Uncovering the True Cost of Turnover

Posted By: Jeannine Kunz, Vice President, Tooling U-SME on February 05, 2019

Uncovering the True Cost of Turnover

Relentless turnover in the manufacturing industry is threatening companies focused on driving productivity and profitability. Voluntary turnover takes its toll on company culture, and also costs organizations hundreds of thousands and up to millions of dollars.

It is concerning that two out of five manufacturers (43%) indicate an average 20% or higher annual turnover, according to Tooling U-SME’s Industry Pulse: 2018 Manufacturing Workforce Report.

While turnover of low performers is healthy, losing significant numbers of potential high performers can indicate trouble.

Understanding the cost of turnover is the first step toward creating a company of loyal, long-term employees.

There are two distinct costs of turnover (CoT):

1. Financial. This is the literal cost in dollars, based on expenses related to recruiting, onboarding, training, and temporary staffing, as well as lost business associated with the employment gap.

2. Business impact. Developing people for today and tomorrow goes hand in hand with implementing new technologies, taking on more business and implementing productivity improvements. Turnover puts this progress in jeopardy. It also means the loss of valuable embedded knowledge. Of course, these losses translate into financial losses as well (e.g., machine downtime, safety issues, scrap, meeting business capacity).

A frequent complaint of manufacturers is that they don’t have the funds to invest in a standardized training and development program, yet this cost is dwarfed by their annual CoT.

Say a company of 1,000 employees loses 20% of its workforce (200 employees) in a year. If CoT averages $7,500 per employee, annual CoT is $1,500,000. Reducing turnover by even 5% saves $75,000.

These are conservative estimates. While losing an entry-level employee may cost $7,500, the loss of an engineer could cost more than $30,000.

There are also hidden costs. Respondents in Tooling U-SME’s Industry Pulse study indicated that they do not include costs, such as temporary labor to fill the gaps, loss of productivity (e.g., safety, scrap), and lost business, making the CoT even more expensive. That’s a serious oversight.

The true cost of turnover goes beyond dollars and cents. It also has a damaging impact on company culture, productivity and ability to grow.

So, here it is — a brand new year — and opportunity to start fresh. Consider how you can reduce voluntary turnover to create a motivated and productive workforce – and also benefit financially.

You can control many aspects of building a positive work environment, including:

  • Solid onboarding, mentoring, and job qualification programs
  • Modern blended learning and development programs
  • Clearly defined career pathways with skills compensation plans

For more insights and action steps to boost employee engagement, download our new complimentary report, The True Cost of Turnover: Hidden Costs Go Beyond Financial to Impact Productivity and Culture.

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