The manufacturing industry is no stranger to labor shortages. In our webinar, Addressing Labor Shortage: How to Increase Uptime While Empowering Employees attendees agreed that high turnover and an inability to hire skilled workers were their two largest challenges. Jeremy Tancredi, Partner at West Monroe consultancy with over 20 years of experience in operational productivity for large distribution clients, covered several methods to overcome these issues.
In a West Monroe survey of 130 supply chain executives, 95% say that labor management is important to their production and supply planning. Their current challenges include:
- Hiring Skilled Talent: 65%
- Understaffing: 45%
- Increasing productivity of existing workforce: 35%
- High Turnover: 34%
Despite these challenges, 23% of respondents do not measure labor with real-time metrics, and 12% do not measure labor productivity at all. Many manufacturers are used to retroactive assessment, which leaves them in constant firefighting mode and unfocused on their existing employees. As a result, hiring skilled talent that will stay is made even more difficult. Four factors affect hiring skilled talent, all of which influence the other and create a cycle that is difficult to escape.
Foundational Steps to Address the Labor Shortage
Mitigating the effects of the labor shortage often doesn’t involve hiring new people but leveraging the labor and skills that already exist. There are three steps to help manufacturers do more with less:
- Standardize processes
- Measure productivity
- Plan labor effectively
These steps may seem obvious, but there are a number of reasons that can prevent their execution. For many, the most common obstacle is a “lack of time” or “lack of resources.” Less time requires more effort from front-line management to meet production demand, which for many, comes in the form of jumping into the production line themselves.
Others get overwhelmed and fall victim to “plan chasing,” where they fixate on how far they’ve deviated from targets and overlook proactive management. However, management may not know where to start because historical processes no longer work due to increased demand or decreased labor.
Companies work hard to improve their operations but are often so used to responding to the next issue on the list that they’re unable to understand the benefits of work that’s already been put in. A labor management system that standardizes processes, measures productivity, and plans labor effectively will help.
Standardization of processes will help identify areas of waste and address inconsistent performance. The first step in increasing the effectiveness of your current workforce is to standardize processes, which will help identify areas of waste and address inconsistent performance.
Performance management tools can be leveraged to track employee utilization and identify training or coaching opportunities. It can be challenging to monitor employee utilization, but it’s important. Leverage the data you have to tie back to individual employees, so you don’t risk demotivating your good employees by looking at things on a macro level.
Minimize unplanned overtime and under-utilized workers. Implement planning tools to effectively plan labor and inventory, minimizing unplanned overtime or under-utilized workers.
Standardization of Processes (SOP)
Standardizing processes is a low-hanging fruit that can yield meaningful improvement. A common misconception is that SOPs and training documents are enough for a worker to perform efficiently. However, these documents are very technical and usually don’t address employee behavior, which can make performance harder to correct in the future.
It’s important to consider which types of instruction can encourage work that’s efficient and consistently improving. The most useful information that can impact worker performance comes from the workers themselves. Polling top performers and observing the floor are a couple of ways to improve training material. Standardizing informational resources that consider employee behavior won’t only increase productivity, but improve employee satisfaction and upskill your workforce over time.
Measure the Right KPIs to Address Labor Issues
As work is standardized, the next process is understanding which KPIs truly drive-desired outcomes. There are many common KPIs across the industry, such as uptime and worker utilization, and it’s important to map those to what you’re actually trying to accomplish. As you plan for the year, tie specific metrics to your company initiatives so you can easily identify inefficiencies.
For example, if you want to optimize production layout and know there are some inefficiencies, you may want to track labor cost per unit and overtime to get a more accurate read on the behaviors and methods that can improve those metrics.
Once management understands the relationships between specific initiatives and metrics, workers on the floor need to understand them as well. In order to drive employee engagement and increase retention in a sustainable way, frontline employees must realize the impact of their individual duties on company goals. An underdeveloped understanding of this relationship will result in a lack of buy-in and continued pain felt from labor shortages.
Plan Labor for Higher Retention
It’s not hard to get employees who want to work for you. With established expectations and proper performance management, incentives can be an additional asset to retain and attract talent. There are four steps to implementing employee-centric practices and benefits that can preserve and build your workforce:
Understand the Current State
Assess existing programs through focus groups to get a better understanding of what improves and detracts from the day-to-day of your employees.
Determine the Goals of the Program
Remember to consider what you want to accomplish through incentives. Employees who feel undervalued may respond well to monetary incentives, but those who are burnt out may want additional time off. An employee committee can help determine what will move the needle for their team.
Principles of a Great Plan
Take the time to review all aspects of a plan, so you don’t risk and waste resources implementing unproductive incentives. Communicate often and early, so your employees feel like their well-being is taken seriously, and ensure employees of all levels feel they have equal opportunity.
Communication and Implementation
Communication cannot be overstated when it comes to dealing with the labor shortage. An important part of communicating your plan is developing an internal marketing strategy. Employees who understand incentives as a job motivator and are able to tie them back to company goals are more likely to respond well. Employee alignment on milestones can promote a stronger sense of community and increase retention.
A Promising Future
Standardizing, measuring, and planning will look different at each company, but an understanding of their principles is crucial to mitigating the effects of labor shortages. Companies that have standardized processes to identify areas of low performance, measured employee utilization, and minimize unplanned labor have seen annual savings of up to $1.2 million. Re-examining and reinvesting in your company culture is the fastest path to successful labor management.