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Category: Manufacturing

Supply Chain News: Ohio Manufacturer Takes Risk, Hikes Worker Pay

 


Results thus Far are Mixed

Aug. 18, 2021
SCDigest Editorial Staff

Here’s a novel approach to recruiting and keeping hard to find manufacturing workers: increasing their pay.

Wage pressures have led many companies to increase supply chain worker pay. Trucking firms, after a brief respite in 2020, are back to giving drivers higher per mile wages and sometimes guaranteed weekly minimum pay.

Supply Chain Digest Says...

So all told, CRC thinks it will take a bit longer to tell whether the wage hikes really paid off.

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Last week, SCDigest reported how Walmart has started a new program in which workers in its distribution centers can earn as much as $250 in bonus pay per week. (See Distribution Labor Costs Continue to Rise.)

About two weeks ago, the Wall Street Journal reported on how Cleveland-based manufacturer Custom Rubber Corp. (CRC) has been substantially increasing hourly pay – and thus far has seen mostly positive results.

It’s worth noting, however, that CRC adopted the strategy in part by playing with house money, taking advantage of an $879,000 forgivable loan from the federal Paycheck Protection Program as a cushion for the increasing its labor costs.

CRC has hiked pay rates for some employees three times this year. Starting pay for machine operators, a difficult job to fill, rose by $4.55 to $18.25 an hour, and to $19 for the night shift. But Amazon currently pays new fulfillment center employees in the Cleveland area up to $18.50 an hour, plus a $1,000 signing bonus

Nevertheless, in terms of recruitment at least, the results so far are positive: CRC’s head count climbed to 124 in July from 91 at the end of January, in a period when most other manufacturers are struggling to fill avalable jobs. Manufacturers reported 814,000 job openings in May, according to the Bureau of Labor Statistics, up from 479,000 in December and 402,000 in February 2020.

But there obviously is a cost for that improvement, and indeed CRC’s Labor costs, including taxes and benefits, now account for about 17% of sales, up significantly from 12% eight years ago.

But the added workers have increased capacity, meaning CRC can fill more orders. Sales are up nearly 50% in the first seven months of 2021 versus a year earlier, in part due to the added workers.

That sales bump in turn drove improvements in manufacturing asset utilization, more significantly so than the company was expecting.

(Article Continues Below)

CATEGORY SPONSOR: SOFTEON

 

However, company CEO Charlie Braun told the Wall Street Journal the move can lead to “wage compression,” in which pay for new hires and entry-level positions creep upward to that of experienced workers - and create resentment among employees who worked for years at a lower rate. That view appears to indicate CRC only increased wages for new employees, not long time ones.

And while the high pay has significantly improved recruitment, turnover at CRC remains an issue: in July, CRC hired 21 people, but 13 quit. Even with the hire pay and new hires, the company has been short anywhere from 14 to 31 workers in recent months.

So all told, CRC thinks it will take a bit longer to tell whether the wage hikes really paid off.

To reduce turnover, CRC is improving recruiting and training processes, and looking to automate some production tasks to make some of the work easier.

But Braun says the higher pay today is simply the price of admission. Without it, he told the Journal, “We couldn’t even get viable candidates.”

“I milked the recession for all it was worth in terms of suppressing wages and not increasing wages,” he added. “In hindsight, I probably leaned on that one or two years longer than I should have” – like many other manufacturers, he notes.

Braun believes he can boost starting pay to $20 an hour by making production processes more efficient and employing higher-caliber workers, but isn’t sure on the timing of that hike.

“I’ve got my fingers crossed that the company will continue to make money,” he said. Employees will continue to make money, he added, “because I can’t roll it back,” according to the Journal story.

What are your thoughts on CRC'S wage hikes? Let us know your thoughts at the Feedback section below.

 

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