Cutting Costs without Cutting Staff
Throughout North America, the recession is causing many shippers and carriers to reduce costs to bring expenses in line with declining revenues. Job losses in Canada and the United States are averaging over 700,000 per month for the past several months. About 50,000 of those jobs are in the transportation and warehousing sectors.
In previous economic downturns, many firms cut to the bone and when business picked up, they scrambled to rehire the very people that they had de-hired. According to Douglas Reid, professor of business strategy at Queen’s University in Kingston, Ontario, when headcount is slashed, employers also lose “important knowledge about processes, customers and corporate culture that companies have a tough time replacing. So they often end up hiring those people back as consultants – which is insane and costs them more money.”
The challenge for many shippers and carriers is to find cost reductions without cutting valued staff members who have worked for the organization for years. The fact is that many of these experienced employees will be critical to the future success of the company, as the recession comes to an end and business volumes increase. According to recent survey by the Society for Human Resource Management, 37% of human resources managers say they are spending more time devising alternatives to layoffs versus six months ago. Peter Cappelli, director of the Center for Human Resources at the Wharton School of Business, notes that a 5% salary cut costs less than a 5% layoff since there are no severance payments with the former.
In addition to layoffs, there is a range of cost cutting measures that are being utilized. The first group of cost saving opportunities come from reducing non-staff related costs and fixing inefficient processes.
Reduce Discretionary Expenditures
In addition to making staff cuts, many companies are looking at all of their discretionary expenses such as printing and stationary costs, travel, advertising and customer entertainment. They are polling their employees for cost cutting suggestions. They are going through every line in their expense reports, isolating non-critical expenses and putting in place measures to control spending.
Fix Broken Processes
This is an area that deserves more attention than it receives today. Many companies use longstanding processes that include inefficiencies, redundancies and inadequate functionality. Some processes may involve manual labour (e.g. creating Excel reports from company statistics), multiple employees within a company entering and re-entering the same data, or antiquated analytical tools. In certain situations, there is a requirement to spend money to save a much larger sum of money. Savings can come from increased throughput and from being able to do more work with fewer people.
Reduce Office Expenses
There are a number of job functions that can be performed from home or a mobile office. Many types of sales people spend much of their time on the road. This affords companies the opportunity to eliminate office expense or sublease space to another company. With the advent of telecommuting, the internet, smart phones and PDA’s, laptop computers, webinars and Skype, there is much that can be done to reduce real estate, travel, telecommunications and overhead expenses.
Reduce Real Estate Costs
Many LTL carriers have shuttered terminals or combined the operations of various terminals into a particular building. This is resulting in reduced real estate and terminal related expenses.
The second group consists of selectively outsourcing certain functions that are best performed by a third party or amalgamating operations. These include.
Outsource Non-core Functions to Specialists
In cases where a firm is employing a bookkeeper, a human resource clerk or payroll clerk, it may make sense to outsource these activities to firms that specialize in these areas. These can include activities such as factoring receivables where this may serve to improve cash flow and reduce the number of full time employees. In some cases, it may be possible to transfer the employees affected to the third party selected.
The third group deals with reducing compensation or obtaining more output from employees rather than reducing staff.
Reduce Work Hours
These types of reductions are taking a number of forms. These include three or four day workweeks at the same or reduced pay or job sharing.
Train Employees to Perform Additional Functions
Employees in certain functions experience off peak times or down time. They can be taught to perform other functions. For example, customer service personnel can be taught to perform telemarketing when there are declines in inbound calls from customers.
Make your Employees Available to other Firms, for a Fee, to Perform Specific Tasks
As an example, Ben & Jerry’s ice cream sent 15 factory workers to a lip balm manufacturer for a designated period of time to help them handle a holiday rush. The specialized skills of certain resources (e.g. programming, collections) can be made available to other firms (that are not competitors), thereby helping to subsidize their salaries.
Introduce Furloughs, Unpaid Vacations and Unpaid Sabbaticals
In this case, employees are offered unpaid leave. While employees may not wish to take time off, particularly without pay, this beats the option of being laid off.
This can include reductions in salary and/or benefits, freezes in salary increases, reductions in bonuses and/or other perks (e.g. memberships in fitness clubs and golf clubs). The most common approach is to make across the board salary reductions since they affect all levels of staff equally and are easier to justify to employees. The problem with this approach is that a 10% reduction to a $300,000 employee, while bigger in dollars, may have less impact than the same reduction to a $40,000 a year employee. In the case of the latter, if the employee is part of a two income household and one person loses his or her job and the other suffers a 10% pay cut, the results can be devastating. The other problem with this approach is that there is no differentiation between good and bad performers.
Another option is to take a more surgical approach and cut salaries of specific individuals. This allows a company to protect the salaries of its best employees and shelter them from competitive attack. The downside with this approach is that it forces a company to “cherry pick” which employee salaries go “under the knife” and which ones do not. Since employees talk to one another about compensation issues, this “beauty contest” approach can result in a set of morale issues.
There is no doubt that there will continue to be large job losses in the coming months as companies throughout North America seek to reduce expenses. The fact is that mass layoffs can produce declines in morale and productivity. Sudden and repeated downsizing can result in attrition as the retained employees seek more stable work environments. During this year of recession, many companies are also seeking more creative means of retaining good employees. These include the reduction of discretionary expenses, fixing non-productive processes, outsourcing certain functions to specialists while performing other tasks for other firms to defray employee costs. Another approach to maintaining the integrity and core competencies of a company is to seek out ways of cutting salary expenses without cutting staff.