The Various Options and Methods of Reducing Labor - Example

Insert name Instructors’ name Course Date Cost reduction strategies Labor has been described variously as the biggest expense within an organization (Cahuc & Zylberg, 62). Fundamentally, labor is like the blood of the organization since no operations can go on effectively without efficient labor. Labor within an organization can be divided in to direct labor and indirect labor. Typically, reducing the cost of direct labor is practically easy. Direct labor within an organization changes in size and nature from one day to another. This is because most of the jobs done by the direct laborers are of a non-routine nature. It is usually manual in nature. It requires little skill if any at all. Manual laborers are usually temporary employees. In an organization, trimming down the size of such labor comes with little effect on employee morale and the organization’s image. On the contrary, reducing the cost of white collar laborers through lay-offs may result in low employee morale and adverse effects on the corporate image of the organization. This paper is written in the context of XYZ Company Ltd’s production department and focuses on the various options and methods of reducing labor without employing the traditional lay-offs. In my capacity of a frontline manager in the production department of the company, I would recommend various changes to be made in the operational plan so as to reduce the overall cost incurred by the organization. This reduction in the labor costs are aimed at a 20% reduction in the overall departmental costs. The first step towards reduction of the labor cost is the reduction of the direct labor overhead (Cahuc & Zylberg, 84). This is the amount of money paid to direct laborers who work for the organization on a daily or weekly basis. Reducing the direct labor expense can take the form of reducing the number of manual laborers and reduction of the rates during the low production period that comes to our company between February and match. This will imply that during the opening of the new accounting year which starts in January, we will reduce the number of employees from 400 that were taken in during the past accounting year to 300. The second method of reducing such labor costs is through the employment of technology. The work performed by machinery and equipment such as tractors can be handled by more than twenty men. The introduction of technology will lead to the employment of fewer members of staff in the department. Reducing the number of staff leads to a reduction in labor costs. Additionally, technology will save time used to perform a given duty. This will imply that efficiency will be boosted and the man hours required will reduce. The optimal use of technology has been identified as the single most important way of reducing costs in the contemporary business practice. The second most important method of cutting down on the costs of labor and by extension the overall expense of the company is through introducing the skill mix design. This is a situation where workers in a workforce are allocated work groups. These work groups should be in such a way that they incorporate various skills within an organization. Experts in human resource management argue that having homogenous workgroups within a firm is the easiest way of cutting down on costs as well as eliminating the cost of supervisions and constant consultations (IOMA, 36). The save time as well. I would therefore recommend the introduction of such a design. This will call for seminars to train the employees on how to work in the multi-skill groups. The third of the most effective recommendations I would make is the use of such concepts as job rotation. This is a very effective way of ensuring one employee can serve in more than one positions. This is a very efficient way of replacing an employee who is temporarily absent. This reduces the need for contingent staff that attracts extra costs (IOMA, 42). The introduction of the job rotation program should take place early in the year so that the employees can get oriented to the system as the year progresses. The fourth recommendation I would make is the reduction of the premium pay rates. These are those rates paid for work done over the weekend and extra hours. Such payment is referred to as overtime allowance. To reduce the need for extra hours we should ensure reduction in wastage and inefficiencies as well as ensuring maximum productivity from the employees during the working hours. The fifth recommendation I would make is the introduction of extensive departmental benchmarking. This involves the borrowing of the most appropriate cost-saving procedures from other better performing departments. Benchmarking is usually aimed at the best practices that are associated with the most competitive rates (Cahuc & Zylberg, 112). Benchmarking should be done at all levels of management. In addition to benchmarking, I would recommend a sixth method and that is outsourcing of expertise during the high production season that comes during the months of September to November. In conclusion, I would recommend that in addition to the above discussion, the departments of the company attempts the use of such options as streamlining the company’s span of control, structures redesign and performance dashboards to achieve efficiency. Seasonal furloughs are also good options especially during the low seasons. Outsourcing reduces the extra members of staff that is employed on a Permanent basis but is idle and irrelevant during low seasons. This cuts down on the labor costs. Action Plan Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Reduction in the number of direct laborers Reduction in the direct Labor overhead Extensive departmental Bench marking Seminars on Multi-skill Groups Outsourcing options Review of Premium payments Explanatory statement The company should reduce the number of direct laborers during the beginning of the accounting year. Reducing the number of direct laborers has no adverse effects on the corporate image of the company. During the month of February, the production department is less active following low demand. It therefore follows that reduction in the direct labor rates is of essence. During the months of March and April, at the beginning of the high demand season the production department should carry out extensive departmental bench marking so as to achieve efficiency at competitive rates. Orientation programs should be organized during the months of May and June so as to institute a skill mixed design that saves time and costs. During the peak season which begins as from July to November, the company should consider outsourcing options. This is because acquiring more staff will have negative impacts on the company’s financial base during the low production season. The above recommendations will have yielded positive effects by the month of December. During this time, the company can successfully review premium payment rates. Work cited Cahuc, P. & Zylberg, A. Labor Economics. New York. Massachusetts Institute of Technology.2004.Print Institute of Management &Administration (IOMA). Cost Reduction and Control Best Practices. New York. John Wiley & Sons, Inc. 2006.Print Read More