Related Articles
Labor costs contribute to a huge chunk on the balance sheet of a company. Reducing it is an essential cost-cutting measure. There are various ways a company can try to reduce labor costs. This article will walk you through some of them.
Increasing efficiency
Increasing efficiency is a great method of reducing labor costs. The idea is to reduce the number of steps a product has to go through before it is finished.
You also want to make sure that each step takes as little time as possible. Don’t make the mistake of hiring unskilled labor at lower hourly rates.
Replacing skilled workers with unskilled labor reduces the efficiency with which the work is completed and often increases the number of people you need to hire.
It also increases the number of steps a product goes through before completion. A well-trained workforce increases productivity and reduces re-work.
Introduce incentive programs for workers to work harder and smarter and try to reduce employee turnover.
Reduce labor cost by using scheduling software
Eliminate overscheduling as it is a considerable source of labor costs.
By using predictive scheduling software based on complex algorithms, you can optimize your employee scheduling efforts.
Odoo is an easy to use management software that has these kinds of scheduling software.
The software helps managers look ahead at upcoming production demands. With this data, they can make appropriate scheduling decisions.
This ensures the business is adequately staffed to meet the demand and eliminates excessive labor hours.
Hire part-time labor
Using part-time labor is a great option too.
Part-time employees are cheaper than full-time employees as you don’t have to pay for perks like bonuses or 401k contributions.
Try to reduce overtime. When there is pressure to quickly increase production, paying overtime might seem like a great method.
However, overtime costs can rake up and quickly eat into profits. A better alternative would be to use a new line of temporary workers.
Outsourcing your work to countries like China or India can reduce costs as labor costs in these countries are significantly low. Standardized product offerings to your customers can help reduce labor costs.
Offering multiple product options to your customers can help with sales but it’s expensive and could be slowing down your entire operation.
You can cut back on expensive custom work and it’s labor-intensive steps by simplifying and standardizing your product offerings.
By implementing technology in production process
Implementing technology in your production process is guaranteed to reduce labor costs. Automating the entire process results in higher production rates, increased productivity, more efficient use of materials and better product quality.
Automated systems typically perform the manufacturing process with less variability than human workers, resulting in greater control and consistency of product quality.
It also significantly reduces the number of employees. Most of the heavy lifting and repetitive mundane tasks are performed by machines.
All you need is a handful of operators and mechanics for monitoring the equipment and occasional preventative maintenance for the machines.
Automating also reduces the number of hours an employee has to work, reducing the number of hourly wages you have to pay.
Automation reduces the risk of employees getting injured at work which can save you a lot of troubles. If you think automating the entire process is not viable or feasible, you can choose to automate certain portions of your production process.
Like inspection and picking of components for assembly can be automated to reduce labor costs in manufacturing. Inventory management and stock control also eat away at labor costs.
Odoo provides excellent software that deals with streamlining and automation. Odoo’s manufacturing app loved by companies like Toyota and Hyundai connects engineering, quality, maintenance, and supply chain under one software.
Features like real-time communication and shop floor automation enhance efficiency.
Odoo’s warehouse management software improves performance and process time and has a fully automated replenishment system and real-time reporting.
Odoo’s agile project management system provides a simple modern interface to organize, schedule, plan and analyze your operations. These apps are fully integrated which further simplifies and streamlines the process.
Lean production method
Lean production is another method you can adopt to reduce labor costs.
It is a method which prioritizes at reducing waste and ensuring quality. The core principle of lean production is to do more with less.
It can be applied to all aspects of a business and make the business more efficient and responsive to market needs.
The overall objective of this production method is to produce quality output with fewer resources- that is, less waste, less duplication and elimination of non-added-value activities.
Lean means cutting out anything in the production process that adds complexity, cost and time and does not add value to the customer.
If lean production is implemented successfully, it greatly increases labor productivity, reduces inventory and significantly cuts production time.
As the production process is more efficient, more units can be produced by employees- thus lowering the labor cost per unit.
Not only can lean production eliminate waste, but it can also rid you of bottlenecks within your production line that are responsible for reducing the output and productivity of some line workers.
A major disadvantage that comes with lean production is that there is very little room for error.
If there is equipment or labor failure, your operations will greatly fall behind. In correlation with equipment failure, this setback in production can lead to inconsistencies in delivery that can hinder the relationship with your customers.
Labor costs can easily pile up and give you unbearable headaches. But by applying the methods mentioned above, you can cut back significantly on labor costs.
Although it might be a bit expensive and daunting at first, automation is the method you should aim for first.
It can make things simple and greatly reduce your labor costs. And for this reason, Odoo is your best friend.
It’s wide selection of easy to use integrated apps can make automation a breeze. And if you think you want to work with custom apps, Syncoria can fill you in there.
Syncoria is a digital transformation solution provider based in Canada and an official Odoo Ready partner.