Achieving More With Less
The goal of every successful business is increase productivity without having to spend more to do it. Increasing productivity by reducing costs usually results in better efficiency and higher profit margins.
Efficiency is the ability to get more for less. Controlling costs is critical in maintaining profitability. However, keeping operations costs as low as possible does not always increase profits, particularly in relation to paying employee wages. When it comes to labor costs, sometimes investing more money actually can make a company more money in the end. In this case, there may be validity to the old adage, "You get what you pay for."
What Labor Costs Include
Labor costs include more than just the hourly wages and salaries paid to a company's employees. The cost of labor also includes employee benefits packages. Health insurance, disability insurance, PTO (paid time off) and 401-K plans all fall under the umbrella of labor costs. Wage increases are inevitable in a rapidly growing economy, adding to the challenge of controlling costs and expenses. While labor costs may account for a significant percentage of a company's total annual operating budget, low labor costs may not necessarily be an easy way to increase a company's profit margin.
Outsourcing Not Always A Cheaper Alternative
In recent years, more companies have turned to outsourcing in order to cut costs and increase profitability. Yet many companies are learning that paying low wages often results in poor workmanship, which affects both the quality of the products being produced, as well as the company's overall reputation. Low-cost labor can translate into unskilled labor, and in order to remain competitive in today's global market, companies must keep pace with the continuous advances in technology. Automation and innovation lead to higher productivity, but achieving higher productivity requires trained workers. Other factors to consider when off-shoring to countries with low labor costs include the cost of raw materials, the cost to ship manufactured goods back to the U.S., and taxes and tariffs. There also are the overhead costs associated with supply chain management, in addition to problems often associated with communication and cultural barriers. What's more, if highly skilled workers are needed in a particular industry, hiring unskilled workers to do the job likely will negatively affect both output and quality, actually slowing the rate of production.
