How to Manage Rising Labor Costs in Manufacturing

Labor costs are on the rise and many companies are struggling to maintain their profit margins. Now, many companies spend 60-70% of their total business expenses on labor costs.

analyzing and managing rising labor costs

Labor costs include all direct and indirect costs that employers pay, such as employee pay and benefits. One of the main reason for increased labor costs are due to reductions in employee productivity. This means that you are producing less and paying more for it.

What does this mean for you?

The main goal of manufacturing is to produce as many products as possible while maintaining costs low to make sure you are making the most profits. With rising labor costs, you want to make sure that your employees are as efficient and productive as possible.

To ensure that you are not losing profits, you may need to:

Change how staff is scheduled
Change your operations
Invest in training

How can you maintain profits without dramatically increasing your product prices or firing your employees?

How to Manage Rising Labor Costs

Monitor Performance - The first step you can take is to identify areas where employees are less productive. When you can look at your employees' performance reports, you can identify their strengths and weaknesses and identify the areas where they are lacking in efficiency. It is useful to use a software that can allow you to track the predicted and actual performance of your employees. This will allow you to look at each employee's performance on particular production lines, while making certain products, and even during specific shifts. When you have all of this data, you can determine when and where to schedule workers to increase efficiency and production numbers.
Identify Opportunities for Training - When employees are not performing as they should, it is important to consider the reason. Is it that they are overall poor performers that will cost your company money or that they do not have the skills to tackle their tasks? After having identified the areas where certain employees have reduced efficiency, you can decide whether additional training would be beneficial. It is much more costly to hire and train new employees than to invest in training or cross-training opportunities for your current employees. Hiring someone new can cost up to 30% of the job's salary. Cross-training involves using your highly skilled employees to train others to perform new tasks and roles which can increase your overall scheduling flexibility.
Create an Accurate Production Schedule - To prevent losing money and increase employee performance, it is important to create a production schedule that is an accurate representation of the real world. It is helpful to have a scheduling software with flexible modeling capabilities to accurately represent your staff. For example, you may have a worker that is capable of producing 50 units per hour and another that can only accommodate 40. It would be inaccurate to assume that the production schedule would be the same for all employees. Doing so will prevent your staff from being overwhelmed by the demands and will maintain a higher level of productivity in the long-term.
Invest in Automation - In almost all industries, the use of automated machines and softwares is increasing. With the rising cost of labor, it might be useful to analyze your operations and determine whether automating certain processes could cut costs down the road. Automation does not have to mean replacing your employees completely. It may however mean that you will increase your production output and quality of products while allowing your existing employees to perform more fulfilling tasks.

Our quality has improved as a result [of implementing PlanetTogether]. The software assigns the best person for the job.
DICK MARX, MATERIALS MANAGER, KNAPHEIDE TRUCK EQUIPMENT

Advanced Planning and Scheduling (APS) Software

Advanced Planning and Scheduling Softwares have become a must for modern-day manufacturing operations as customer demand for increased product assortment, fast delivery, and downward cost pressures become prevalent. These systems help planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans. APS Systems can be quickly integrated with an ERP/MRP software to fill the gaps where these systems lack planning and scheduling flexibility, accuracy, and efficiency.

With PlanetTogether APS you can:

Create optimized schedules that balance production efficiency and delivery performance
Maximize throughput on bottleneck resources to increase revenue
Synchronize supply with demand to reduce inventories
Provide company-wide visibility to resource capacity
Enable scenario data-driven decision making

The implementation of an Advanced Planning and Scheduling (APS) Software will take your manufacturing operations to the next level of production efficiency by taking advantage of the operational data you already possess in your ERP system. APS is a step in the right direction of efficiency and lean manufacturing production enhancement. Try out a free trial or demo!