Turning Off Your Turnover Problem

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1 Turning Off Your Turnover Problem Can A Labor Management Program Impact Turnover Costs?

2 Turnover rates currently stand at for distribution, warehouse 13.7% and manufacturing functions Is a Strong Labor Market Impacting Your Operations? There s good news in recent Job Openings and Labor Turnover Surveys from the Labor Department unless you re an employer struggling to maintain or expand your workforce. According to the Labor Department, employers are hiring workers at the strongest pace in two decades and more people are quitting their jobs than at any time in more than six years. $ $ $ That one-two punch for employers should come as no surprise since turnover rates have been edging upward for the last few years, and currently stand at 13.7% for distribution, warehouse and manufacturing functions, according to Compdata Surveys BenchmarkPro report. 1 Employers also face generational influences (bye-bye, baby boomers) on the workforce that will cause an increasing number of employees to shift in and out of jobs in the years ahead. In fact, voluntary turnover rates are increasing for Generations X and Y workers, who currently make up more than half of the U.S. workforce. The Bureau of National Affairs estimates that U.S. businesses lose $11 billion annually due to employee turnover.

3 What is the true cost of hearing I quit!? Turnover Costs: Now You See Em, Now You Don t There are hard costs to turnover that are easy to see and estimate, like the cost to post a position on a job board, hire a recruiter, or perform reference checks and drug screens. But there are also significant costs that are largely hidden and don t show up on a profit and loss statement: Lower Productivity. Who is doing the job now that the position is vacant? No one? That's a loss of productivity right there. What if you spread the tasks out to other people? Chances are, the most important tasks will get done (although probably not as efficiently) while others will fall by the wayside. Overburdened Staff. As you reassign work to existing staff, they get stretched thin and the quality of their work goes down, along with their job satisfaction. Which means that they are more likely to start looking for a new job (resulting in more turnover). Increased overtime can also add cost. Supervisors may also need to spend more time filling in for the ex-employee, ignoring their management duties. Loss of Knowledge. Every employee is a store house of knowledge about procedures and practices in your organization. All that goes away when they quit. How many companies have jobs documented well enough that someone can step in and take over? How many have people cross trained? A study by the Institute for Corporate Productivity found that a third of responding companies retain knowledge poorly or not at all when workers leave. Negative Impact on Service Levels. Managing with a reduced staff can have a negative impact on service levels that can lead to a drop in sales or the loss of customers. It may be hard to track how many shipments are delayed or how many orders were incorrect as a result of staffing issues, but you can be sure that turnover will have some effect. More Time Spent Recruiting & Hiring. Someone has to take time to go through resumes, do interviews and assess candidates. Some or all of these tasks will fall directly on the shoulders of the hiring manager who is already overburdened because he s operating with a reduced staff. Resources Needed to Train New Hires. Even if there s no outside paid training involved, someone has to show the new person what to do and then double check work until the employee has proven him or herself. And that means the trainer isn t doing their regular tasks, so you're now paying two people to do one job. 33% of companies retain knowledge poorly or not at all when workers leave

4 $ Direct cost to replace an employee can reach 50% to 60% of their annual salary Figuring Out Your True Cost of Turnover According to the Society for Human Resource Management (SHRM), direct costs to replace an employee can reach as high as 50% to 60% of an employee s annual salary, with total costs associated with turnover ranging from 90% to 200%. The National Business Research Institute (NBRI) estimates a cost of $25,000 or more, depending on salary, for bad hires an employee who leaves or is dismissed after a short period of employment. The Center for Economic and Policy Research (CEPR) online calculator can help you estimate your direct turnover costs: $ % It all adds up...and up...and up. But even if you think your turnover costs are lower than these estimates, the price of losing an employee is almost certain to be significant enough to make retention a high priority for your business. turnover-calculator/

