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nGROUP Performance Blog

Top 8 Ways to Reduce Labor Costs

Posted by Ryan Cates on Sep 24, 2018 8:29:00 AM

In an industry that’s suffering severe labor supply shortages and unparalleled demand for services be the warehouse that’s growing thanks to smart solutions. Lowering the costs of labor in your warehouse can give you the financial room you need to hire more qualified candidates, decrease your costs per unit, and maximize efficiency in the workplace. You can thrive, not just survive, in today’s economy with these 8 ways to reduce labor costs.

warehouse efficiency

 1. Cross-Train Employees

 Implement cross-training as part of on-boarding to help keep your labor costs down. Cross-training is a solution that can reduce your risk of running into production problems if you lose an employee. The nursing industry, for example, has benefitted greatly from the strategy of cross-training. A nursing labor shortage, much like the warehouse labor shortage, has resulted in an overly-competitive industry.

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Hospitals have accounted for high nursing turnover rates by cross-training employees to prevent company problems when a worker leaves. In an industry that’s experiencing extremely high turnover rates, it’s essential to prepare for labor disruptions. Cross-training your employees so that they have broader skillsets can protect your warehouse from financial strife, as well as provide better job fulfillment and employee engagement.


 2. Reduce Turnover


Warehouse turnover is a significant issue every industry faces as they become more competitive. Other warehouses may be offering your employees better pay, incentives, flexibility, benefits, or job satisfaction. Standing by while other warehouses (including bigwigs like Amazon) poach workers from you could lead to thousands of dollars in worker recruitment and training.


Stay competitive by maximizing the efficiency of your warehouse, allocating saved money toward providing better pay or incentive programs. Money isn’t everything when it comes to retaining your workforce. Workers, especially Millennials, want jobs that fit in with their lifestyles. If you have trouble attracting or retaining millennials, focus on what they’re looking for in a company. This includes opportunity, advancement, growth, and flexibility.

3. Automate Non-Critical Tasks

Automation has made its mark on the warehouse and distribution industry. It is a hot topic right now, with more people looking for ways to implement automated processes. 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.

warehouse automations

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. Eliminate Redundancy


Your warehouse could be suffering budget drains from inefficiencies and redundancies. Redundancy is something your warehouse or business no longer needs. For example, if you upgraded to a computerized inventory system, your warehouse may no longer require workers to mark down fulfilled orders on paper as well. Technology has the power to eliminate many warehouse tasks, helping you eliminate unnecessary time-wasters.


5. Increase Efficiency


Optimize the efficiency of your warehouse to save money on labor. First, discover where you’re losing productivity. nGROUP’s technology, nVISION, can help pinpoint the exact places where you lack efficiency. Then with the implementation of PUMP examine Pace, Utilization, Method, and Performance at your warehouse (more on PUMP later) – something you can do on your own as well. A more efficient warehouse will save you money on labor costs.


6. Determine Your Per-Unit Costs

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. 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.


7. Use the PUMP Analysis Method


nGROUP created the PUMP business analysis system to quickly and easily assess processes and detect inefficiencies. First, rate the pace 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.


Then, calculate the utilization 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 world class. Operating at 50% or lower, however, shows a severe waste of time and room for improvement. Next, assess the method your employees are using. How do your workers go about the labor processes? Is there room for improvement?


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Finally, gauge the overall performance 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. Keep updating your methods until you find what works for your warehouse.

8. 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 as needed. If a business is seasonal or tends to ebb and flow, only employ extra hands on an as-needed basis. Keep a few independent contractors or temporary employees waiting in the wings (a temp agency can help) for times of increased demand. That way, you’re only paying for the exact labor force you need. This strategy can give your company the flexibility and scalability it needs to thrive in a competitive industry.


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Topics: labor shortage, nGROUP, employees, Labor Management, Lean Manufacturing, risk, training, Cost, reduce labor costs, labor costs