How to raise your labor cost without really trying.

 

It seems that this should be a column that I write in the middle of the slow season.  But you are reading this in the middle of the busiest time of year.  This is the time that you’ve looked forward to all year.  Now is when you have the most amount of cash left over at the end of the bills.  But let’s try to learn some lessons from this busy time and perhaps that will translate into real cash savings come the dog days of summer.

 

Let’s fast-forward into the future, to the summer of 2018.

 

It is the slow season and that often means that plants that operate at a low profit margin during the busy season are losing money now.  It doesn’t have to be that way, and often management is the root cause of losing money during the slow season.  Now to be fair, I admit that it is possible for a plant to have insufficient volume to sustain itself year-round.  In those cases, additional volume will be the only remedy.  More volume will be required if there simply is not enough revenue to go around to cover the fixed expenses.  This is not the situation that I am referring to.  I am talking about a plant where the labor cost is not proportional to the total piece count.  There are times when a perfectly viable plant commits technical suicide when the slow season comes along.

 

(Remember how busy it was in April 2018?  The flowers were blooming.  The birds were singing.  There was plenty of business.  The pressers were humming along at a record pace.  And it wasn’t so damn hot in the plant!)

 

In actuality, it probably is not possible to keep total labor directly proportional to piece count due to certain fixed labor costs that cannot be reduced relative to piece count.  Classic examples of this are owner draws, managers, customer service staff and office help.  But production labor must be proportional to piece count.  But, too often, it is not and management allows it because they need to keep the staff around for the busy season.  The mindset is that the employees need a good pay in order to sustain themselves.  And that means that they need full-time hours, year ‘round.  I understand that, but I cannot endorse it because of the side effects.  Let me explain.

 

First of all, production employees work in an environment that means, by definition, that their total hours worked should fluctuate commensurate with the workload.  That’s what a variable expense is.  A production employee works until there is no more to produce.  This happens in a service business and especially in this one.  In a manufacturing business, Freddie can produce to his heart’s content.  He can out-produce his peers two-to-one or more.  In the drycleaning business, we aren’t making pants or shirts, we are merely working on the ones brought to us.  And when there ain’t no more, there ain’t no more.  Period.

 

Regardless of what I write here, some of you will vehemently disagree.  You will insist that your employees need to work 40 hours.  That is your prerogative.  But be aware of a couple of important points.  First, you are making less money than you should be making.  In fact, you may be losing money on the “Easy Payment Plan.”  You make expensive payments that you can’t afford to your employees every payday.  Secondly, this whole fiasco is in-bred.  It is woven into the culture of your own business model.  Reversing it is a challenge.

 

If you could do it all over again, maybe you would say, “Sorry, Betty the shirt presser, shirts are down 20% this week and so are your hours!  Sucks to be me AND you!”  (Or perhaps a more diplomatic variation that relates, in effect, the same thing.)  You don’t fear that Betty will quit and go to work elsewhere because you know that everyone else is down.  They’re cutting hours too, not hiring.  With this corporate culture in place, when you do hire anyone, you always tell them that their hours are variable.  You never say that you will “guarantee” anyone 40 hours because you know that you will live to regret those words during lean times.

 

You may think that I am dreaming.  I’m not.  In fact, there is a group of you saying to yourself, “Hey Don, what’s so profound about that?  We have always done that.”  Really.  But for another group of you, your payroll is the same when you do 3000 shirts and 3000 drycleaning pieces as when you do 5000 shirts and 5000 drycleaning pieces.  If you have that culture inbred, it is a challenge to reverse it.  All the while, others have a plant that does indeed; have a production payroll that is as variable as their piece count.  It is your choice to do what you prefer, but if the profits aren’t there, well, remember what I said about losing money on the “Easy Payment Plan.”

 

But the plot thickens.  It gets worse.

 

Suppose that you have a plant that makes $2000 per week in net profit 26 weeks per year.  The other 26 weeks it breaks even.  (Pardon me for over-simplifying this.)

Management allows the staff to pad the time clock and waste labor for those 26 poor weeks because they are needed for the other 26 weeks to generate that profit.  Does it work?  On paper, yes.  In real life?  Doubtful.

 

The real cost here is in the collateral damage.

 

Let’s say that the pressing staff produces 120 pieces per hour during the busy season while using 4 pressers.  They all get 40 hours, as do the associated support people – the people in the cleaning room and the inspection/assembly area.  The pressers average 30 pieces per hour for the 40 hours the plant produces, in total, 4800 pieces per week.  But what happens when the total piece count drops to 3800?  Do all of the drycleaning department staffers now get only 32 hours?  The answer should be yes, but is probably “no.”  In fact, many people say that their staff still works 40 hours or nearly so.  Let’s go with that.  That means that the pressers – in charge of their own fate – now press only 23 pieces per hour.  Management allows it (or chooses to be oblivious to it) because “they need the hours.”  I understand that to a certain extent, but the problem lies in what this breeds:  under-producing employees.  And this leads to either overtime or additional staff members.  Once the busy season hits, do all of the staff members band together to work 25% faster so that they can get the same pay as they have been getting?  Not likely.  Do they work longer hours at their familiar, slower, work pace and get overtime pay?  Very likely.  And you may react to that by adding an extra presser to “cut out overtime.”  Perhaps.  But the real solution was to not let the staff under-produce in the first place.

 

And that is why I have never been to a drycleaning plant, in any city, state or country in the world, that isn’t over-staffed.

 

“If you do what you’ve always done, you’ll get what you always got.”