Handling Labour Shortages

Workforce planning - managing labour supply

Workforce planning - Handling Labour Shortages or Excess Supply

Dealing with labour shortages

When might a business find that the challenge of workforce planning is to deal with a shortage of labour?  That could happen when, for example:

• There is a short-term increase in demand which cannot be handled by the existing production capacity
• The business experiences a loss of experienced staff through higher staff turnover
• A competitor expands its operations and offers better pay terms, which encourages staff to change jobs
• Changes to the business’ products or production processes mean that existing staff do not have the required skills and experience

How could workforce planning address a labour shortage?  Amongst the steps that might be taken are:

• Increase production capacity by introducing additional shifts, extending working hours (overtime), or by employing temporary or seasonal staff
• Review whether the existing pay and reward systems are competitive – and make any changes as necessary
• Invest in training to address the skills gaps in the workforce
• Recruit more aggressively, perhaps by promoting job opportunities in new ways or by offering incentives to staff to introduce potential recruits
• Offer flexible working options to broaden the pool of potential recruits to the business

Some of the above options are unlikely to work effectively in the short –term (e.g. investment in training takes time to have an effect).  The important point to remember is that workforce planning is not the perfect solution for every business problem.

Dealing with excess labour

A more common scenario for most businesses during the economic downturn of 2008-2010 has been that they have found themselves with too many staff – an excess supply of labour. The production capacity of many businesses has simply been too much for the available demand – resulting in lower productivity and higher unit costs.
The prime reason for this has been an external factor – the effect on market demand of the decline in consumer spending, business investment and exports brought about by the credit crunch.
Workforce plans prepared back in 2007 and 2008 would probably not have anticipated the full effect of the economic slowdown, and so might not have anticipated the need to handle excess labour.  So, what options have businesses taken as part of their short-term workforce planning as a result?   Here are some examples:

• The obvious short-term response is to make some employees redundant.  This has happened to many thousands of staff in recent months.  A business has to take care though.  For a redundancy to be genuine the job that the employee does must disappear – the business can still take on new staff but not to do the work the redundant employee was doing.
• An alternative to redundancies is to ban or restrict overtime, introduce short-time working or lay-off employees for a short period.  This is likely to result in some financial hardship for the employees concerned, but for most will be preferably to losing a job.
• Flexible working arrangements also offer an opportunity.  For example some full-time staff might be persuaded to move to a part-time or annualised hours contract employment; others could consider job-sharing, or taking a career break or sabbatical during the period of excess labour supply.
• Another option is a temporary workplace shutdown (Honda and Toyota did this in the UK for several months at the start of 2009) which affects nearly all staff and management.
• If the excess labour arises in specific departments or business units, there may be an option to relocate or retrain employees so that they can work in other parts of the business where there is still demand for labour.