5 As many as half of all hourly workers leave new jobs within the first 120 days Take the Offense on Employee Retention Employers can t completely control turnover, but they can create a workplace culture that attracts the best talent and encourages existing employees to stay. The best defense against turnover (and turnover costs) can be a good offense that utilizes the capabilities of a Labor Management Program and technology. Labor Management Programs have typically been utilized as a way to control or reduce labor expense through the implementation of improved processes and engineered standards, and by giving management visibility to key performance indicators. While these benefits are certainly important, a Labor Management Program can also provide the tools to address workforce retention challenges: 1. Continually Assess Performance. A Labor Management System s tracking capabilities can help you identify your best performers so that you can recognize and reward their efforts. An LMS will also help you spot poor performers so you can provide additional coaching and training to move their skill to a higher level. But if things just aren t working out, you will have some advance warning that you need to make a change and minimize the impact of turnover. 2. Get Them Started Right. Surveys have shown that as many as half of all hourly workers leave new jobs within the first 120 days. 2 That means that on-boarding can play a critical role in your retention strategy. Although many factors are involved, experts recommend being crystal clear in terms of roles, responsibilities and performance objectives. According to an Aberdeen employee engagement study, only 32% of organizations share core job objectives with new hires. 3 Using labor management technology and practices allows you to set, monitor and communicate performance goals and progress. So new hires know exactly where they stand, can get coaching where needed, and have more opportunity to share both ideas and concerns with their supervisor. 3. Set Realistic Goals. As part of a Labor Management Program, you establish best practices, preferred methods, and standard operating procedures that are shared and validated with your employees. Standards define how a job can be done in the least time with the least effort, without compromising quality or safety and take into account order characteristics, distance traveled, personal time, fatigue and delays. You set a level playing field that s fair to all associates from new trainees to experienced veterans, from pickers to packers to dock workers. 32% of organizations share core job objectives with new hires

6 The number one recommendation for workforce retention was to make current employees feel valued 4. Communicate, Communicate, Communicate. By sharing goals, roles and responsibilities, you make it clear what is expected from each employee. So evaluating performance is based on measurable targets that both manager and associate agree to and can be tracked in the Labor Management System. Having timely data on individual performance, allows managers to offer important, but sometimes sensitive, feedback in an objective manner. Remember, employees generally don't quit on their company, they quit on their manager. Having managers who have the training and the tools to communicate constructive feedback is perhaps your best retention strategy. 5. Recognize and Celebrate Achievements. In a recent report on Talent: The Future Supply Chain s Missing Link, Supply Chain Insights found the number one recommendation for workforce retention was to make current employees feel valued. Recognition is such a simple thing to do, but it is often overlooked in the rush of day-to-day activity. All too often, feedback is provided after the fact or too late to be able to change behavior before an unhappy employee leaves. With access to real-time performance data provided by labor management software, you have the ability to provide accurate and detailed feedback on a daily basis, so that everyone knows where they stand and how they need to improve. Give them credit for what they ve achieved through shout-outs in meetings, posting on a very visible bulletin board or in an internal newsletter. 6. Implement Pay for Performance. Make sure your top performers are earning top dollars. That s the number one rule. But, of course, you also should offer incentives to everyone to ramp up their productivity. And the best (and most economical) way to do that is with a pay for performance program. Because the added cost of incentives come from the savings resulting from the higher productivity. With pay for performance in place, your employees are less likely to be swayed by a better offer from a competitor down the street. A Labor Management Program offers you visibility to individual and team performance to build a pay for performance program that allows employees to earn additional compensation, yet is fully self-funding.

7 69% of employees would work harder if they were better recognized for their performance National Business Research Institute Rethink Your Retention Strategy By recognizing what it costs to replace one of your employees, you can budget for the implementation of a Labor Management Program to help you reduce your turnover, while also providing gains in workforce productivity and utilization. In creating a more stable, satisfied workforce, manufacturers and distributors can also create a competitive advantage (and increase their bottom line) by differentiating themselves through top performance in customer service. It seems clear that if you aren t currently utilizing a Labor Management Program, you may find it increasingly difficult to retain the best supply chain talent. If you are using labor management today, you should consider expanding how you re using it to enhance your value proposition for employees through the training, recognition and incentives required by today s workforce. 1 BenchmarkPro 2014 Report, Compdata Surveys 2 Krauss, A. D. (2010). Onboarding the hourly workforce. Presented at the Society for Industrial and Organizational Psychology, Atlanta, GA 3 Aberdeen Group, The Age of Employee Engagement, 2013

8 About TZA At TZA, we focus on helping our clients improve workforce and operational performance, reduce costs and drive continuous improvement across their supply chain. We provide them with the technology and services to achieve higher standards of productivity, utilization, quality, safety and customer service: ProTrack Labor Management Software: plan, monitor and measure labor performance Labor Management Services: educate, engage and empower managers and associates Supply Chain Consulting Services: optimize processes, equipment and facilities to ensure operational efficiency TZA All rights reserved.