will see that you are on the wrong side and possibly have been for some time.

Expect these things to happen as your schedule ― packed with overtime ― becomes unsustainable:

  1. Employees will begin to complain about never having a day off
  2. Absenteeism will begin to go up as employees find ways to get time off and have plenty of overtime income to finance missed work
  3. Recruiting new employees into a high overtime schedule will be difficult
  4. Turnover will increase as your employees seek “greener pastures”
  5. Quality will begin to suffer as sleep deprivation begins to affect performance
  6. Productivity per labor hour will drop
  7. Safety incidents will begin to rise
  8. Labor costs go up as performance per labor hour drops
  9. First level supervision will become less supportive of management goals as their overtime goes up in parallel with their workers
  10. Total productivity begins to drop as the workforce tires and vacancies become difficult to fill
  11. A significant portion of the workforce will begin to rely on their overtime to make ends meet, making them resistant to lowering overtime levels

The above symptoms tend to blossom as time goes by and are often ignored in their infancy.  (This is understandable as the very genesis of the situation is one where you are scrambling to find a way to meet your production numbers. You had higher priorities.) Eventually, a shift schedule, inundated with overtime, will reach the point when you ask yourself, “How much longer can we keep this up without creating new problems?” (Points 1-10.)  This is when you realize that your current shift schedule is unsustainable.  Yes, you can hold it together with “duct tape” solutions, but you can never make it do well what it was not intended to do.

If you resort to replacing overtime hours with straight time hours (hiring more people) but you don’t change your schedule, you will end up overstaffing where you already have coverage ― while adding no new hires where you currently have no staffing.  Labor costs will go up and high overtime will remain unaffected.  In short, you added straight time hours but the hours didn’t land where you needed them to.

If you want to reduce overtime without overstaffing you need a new schedule.  

At Shiftwork Solutions, we create custom-designed schedules that enable business leaders to increase production, attract a skilled workforce and keep costs under control. Our data-driven processes, communication centered approach and project execution bring about the changes needed to improve business operations and production output, reduce per-unit costs, all while creating an environment where workers feel empowered to help the organization achieve its goals.  Our experts bring in best practices from wide-ranging industries with complex operations to tailor solutions for specific operational needs. Call or text now at  (415) 858-8585.

Overtime: A Grab-Bag of Information

If you manage a shiftwork operation or if you are a Human Resource manager in a shiftwork operation or if you are a shift worker then – Overtime is a big deal.

Based on my 30 years of experience working with shift workers and shiftwork operations, I consider myself to be an overtime expert.  I have worked with companies around the world for more than 25 years helping them address staffing and scheduling issues, most of which have some level of overtime as a component of the overall situation.

  I thought I would try to put all of these issues into a single blog along with my own perspective.  Wish me luck…

