How To Reduce Labour Costs By 30% In 90 Days

money key to reduce labour costsBusinesses usually want to reduce labour costs. For many Manufacturing, Trades and Tech Companies labour is the single largest expense item in their operation. Labour costs are often the difference between profit and loss. It also affects the business owner’s quality of life.

First, it is absolutely imperative to track labour costs to the point of micro managing. Without information it is impossible to make “informed” business decisions.

How can you reduce labour costs by 30% in 90 days?

Review all processes and look for unnecessary steps. I remember a situation where I was managing a plant with about 18 production personnel. One day, I stood and watched how the product was moved through the facility. I noticed that product was moved from one spot to the other to only be moved again a short time later. I asked the shift supervisor why this was being done. His answer was, “That’s the way we have always done it.” I asked him to let me know what the impact would be if we removed the step from the process.

A couple days later the shift supervisor came into my office. He said, “We can reduce labour costs by 30% without losing any throughput. I have to be honest that I was shocked as I only expected to save 10 – 15%.

What unnecessary processes are in your operations?

Here are a few tips to help start.

  1. Breakdown your processes into every minute step. For each step ask yourself “what value does this step add to the process?” and “what would happen if we removed it?” Keep removing unnecessary steps until the operation is a lean as possible.
  2. Prepare to kill “sacrificial cows”. Don’t accept answers like “that’s the way we have always done it”. It is amazing how many people always question the traditional methods but just don’t bother saying anything.
  3. Create expectations. Unless someone places external expectations on us it is natural to work within our “comfort zone” leaving unused productivity. By establishing productivity expectations you will challenge your team to rise to the occasion. You may be pleasantly surprised by the results.
  4. Get Out There! Do a ride along with your Techs or walk the shop floor. Keep an open mind. You may notice ways to reduce labour costs that will shock and surprise you.

Running a business is like working on your golf swing or your slap shot. It will never be perfect but if you keep finding ways to improve it every day you will be able to look back on see the significant progress you have made.

Tony Malyk
 

Tony Malyk is a Certified Professional Business Coach and Business Value Accelerator specializing in improving profitability and increasing business value in the manufacturing, distribution, trades and technology sectors.