Combatting the High Cost of Turnover

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Why Turnovers are Troubling the Industry

While employers have hired workers at a strong pace in recent years, the rate that workers are quitting jobs has remained high as well. Mirroring this trend, turnover rates have also risen and currently stand at 13.5% for distribution and manufacturing function [2]. Coupled with baby boomers retiring, and millennials and Gen Z workers opting for white collar jobs, the industry is at a clear labor disadvantage.

The True Cost of Turnovers

When it comes to turnover costs, it’s what can’t be readily calculated that hits a company the hardest. The following are some of the hidden costs an organization will want to uncover:

  • Lost Productivity. When a vacant position remains unfilled, there’s a marked loss of productivity as tasks are spread out to other people to finish.
  • Staff Stress. Reassigning work to existing staff stretches them even thinner, likely decreasing quality of work and job satisfaction. This could prompt existing workers to start job searching.  
  • Knowledge Loss. When an employee leaves, they take their knowledge and experience with them. In fact, a third of companies retain knowledge poorly or not at all when workers leave [2]. And time spent training a new person for a vacant role can be costly.
  • Service Level Declines. Managing a reduced staff can negatively impact service levels and lead to a drop in sales or the loss of customers.
  • Recruiting and Hiring. Someone has to take time to go through resumes, conduct interviews and assess candidates.
  • New Hire Training. Someone has to take the time to acclimate a new hire, and that means one person is essentially doing two jobs.

Lean on Labor Management Programs to Improve Retention

Direct costs to replace an employee can “reach as high as 50% to 60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200%.” [3]. So wouldn’t a company want to do everything it can to retain workers? A Labor Management Program can help by providing tools to help overcome retention challenges:

  1. Continual Performance Assessment. Tracking capabilities help managers identify the best work performers as well as poorer performers who need additional training.
  2. Improved Onboarding. Surveys show that as many as half of all hourly workers leave new jobs within the first 120 days. So onboarding with clear roles and expectations is key.  
  3. Realistic Goal Setting. Managers can establish best practices, preferred methods and standard operating procedures that are shared and validated with employees.
  4. Constant Communication. Managers can evaluate performance based on pre-agreed, measurable targets and leverage real-time data for employee feedback.
  5. Recognized Achievements. With access to real-time performance data, managers can provide detailed feedback on a daily basis, so workers know where they stand and how to improve.
  6. Pay for Performance. Incentives help increase productivity. The best (and most economical) way to do this is with a pay for performance program based on Labor Management Program data.

Learn More

To find out more about how investing in a Labor Management Program can help reduce turnover, download our whitepaper.

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[1] BenchmarkPro 2018 Report, Compdata Surveys, [2] Institute for Corporate Productivity Study, [3] Society for Human Resource Management (SHRM)

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