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Managing Material and Labor Costs

(January 2007) posted on Wed Jan 03, 2007

Conjuring up a fiscal plan of attack for 2007.

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By Marty McGhie

The costs of labor
Managing your labor costs can also be rather challenging, but if approached properly, can save your company significant money. One of the first keys to managing your labor costs is to actually manage your labor. Too often we assume that our processes are already the most efficient they can be, simply because "that’s the way we’ve always done it."

Instead, spend some time to analyze the way you produce your work. Challenge your managers to find better, more productive ways to utilize your people on the production floor. Communicate with all your employees and solicit their suggestions on how your processes may improve.

Recently, our production manager and I held what we call "quality circles." The two of us met with all of our employees in groups no larger that five or six people at a time. Instead of telling them about the various ways we wanted quality to improve, we listened to their recommendations, took notes, and will now begin to discuss which of the ideas we can implement to improve our production processes.

The best part is that when we do put their ideas into action, we will have immediate buy in-after all, it was their idea.

Be creative in the way you approach your labor demands. If you never use any temporary employees, you may have too many employees (unless the demands of your customers are always steady). If you never pay overtime, you may have too many employees. Demand in our industry typically fluctuates enough that management of labor will always be an issue, but don’t try to manage the peaks and valleys of your business by constantly hiring and laying off people.

Instead, try to manage those highs and lows. For example, this year our print manager set up a schedule almost two months in advance of busy season, scheduling different print operators to work different weekends. This way, we did not have to go to them with any last-minute requests to work the weekend. In addition, as we approach various times during the year when we’re less busy, we review our vacation "accounts" and talk to employees who may have significant time built up in their account, encouraging them to use the slower times for their vacation. For the most part, our employees are very cooperative when they realize we are trying to cut costs.

Examine for prosperity
You should continuously be examining your material and labor costs. Identify areas you’re succeeding in, as well as those areas in which your business can improve. Development in both of these areas can prove to be a great boost to your bottom line, making for a much more prosperous 2007.

Marty McGhie ( is VP finance/operations of Ferrari Color, a digital-imaging center with Salt Lake City, San Francisco, and Sacramento locations.