  1. An hour of straight time (fully loaded) costs a company about the same as an hour of overtime paid at the rate of time and one-half.
  2. About 20% of people love overtime.  About 20% of people hate overtime.  About 60% of people will work their “fair share”.
  3. When it comes to overtime, the “marginal propensity to save” is always less than one (1).  What this means is that people don’t save 100% of their overtime income.  This also means that they up their standard of living when they spend overtime income (even if this means they only bought an extra candy bar).
  4. As people adjust their standard of living, they become “addicted” to the overtime.
  5. Consistent high levels of overtime extending beyond 6 months in a row will result in “Golden Handcuffs.”  This is a phenomenon where people will complain about too much overtime ruining their family lives AND complain if overtime hours are cut because they can no longer afford to make a car or house payment.
  6. Overtime at union sites is a particularly tough problem.  Senior employees get the prime overtime during the week and the junior employees end up working the undesirable weekend overtime  The result is a high turnover of new employees who tire from never having a day off.   I typically recommend that senior people get first shot at overtime up to a certain level (56-60 hours in a week) before they go to the bottom of the volunteer list.  I also typically recommend that junior employees are the first to be forced to work overtime up to a certain level (56 -60 hours in a week) before they go to the bottom of the forced list.  This recognizes seniority while keeping people from “voluntarily” working themselves to death while, at the same time, giving the junior people time off to recuperate every week.
  7. If your workload is flat (does not change by the week, or month or season) then a good target for overtime is between 5% and 15%.
  8. If your workload is highly variable, the optimal level of overtime (considering both cost and fatigue) may be much higher than 15%.
  9. Too much overtime is less of a problem than too many days of work in a row.  We short ourselves sleep on days we work.  The more days in a row we work, the farther we fall behind in our sleep.  We need days off to catch up on our sleep.  In other words, it’s better to work four 12-hour shifts in a week than to work six 8-hour shifts.  Both have 48 hours but the 12’s have 3 times as many days off for recovery.
  10. If a machine paces the work, then moderate levels of overtime will not have an impact on productivity.
  11. If people determine the pace of work, more overtime will cause the people to slow down, even if it is unintentional.
  12. Overtime at high levels will cause drops in productivity, safety, quality, and retention.
  13. When assigning overtime, do so as far in advance as possible to minimize the disruption to the plans your workforce may make outside of the work environment.
  14. If your overtime level is zero, you are not “perfectly” staffed.  You are over-staffed.
  15. The accident rate per hour should be expected to go up between the 12th and the 14th hour worked in a day.
  16. Overtime does not make people sleepy.  Lack of sleep makes people sleepy.  Circadian rhythms also play a role in alertness.
  17. Overtime allows a company to compete for labor with other companies that may pay higher hourly rates but offer very low overtime amounts.
  18. When people work outside of their normal schedule, pay them a premium.  They are helping you on time that was originally considered to be their own.
  19. Straight time is typically purchased in 40 hour/week increments when you hire someone.
  20. Overtime hours can be purchased in any quantity you wish.  Even though it costs the same as straight time, you are actually getting a fully qualified person as opposed to hiring and training someone to provide more hours.
  21. All employees want overtime when they want it and they don’t want it when they don’t want it.  Go figure.

I welcome your questions and feedback.  If you disagree with me, first ask yourself, “Is my perspective different from the one Jim was using when he wrote these?”  I say this because I can easily find unique situations where each of the above is not true.
 

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5 Things You Should Know About Overtime

  1. Quantity Matters.  If your workforce is complaining about overtime, don’t assume that it’s always because there is too much.  It may be just the opposite.  In most workforces, about 20% of your workforce will avoid all overtime.  At the same time, about 20% of your workforce will work all the overtime they can get.  The remaining 60% will tolerate what they consider “their fair share.”  Find out how much overtime your workforce wants and try to make it available to them, within reason.  Too much overtime and you run into fatigue-related issues, even if your workforce wants it.  Too little overtime and you lose flexibility to respond to short term labor needs.
  2. Distribution Matters. Suppose you knew, on average, your workforce wants 8 hours of overtime a week.  If you gave everyone 8 hours of overtime a week in response to this knowledge, you will likely find that you made very few people happy.  Why?  Because not everyone wants the same amount of overtime.  You may have a workforce where half want 16 hours of overtime a week and half want none.  So, giving 8 hours to everyone meets the needs of no one.  The key is to have a process that gets overtime to those that want it without forcing it on those that do.  While it’s probably impossible to hit this mark all the time, efforts to do so will be noticed and positively received.
  3. Cost Does Not Matter. While employees make 50% more money when working overtime, the company actually does not incur an increased cost when they pay this 50%.  The reason for this is that straight time and overtime are not “loaded” the same way.  When looking at the cost of paying for a straight time hour, one must not only consider the wage, but the additional costs such as medical coverage, payroll taxes, holiday and vacations.  Of these extra costs, only payroll taxes apply to overtime.  The result is that overtime and straight time probably cost the same (plus or minus 5%).  Companies may worry about their overtime costs and try to lower these by hiring more people.  They can then see overtime costs drop, but this should be accompanied by a nearly identical increase in straight time costs.
  4. Lead Time Matters.  Resistance to overtime is inversely proportional to how far in advance the overtime is announced and assigned.  If the lead time is short, resistance is high.  If the lead time is several days or weeks in advance, resistance is low.  Actively look for ways to extend the amount of time between the assignment of overtime and when the overtime will actually occur.
  5. The Schedule Does Not Matter.  Overtime quantities depend on two things: (1) How much work there is and (2) How many people you have to do that work.  Low staffing equals high overtime and high staffing equals low overtime.  The schedule only determines “Where” the overtime will occur.  Does it occur before or after a shift?  Does it occur on a weekend?  Does it occur on a day off?  These are the things a schedule determines.

