How to Reduce Labor Cost
Labor constitutes a significant portion of the cost structure for most companies, and a small reduction in labor expenses can mean a significant boost to the company's bottom line. There are a number of ways to reduce labor cost, including the adoption of new technology, workforce and management training, and outsourcing.
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Instructions
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Replace labor-intensive jobs with technology. Some jobs, particularly in manufacturing and distribution, can be performed by machines or computer technology.
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Automate certain operations, which will make it easier for your workers to do their jobs. For example, installing conveyer belts in a warehouse may make it easier for workers to move goods from one place to another.
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Develop process-mapping systems that can train your workers in how to do their jobs more efficiently. Process-mapping processes will differ by company, and you may want to hire an experienced consultant to help you design the system.
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Offer early retirement to older, more highly paid workers. This may allow you to avoid layoffs that can damage remaining workers' morale.
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Consider reducing or eliminating benefits, bonuses or other perks.
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Outsource certain jobs to low-cost areas, such as Vietnam, India or Sri Lanka. Many foreign countries have highly productive, highly educated English-speaking workforces, and labor rates are generally much lower than in the United States.
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Tips & Warnings
Consider the costs of labor reduction: You may have to pay severance to eliminated workers. Weigh the cost of new technology against labor savings. Make sure that you can replace the productive capacity of older workers.
Be aware of the impact that your decisions will have on your remaining workforce. The Worker Adjustment and Retraining Notification (WARN) Act may require that you give workers a minimum 60 days' notice before eliminating their positions.
