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How to Reduce Manufacturing Labor Costs Without Cutting Headcount

We usually think of automation as “replacing” workers. The truth is, most forms of automation simply augment the labor that we have today. ATM didn’t eliminate bank tellers, and nor will robots really eliminate the need for a skilled manufacturing workforce.

What ATMs instead did was rid bank tellers of simple tedious transactions – transactions which weren’t necessarily more productive when done by a person and ultimately reduced their relative value to their employer. Instead, ATMs handle the tedious or predictable stuff, tellers handle the special cases (which – big surprise – there are still a lot of), and banking has never looked back. 

So, when you’re thinking of how to reduce manufacturing labor costs (with or without cutting headcount), the most important approach to take is to consider how you can augment the productivity of your workforce by eliminating unnecessary excesses in your production process. 

The added labor costs you may be thinking of are:

  • Frequent overtime due to falling behind against production demand
  • Constant rework causing either overtime or excess hours
  • Eliminating duplication of hours due to quality issues
  • Improved safety and wellness protocols that reduce total insurance costs
  • Reducing turnover by creating an environment that keeps employees happy

Ultimately, some or all of these steps don’t just reduce the relative costs of labor to your overall production, but they will increase your productivity, profitability and can also increase the proportion of your labor costs that actually go to employees.

Eliminating Frequent Overtime

Struggling to keep up with demand is actually a pretty good problem to have, but if it goes unaddressed it can still compromise your business. Part of the challenge here is that when demand increases faster than your ability to train and employ new skilled employees, you fall behind even further, compromise on quality or have to raise your prices – putting you in the sights of a competitor who may not have those problems. 

So, how can you add flexibility to your manufacturing process that improves your “surge capacity” while reducing your fixed costs? As it turns out, autonomous manufacturing systems can enable high-mix manufacturers to finally realize some of the same benefits from robotics that mass manufacturers have long known. 

These include repeatability, durability and consistency in operations, while being able to function for one shift per day or 24/7/365 with limited incremental labor throughput. At the same time, these machines enable your existing skilled workforce to avoid tiring, repetitive or dangerous tasks and further avoid overtime because their regular productivity is that much higher. 

If you want to understand the hidden costs of going without automation, click here. 

Reduce Rework to Limit Labor Overruns

One of the biggest challenges for manufacturers for the last few years has been to find capable workers to add second and third shifts to their production line. In many cases, the absence of skills, competency or ever the willingness to show up has meant that it simply hasn’t been profitable to meet demand by adding new shifts, because the work of those shifts actually requires so much rework that it makes serving that demand unprofitable.

In many of these circumstances, skilled, experienced employees and managers have gone the extra mile to meet what they could, and we know that during the pandemic durable goods demand in particular has surged. As time goes on, the money here may be good, but ultimately this is likely to add to the labor costs of your most skilled and experienced workers, and quite possibly work them into an early retirement.

With new machines and autonomous systems, these workers no longer have to do the work themselves. They can instead work from oversight positions while they ensure that production needs are met and the most basic aspects of your process are respected. At the same time, this form of “lights out automation” can reduce rework – even in high-mix environments – because it doesn’t require the same instruction, care and attention that skilled workers do. With autonomous robots, every movement is infinitely repeatable, meaning the unexpected whims of inexperienced workers will limit the possibility of rework in the first place. 

Eliminating Duplication of Hours Due to Quality Issues

This adjustment is a bit like the one above, but with a little caveat. Do you have extensive processes or quality assurances that exist in order to avoid added costs on orders? Do you have multiple employees doing the same thing on the same production line because you simply cannot afford to get anything wrong? Autonomous machines effectively eliminate these excessive process and actually improve the quality of your orders. 

As it happens, the relative labor costs in manufacturing have gone up significantly, meaning these kinds of processes may not be that uncommon. Since 2010, in fact, unit labor costs are 20% higher on an indexed basis – even while total wage share trends towards a 60-year low. While commodities have been cheap in that time, manufacturers have simply seen their cost structure shift towards labor without the increase in productivity that actually benefits both labor and employers. Duplicate processes or repetitive quality checks are a huge component of this – they make jobs more repetitive, less attractive, less productive and keeps them from finding ways to improve their performance and earn more from their output. 

Improved Safety and Wellness Protocols That Reduce Total Insurance Costs

When a person gets hired, they collect their wage and benefits. When a firm hires somebody, they pay those wages and benefits, additional state mandated benefits, employment insurances, payroll taxes and more. Not only do many of these policies perversely discourage employers from hiring people when they need them – it actually makes firing employees more attractive and relatively easier compared to the total costs associated with dismissing someone. In fact, these policy sets ultimately cut the prospective wage increase by half and the annual wage increases of incumbent employees by up to 10%.

Health and safety costs also impose even more of a burden on employers and employees – particularly when it comes to labor costs that employees only benefit from in that it keeps them safe. A study by the Institute of Work & Health showed the average Ontario manufacturer spends more than $1500 per employee on health and safety initiatives. In the United States, injuries cost manufacturers nearly $8 billion in 2019, with nearly half of that being Muscolo-Skeletal in nature. 

Acute injuries are not the only risk to the workforce: one study in Britain showed that fully a third of manufacturing workers suffered from conditions like heart disease, hypertension, diabetes and asthma, while these conditions on average increased the occurrence of acute injuries between 12 and 25%. In many cases, the stress or environmental hazards of these jobs can be contributors to the occurence of these chronic conditions as well.

With autonomous manufacturing systems, you can look to remove workers from exposure to a variety of health and safety risks and ultimately work to eliminate those added costs to skilled labor, while further improving the productivity of your most experienced employees and empowering them to do more.

Reducing Turnover by Creating an Environment That Keeps Employees Happy

While employers can do everything they can to keep things interesting in the workplace, the true costs of tough jobs ultimately fall most heavily on the employees who do them. 

At the same time, as committed as some may be to simply working hard, employees of all stripes are willing to take less if they find their work more meaningful. Most manufacturers produce essential goods that make a key impact on daily life – something employees can feel good about. But what about following orders? What about those days that never seem to end?

All of these aspects of a difficult or overly “authoritarian” organization can cloud the more meaningful aspects of working in manufacturing, while also reducing the engagement employees feel in the workplace. Getting away from this approach is essential to getting more done and – often – equipping employees with the right technology can make them happier to deal with whatever comes. 

With AutonomyOS™ and AutonomyStudio™, it’s never been easier to deploy an autonomous robotic system. Using 3D Perception with AI-based Task Planning and Motion Planning, manufacturing engineers and integrators can configure autonomous robotic systems for value-added processes that allow manufacturers to achieve more consistency and flexibility in production than ever before. Contact us for more info.

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