Every company wants to be productive and profitable. Manufacturers in highly competitive environment needing to consider every aspect of their operations in order to compete successfully in today’s global economy. Most manufactures focus their efforts on purchasing new equipment, using ISO 9000 procedures, and providing skill training in an effort to increase productivity and improve rate of return on investment. Despite these, they fail to focus significant attention to their key element: their human resources.
Missouri manufactures provide jobs to 9.3% of the state’s civilian labor force. Labor costs constitute the greatest percentage of overhead for almost all businesses, and especially manufacturing.
A company’s human resources is generally considered it least stable resource. We can manufacture efficient, precise machines and put them on regular maintenance schedules to achieve a high level of predictability and accuracy. We can develop systems to manage inventory. Management of human resources is more delicate. One example of this instability is found in the issue of turnover, especially among entry level jobs, particularly in the manufacturing and construction fields.
Turnover is costly. While the Department of Labor does not publish actual costs of loss due to turnover, it’s an accepted figure in the HR industry that the average cost of turnover is equal to 150% of the annual salary for each exempt employee replaced.
The Society for Human Resource Management (considered one of the leaders in Human Resource research) gives a calculation for non-exempts. “SHRM, the Society for Human Resource Management, estimated that it costs $3,500.00 to replace one $8.00 per hour employee when all costs — recruiting, interviewing, hiring, training, reduced productivity, et cetera, were considered. SHRM’s estimate was the lowest of 17 nationally respected companies who calculate this cost!
A number of on-line calculators are available for determining turnover costs. They generally include: separation costs, replacement hiring costs, training new hires, lost productivity and business costs. Lost productivity includes the time it takes for a new employee to work on an acceptable level, the time lost by the trainer (who could be working on innovative project lines, making new sales) and the customers lost or not served, among others.
The added cost not only impacts a company’s overhead, but in addition, excessive turnover has a negative impact on a company’s productivity, quality of product, competitive edge, morale, and rate of return on investment. Therefore it would seem imperative to manufacturing organizations to do whatever possible to stabilize this largest expenditures of overhead in order for these companies to remain competitive in the marketplace. It would appear that emphasizing improvement of systems and equipment without a substantial consideration for improving the quality of the workforce will lead to only marginal results.
In their book Break All the Rules, the authors Marcus Buckingham and Curt Coffman, synthesized Gallup’s interviews with over 80,000 managers which brought surprising information about the role of management and right fit in a company’s success. Gallup synthesizes part of this book in its on-line article “How Managers Trump Companies” taken from this book. Buckingham and Coffman insist: “An employee may join Disney… because she is lured by their generous benefits package and their reputation for valuing employees. But it is her relationship with her immediate manager that will determine how long she stays and how productive she is while she is there.” Gallup is a leader in encouraging profitability by working with management, both in the areas of engaging employees and in choosing the correct persons in the first place. “Securing Growth Through a Great Workplace” discusses how one organization was able to re-attract clients by dealing with their turnover problem. “Focus on employees. If workers are happy and engaged, they say, the customer relationship prospers and grows accordingly.”
In executive advantage’s business, we have found that a successful employee is a matter of, first and foremost, hiring correctly, and then providing him with appropriate management. The best manager in the world cannot motivate an employee who lacks drive or who has an external locus of control. We find the greatest predictors of an employee’s success to be, in this order, personal drive, a good fit with the company’s culture, and, in last place the job skills. We strive to teach our managers to recruit wisely in order to eliminate wasted time with poor hires.
In order to stabilize the human resources component of a company’s investment, it would be meaningful to train managers in the following:
- How to effectively lead an organization.
- How to bring out the best in the workforce in order to accomplish the company’s production goals.
- How to get the right people on the bus, the wrong people off the bus and the right people in the right seats on the bus in order to enhance
- How to develop a workforce of self managed persons. Persons who know their responsibilities and who a dependable in accomplishing these responsibilities.
- How to build highly effective work teams.
- How to develop competitive compensation and benefit plans which encourage employee loyalty and performance
- How to develop sound performance management systems which include employee growth and skill development.
- How to build on strengths rather than limitations
References & Endnotes:
See articles by SHRM’s “Cost of Turnover” (www.shrm.org) and William Bliss’s “Cost of Employee Turnover”
- Calculated from Bureau of Statistics website Dec 2008 figures: http://www.bls.gov/eag/eag.mo.htm, February 25, 2009.
- See the JOLTS division of the Bureau of Labor and Statistics for statistics on labor turnover: http://www.bls.gov/news.release/jolts.nr0.htm.
- This figure refers to exempt employees and appears to be mid-range.
- There are a number of articles alluding to this statistics; meanwhile, the following seems to be a good resource: http://www.businessandlaw.com/articles/human-resources/employee-retention-and-turnover, February 25, 2009.
- Contact for more statistics if needed.
- http://gmj.gallup.com/content/523/How-Managers-Trump-Companies.aspx, February 25, 2009.