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

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

As 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 in this with regard 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 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 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.   It’s 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? Is 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 skills in San Francisco, you may need to “grow your own.”  Can you scale back with seasonality by using shorter workweeks 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 less 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 to 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 ensure 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.

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Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

The difference between “a schedule” and “your schedule”

The number one way that companies find a shift schedule is to hold a meeting and ask, “So, does anyone know of any shift schedule patterns?”

There are several false assumptions built into this methodology.  One is that all schedules are created equal; that any schedule that covers the hours needed is as good as any other schedule.  Another is that the workforce, having been allowed to choose between a couple of patterns will be satisfied that their needs have been considered.  Also, there is the one-size-fits-all idea which says that if one area goes to a 24/7 schedule (for example) then all other areas must follow suit.  There is the staffing assumption that you must staff to allow for ZERO overtime and that all areas of the operation must increase or decrease staffing levels in lock-step; that is to say, if a new schedule covers 40% more hours you will need 40% more employees across the board (including supervision, quality, maintenance, etc.)  Finally, there is the assumption that policies for things such as holidays and vacations, which worked for your old schedule, will also work for your new schedule.

There are actually many, many more issues that are overlooked or swept under the carpet in the name of expediency, but I think you get the picture.

The right schedule is one that is implemented using the old carpenter’s adage of “Measure Twice and Cut Once.”

Taking the time to do a schedule change right will not only save you from problems down the road but will likely result in immediate productivity gains and cost decreases which are not realized by the “Who knows a schedule pattern” methodology.

Here are my thoughts on just a couple of the “assumptions” mentioned above.

Employee participation is more than just allowing them to select between a couple of patterns.  Participation means they know why a change is taking place.  They are educated about what schedules can do (and can’t do).  They are given a wide variety of options that span the range of what is available instead of just a few similar patterns.  They are allowed to have meaningful input on things like overtime levels, start times, the day on/off patterns and more.  They are given “perfect” information about their final options in such a way as to allow them to discuss the options with their families before making a choice.

One-size-does NOT-fit-all:  You may have an operation that absolutely needs to go to 24/7 (for example).  In some cases, this means a “balanced” schedule across all days of the week where every day has the same number of people in production.  However, suppose one or more areas can keep up with the 24/7 production by only running one shift a week; should they go to the 24/7 schedule?  What about maintenance?  Should they have a “balanced” schedule or should the labor be moved to parts of the week that maximize production?  Remember, maintenance is at its peak performance when production is at its lowest.  (It’s hard to fix equipment while it is running.)  What about quality, engineering, and office staff?  These areas rarely need to go to a 24/7 schedule (in their entirety) when production does.   The “Best Schedule” is usually a collection of schedules that allow all areas to operate and support each other seamlessly.

Staffing is where most companies make the most costly mistakes.  They either over-staff and thus, pay for labor they don’t need or they under-staff and run the risk of high fatigue and turnover that typically come with a worn-out workforce.  Staffing is not guesswork.  There are mathematical solutions that will tell you what the optimal staffing level is for your site.

As for policies, let me just say this: “If you think your 5-day policies will all work just fine on a 24/7 schedule – you are wrong.”

