"My
profit margins are so slim that any minimum wage increase will put me out of business
unless I do something fast to lower my costs. Since I have limited time to spend on this,
where do I begin?" M.S. Arizona "My
profit margins are so slim that any minimum wage increase will put me out of business
unless I do something fast to lower my costs. Since I have limited time to spend on this,
where do I begin?" M.S. Arizona
THE INDUSTRY ADVISOR
OFFSETTING A MINIMUM WAGE INCREASE
By Gene Levine - www.genelevine.com
Opportunities to reduce costs are always present. They only need a minimum wage
increase to make them more visible and to prompt businesses to act.
Extricate yourself from fighting fires and begin a continuous improvement program now to offset the increase. As you begin to plan this cost-reduction campaign, here are seven major areas and approaches to consider:
TURNOVER:
Be concerned if your direct labor turnover figure it is more than 30% annually because there is a $3,200 cost to replace each direct labor employee you lose. Previous Bobbin articles of mine have detailed how this cost was derived. By comparing a $3,200 cost per direct labor employee to the cost avoidance realized by not hiring "warm bodies" you can readily understand the wisdom of hiring better people and training them better. This will require a professional approach to training and orientation but, the ends will justify the means.ABSENTEEISM:
Workforce absenteeism is one barometer of how skilled your supervisors are in proper people dealings. Any absenteeism over 3% is unacceptable because it strongly suggests diminished motivation – due to morale problems. The higher the absenteeism the more training your supervisors need. Absenteeism causes losses in production and profits. Assuming you have 10% absenteeism and it should be 3%, your annual loss is the profit on the additional 7% production you didn’t get, plus the higher overhead burden on the remaining production.Generally speaking, be aware that it has been my experience that when wages are arbitrarily raised, absenteeism rises and/or production drops. This is contrary to what most managers believe but the acid test is here. I believe that reason the for the production loss is a behavioral one; some people have decided had hard they want to work for the money they take home. So when they get paid more, they do less. In your case, time will prove me right or wrong (at least you were forewarned).
If you cannot reduce absenteeism I suggest you embark on an ambitious cross-training campaign to create a team of Utility Operators that will compensate for the people who are absent and keep your production maxed out.
PRODUCTION:
Wage increases without a corresponding production increase will raise your costs making you less competitive. All of my studies show the typical manufacturer has available productivity increases averaging 30%. Now’s the time to . . .
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