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:
- Employees will begin to complain about never having a day off
- Absenteeism will begin to go up as employees find ways to get time off and have plenty of overtime income to finance missed work
- Recruiting new employees into a high overtime schedule will be difficult
- Turnover will increase as your employees seek “greener pastures”
- Quality will begin to suffer as sleep deprivation begins to affect performance
- Productivity per labor hour will drop
- Safety incidents will begin to rise
- Labor costs go up as performance per labor hour drops
- First level supervision will become less supportive of management goals as their overtime goes up in parallel with their workers
- Total productivity begins to drop as the workforce tires and vacancies become difficult to fill
- 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) 763-5005.