If you decide to “go it alone” let me at least offer you this: Give me a call when you get stuck.  So long as I don’t have to pick up a pencil, I’m free.  So don’t make a mistake because you didn’t have someone to go to. 

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Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

6-day schedules (part 3)

This is the third in a series about 6-day schedules.  I recommend you read 6-day schedules (part 1) and 6-day scheduled (part 2) before going forward with this one.

Today’s post will begin the focus on a 12-hour schedule pattern for covering 24 hours a day, six days a week.

The premise behind this schedule is that you still only want to use three crews to cover six days, but you would rather not hire more employees.  Because of this, everyone will still have to work 48 hours a week (changing schedules does not change total hours worked.  Only changing staffing or the workload does that).  This schedule allows people to get their weekly 48 hours in by only coming to work for four days a week.

Let’s look at a quick comparison:

8-hour shifts: Work 6 days @ 8 hours and get one day off per week.  Total hours worked – 48

12-hour shifts: Work 4 days @ 12 hours and get three days off per week.  Total hours worked – 48

Picture2

This pattern can be worked as either a fixed schedule, a rotating schedule or and oscillating schedule.  The way it is shown here is as an oscillating schedule.  This is a schedule that has both “fixed” and “rotating” features.  In this example, the crews labeled “Days” and “Nights” are working fixed shifts.  That means they are always on Days or Nights.  The crew labeled “Day-Night” actually rotates between Day shift and Night shift (Nights on Mondays and Tuesday and then Days on Fridays and Saturdays).

There are several benefits to this schedule over a traditional 6-day, 8-hour pattern.

Employees will like it for a variety of reasons.  All will appreciate the extra days off.  The Day shift people will like having every weekend off as a 3-day weekend.  The Night shift people will like having 3 days off in a row, even though they are Sunday through Tuesday.  The rotating crew will typically be the junior-most crew.  As the junior employees, they could be looking at years before they have enough seniority to get to the Day shift.  In this schedule, they work the Night shift for 2 days and then do not have to return to nights for another five days.

On the downside, the nature of the work must always be considered when looking at 12-hour shifts.  In nearly all cases, if someone can do something for 8 hours at a time for 6 days in a row with a single day of rest in between, then they can do that same thing for 12 hours at a time for 4 days a week with three days off per week to rest.

Most companies that go to 12-hour shifts will find that they need to rework some of their pay policies.  For example, if you only pay up to 8 hours a day when someone goes on jury duty, you may want to rethink that policy.

In 6-day schedules (part 4) I will return to the 8-hour idea.  We will look at a way to add people in a less-than-full-crew increment to reduce overtime.

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Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

Overtime: Fact V. Fiction

It is not unusual for a company to contact us with the following idea: “If I can just put in the right schedule, I will save a ton of money on overtime.”

There is really just one condition where this is absolutely true.  If your current schedule has too many people at one part of the week and not enough people at another part of the week, the right schedule will correctly redistribute these people and you will save a ton of money.

Then there are times when this is partially true.  If your operation is expanding and the size of your workforce is fixed, then overtime will go up.  When overtime goes up the following happens: (1) The workforce makes more money, (2) The workforce becomes fatigued, (3) Productivity per person will drop, (4) The accident rate per hour will go up, (5) Quality will decrease and absenteeism and turnover will increase.

The perfect schedule will allow you to keep these from happening.  It does this by allowing you to add straight time hours to “replace” overtime hours.

Note the use of the term “replace.”

In most cases, reducing overtime means adding straight time.  From a cost perspective, the two are nearly identical.  Straight time costs include wages AND benefits as well as taxes.  Overtime costs include a premium rate and taxes.  In the end, they typically cost the company the same.  What this means is if you say, “We can eliminate $1 million a quarter in overtime costs with a better schedule!”  It is very likely that your next sentence should be “However, we will also spend $1 million a quarter in additional straight time costs.”

