Labour costs often represent the highest expense for businesses, typically ranging from 40% to 60% of operational revenue, particularly in labour-intensive industries. However, despite this significant expenditure, many businesses struggle to effectively manage their labour resources. While some may believe they are handling labour management well, it’s crucial to assess whether they are truly optimizing their resources.
Common Challenges in Labour Management:
One prevalent issue we observe is businesses quoting jobs with a projected gross profit margin of 25-30%, only to realise a much lower margin of 5-10% in actual earnings. This discrepancy is frequently encountered in businesses with turnovers ranging from $100 million to $600 million. The root causes of this problem often include:
- 1. Pricing models that do not accurately reflect the true cost of labour.
- 2. Lack of data-driven understanding regarding the time and effort required to complete tasks or the cost of service.
- 3. Allocation of labour based on intuition or static levels, regardless of fluctuations in planned activity volume.
While there is no “General AI” capable of resolving all these issues, artificial intelligence can play a valuable role in providing insights to aid operational decision-making. However, it’s essential to recognise that AI cannot replace the human touch in labour management.
The Role of AI in Labour Management:
AI can provide valuable information and insights to operations teams, enabling them to make timely and informed decisions. This can directly impact the bottom line of the business by enhancing efficiency and productivity.
Steps to Effective Labour Management:
- Step 1: Visibility Establish : real-time visibility into your business operations, including productivity, utilisation, completed activities, and labour-to-revenue ratio. Real-time data should be available within minutes, not weeks after month-end.
- Step 2 Model Best Practices : Develop task-specific benchmarks for planning purposes, aligning with your pricing model and adjusting margins as needed for different customers.
- Step 3: Optimise Allocation : Create a labour allocation plan based on operational constraints, best practice models, operational KPIs, and customer service level agreements (SLAs). Recognize the need for assistance in efficiently allocating resources given the vast amount of data in today's operating environment.
- Step 4: Analyse Performance in Real-Time : Utilise dashboards to identify anomalies such as idle time, SLA breaches, or performance issues, allowing for immediate corrective action.
- Step 5: Re-Optimise : Continuously adjust labour allocation and resource utilisation in response to changing operating conditions, such as sick leave, equipment breakdowns, or delays.
By empowering operations teams with the tools to manage labour and activity data in real-time, businesses can optimise costs, enhance customer service, and prevent revenue loss. Even small adjustments, such as reducing 15 minutes of overtime per shift per operator, can lead to significant savings.
For more information on how to optimize labour management and maximise operational efficiency, please don’t hesitate to contact us. Let’s work together to achieve your business goals.
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