Staffing Agency Disadvantages: Cost-plus vs Fixed-Cost Labor

Innovative Labor Solutions for Contract Manufacturing, Packaging and Fulfillment Operations

Due to surge demand, contract manufacturers and contract packagers frequently need more people and more flexibility to package products, run fill lines and do a host of manual tasks. Until recently, operations leaders have typically relied on temp agencies. But hiring a temp agency is a ‘cost-plus’ model rife with risk.Today, there are more innovative ‘fixed-cost’ alternative labor solutions to consider as explained in this infographic.

First, we’ll look at the costs and risks of using temp agencies. Then we’ll explore an alternative and smarter way to manage labor-intensive operations.

Costs and Risks of Using Temp Agencies

• Temp agency mark-ups are costly
• Forecasting and scheduling are up to the Ops leader
• Costs are for hours worked, not output
• Training workers is costly
• Turnover is high
• Workers have no stake in throughput or quality
• Manager’s time is spent on personnel issues

Fixed-cost Labor Solutions: A smarter way to manage packaging, kitting and other handwork

Today, contract manufacturers, contract packagers and other packaging operations leaders can think smarter about staffing for demand surges. Instead of using a ‘cost-plus’ model, consider a ‘fixed-cost’ model with an outsource partner. A fixed-cost outsource partner will charge a fixed cost-per-unit (CPU) to run a line, a job or an entire program. You know your exact costs and can shift all the risk of managing labor to them.There are several flexible ways to work with an outsource partner:

1. Send work to your Outsource Partner’s assembly site
2. Outsource Partner can come on-site and manage your packaging operations
3. Outsource Partner can come on-site and manage just the assembly area
4. Outsource Partner can come on-site and manage select assembly lines
5. Outsource Partner can stand up a short-term operation for a one-time project
6. Outsource Partner can stand up a new location for a longer-term project

The benefits of using an outsource partner are numerous and include:

• CPU pricing – You know the costs up front and shift the risks
• Cost savings – Partners who do it right can typically save at least 20% - 40% in labor costs associated with lines, projects or programs
• More throughput – Partner / specialists use lean engineering to maximize throughput
• Better quality – Outsource partner workers are trained and incented on quality, and your partner warrants all quality
• Manager’s time – Managers spend less time supervising temps, more time on things that move the business forward
• Lower inventory – Specialists move goods faster, achieving optimal inventory levels
• More profit – More throughput + lower costs = more profit

Ready to work smarter and think of your manual operations as a profit center?

Many supply chain experts recommend outsourcing manual labor just as you would other non-core competencies or low-profit areas of your business. However, not all outsource partners offer the same versatility. To win the labor game of the future, begin exploring smart ways to partner with others who specialize in flexible labor management for your packaging operation.Have questions about fixed-cost flexible labor programs? Give Brendon McGann a call at (704) 559-9272. Brendon is Productiv’s SVP Supply Chain and has worked with many contract manufacturers, packagers and other companies to implement profitable fixed-cost labor programs.