This is not to say you should not keep a handle on your overtime.  Too much will certainly cost you; often in disastrous ways (as noted above).  However, overtime should not be seen as the “low hanging” fruit on the road to reduced costs.

If you want to reduce your costs – increase your volume.

There is no simpler way to do it.

By the way, most companies, with level production levels find that an overtime rate between 5% and 15% is just about right.  Keep in mind, in a typical workforce, 20% of your workforce avoids all overtime.  20% of your workforce loves all the overtime they can get.  The remaining 60% will work what they feel is a fair amount.

If you want to know how your workforce feels about overtime… Ask them.  Don’t guess. Or…

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Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

The Cost of Time

Suppose I asked you the following question:  “Will an employee make more or less money when they work overtime?”

You might quickly answer: “Yes.  They make anywhere from 50% to 100% more when they are being paid at the overtime rate.”

And you would be right.

Now, suppose I asked you, “Which costs you, the company, more to pay: overtime or straight time?”

This question is much more complicated and has a surprising answer.

When you take into account the cost of straight time, you must consider the additional cost of medical plans, retirement, vacations, holidays, etc.  While overtime and straight time both have payroll taxes, only straight time is burdened with all of these other costs.

The fact is that the cost to your company for an hour of straight time or overtime is probably about the same.  My experience is that they are nearly always within 5-10% of each other; sometimes straight time is more and sometimes overtime is more.

The math says that the higher your hourly rate is, the more likely it is that overtime will be more expensive.  Conversely, the lower your hourly rate, the more likely it is that straight time is more expensive.

This is a rather fortuitous result.  When your wages are low, you can use overtime to enable your employees to enhance their income.  In doing so, you may actually be lowering your hourly labor cost.

If you have any questions regarding this or any other shiftwork issue, please give me a call.

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Call or text us today at (415) 858-8585 to discuss your operations and how we can help you solve your shift work problems. You can also complete our contact form and we will call you.

Is Overtime Really a Problem?

I recently participated in an online forum about the “Evils of Overtime.”  I was surprised at how uniformly overtime is seen as something to be avoided.  Its as if overtime was a measurement of how poorly you were managing your workforce.  Here was one of my comments:

Overtime is only a problem if you see it as such. It’s not unusual for a company to contact me with an “overtime” problem. They look at their costs and see, for example, a million dollars spent on overtime last quarter. They think they will save this amount if they eliminate overtime. The fact is that, unless they are improperly staffed, they will only reduce overtime by increasing the straight time (hiring). After all, the work supposedly needs to be done and eliminating overtime means its either not getting done or you found another way to do it.

The cost of an hour of overtime is typically competitive with the cost of straight time. I’m working at a company right now and the precise cost of paying someone $15.47 an hour is $25.25. At the same time, the cost of paying someone that same hourly rate at time-and-one-half is…$25.35 an hour. 10 cents more!

Overtime allows you to compete for labor even though you cannot afford a high hourly rate. People can make more money and supplement their income in spite of low wages. I can work at company A for $20 an hour but no overtime or I can work at company B for $17 an hour but can work all the overtime I want.

Overtime is flexible. You don’t have to buy it in 40-hour/week increments. The person is already trained and hired.

On the downside, there are fatigue/safety issues, although these can be managed if you are paying attention. There is also to the potential of too much overtime – translated into “not everyone likes a lot of overtime but everyone is getting a lot of overtime.”

This last issue can be fixed if you remember that overtime is a function of how much work there is and how many people you have to share in that work. Variations in workload aside; you should staff to the point that there are typically reasonable amounts of overtime for those that want it and very little mandatory overtime for those that don’t.

Two rules of thumb: (1) 20% of your workforce wants a lot of overtime; 20% wants no overtime and 60% will take it from time to time and (2) If your workload is flat, you should be in the 5% to 15% overtime rate. Note: Companies often boast that they are perfectly staffed because they have no overtime. They couldn’t be more wrong. Zero overtime almost certainly means you are overstaffed.

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