Save Money Now! The Top 7 Ways to Reduce Labor Costs

Your direct labor is vital to the success of your company.

The costs for that direct labor are also choking your company, denying you the budget you need to truly improve the business. 

Finding more intelligent labor solutions is the best way to not only save money, but create a more effective, efficient workforce. Through more than two decades of experience, nGROUP has seen every cost-saving strategy, every efficiency-boosting measure.

Here are the top 8 most effective ways to both save money and improve your direct labor workforce:

1. Cross-Train Employees

Start cross-training employees as soon as you bring them onboard. Cross-training allows you to cover skill gaps that might otherwise be exposed if an employee were to suddenly leave. 

An example of highly successful cross-training comes from the field of nursing. Much like warehouses and direct labor industries, there was a labor shortage in nursing. This causes lots of turnover among nursing staffs, as individuals come and go based on employer demand. By cross-training nurses to cover different skills, hospitals were better able to weather the loss of any one particular individual.

Employees benefit from cross-training, as well. It expands their skillset, making them more valuable to potential employers. It also adds to a sense of engagement and job satisfaction, as the individual finds themselves learning more and more about their job.

2. Focus on Production Efficiency

Another proactive step you can take is to place a premium on efficiency. This focus will pay off in multiple ways.

For example, incentive programs are a cost-effective way to boost production, and they help build a sense of commitment and engagement within your workforce. Beyond that, you can take advantage of labor management technologies that help you visualize your operation, gather insights for improving efficiency, and translate those insights into on-the-floor gains.  

3. Automate Non-Critical Tasks

Automation has changed industries that rely (or, used to rely) on large workforces for manual labor. If you can automate many of the non-critical processes in your warehouse, you can reduce your workforce, or operate at maximum capacity without needing to hire more people.

Automating warehouse processes could help your company eliminate the significant costs of recruiting new employees. It could also decrease turnover, making your warehouse a more accessible and safer place to work. Reducing your overall warehouse headcount thanks to automated processes will translate to lower labor expenses.

4. Tech Should Make Things Easier, Not Harder

You’re using a tech solution to manage your DCs. Great. Is that tech making your life easier, or harder? 

Sometimes, organizations will get caught up in an attempt to “DIY” their own tech solution for managing their production lines. The cost savings of using an in-house platform might sound appealing, but too often those DIY solutions create more work (and more problems) than they take care of. Worse, if the implementation of your software is off, the result will be an inflexible (and inefficient) system. 

For those reasons, it’s worth it to invest in a ready-made platform, including SaaS, in order to bring in a product that eases management’s workload more consistently. Higher costs, but also more reclaimed time, not to mention less stress and exhaustion for leadership.

5. Determine Your Per-Unit Costs

Fact: You can’t minimize your labor costs if you don’t know what you’re currently spending on labor per unit. 

Calculate your total manufacturing price per unit by dividing your total costs by the total number of units produced. Make sure to include your fixed and variable costs in your total. 

Knowing your per-unit costs can give you a clear idea of where your warehouse currently stands regarding production, as well as where you want to be. Set a lower per-unit cost as your goal and take steps toward achieving it. Continue to measure your per-unit costs as you move forward to see whether your strategies are working. At nGROUP we benchmark our clients in this way to help them track progress on increasing productivity and lowering costs. There’s nothing like having that actionable data to celebrate with the team and reward top performers and focused managers! 

6. Use the PUMP Analysis Method

nGROUP uses the PUMP business analysis system to quickly and easily assess processes and detect inefficiencies. 

How does it work? First, rate the pace (P) of your workforce. Measure how long it takes your team to complete one unit. Then, see if you can shorten this timeframe without compromising safety. Technology like nVISION can compare the body movements and other details of your warehouse workers to instantly know where you could pick up the pace. (Contact our sales team for more info if you’d like us to analyze the pace of your workforce). 

Then, calculate the utilization (U) of the average worker’s time. Take an employee’s regular eight-hour day and calculate what percentage of it goes to distraction such as bathroom breaks, conversations, and lunchtime. A working percentage of 60-70% is considered good. Operating at 50% or lower, however, shows a severe waste of time and room for improvement. 

Next, assess the method (M) your employees are using. How do your workers go about the labor processes? Is there room for improvement? 

Finally, gauge the overall performance (P) of your warehouse workers. Performance can encompass metrics such as price per unit, but it can also include attitude and attendance. Assess your performance before you start implementing changes, and then continue measuring performance regularly after. You should see performance changes in the right direction. Its an ongoing process! Keep updating your methods until you find what works for your warehouse.

7. Hire Independent Contractors to Increase Flexibility

One innovative way you can reduce the costs of warehouse labor is to reduce your labor force and fill in the gaps with independent contractors. 

If a business is seasonal, or tends to ebb and flow, only employ extra hands on an as-needed basis. Keep a few partner staffing firms for times of increased demand. That way, you’re only paying for the exact labor force you need. This strategy will give your company the flexibility and scalability it needs to thrive in a competitive industry.

KEY TAKEAWAYS: 

Flexibility and visibility is the key to everything in your operation. It is imperative, especially today, that your business be able to adapt to changing needs and circumstances quickly. 

nGROUP helps make our partners more flexible by expanding their labor capabilities. We also increase the visibility of inefficiencies and opportunity for improvement. 

To gain more flexibility, it could mean recruiting hundreds of temporary workers for a seasonal pop-up operation, like we did with Macy’s. There, we combined swift, competent recruiting with tech-enhanced labor management insights to boost production 91% over baseline.

To gain more visibility, you may need to invest in technology, or bring in industrial engineers. We’d be happy to provide an engineering analysis to help you know where you stand and how you can improve. 

To find out more about how nGROUP can help your operation be more flexible — and more successful — just click here to schedule a call.