Overtime means what you think it does, but a strategic evaluation of overtime considers a broader, more rational view beyond the traditional stance on overtime.
Why You Should Care
“Avoid overtime at all costs. Always try to eliminate it because it’s so expensive.” That’s the mantra of pretty much all companies. After all, the higher wage of overtime raises the cost per unit and eats right into our profits…right? Not always.
What if there are situations where paying overtime is actually the cheapest way to produce? For instance, does avoiding paying overtime to your high performers mean you need to bring in low performers who can’t get product out on time and make the company lose money overall.
Do you really want to increase cost per unit (and thereby reduce profit) when you don’t have to, simply because you think the opposite is true. “All overtime is always bad all the time” is a policy that can have significant negative impact to your bottom line.
What to Look For
We consider both necessary and unnecessary overtime, both with impact cost per unit. Knowing there are situations where overtime can be less costly, we look for exactly such conditions. We look for ways to use overtime strategically. Maybe the reality is that keeping your high-output workers on for another day or two, even while paying them overtime, ends up being less expensive than trying to recruit, hire, and train low-output workers…when viewed in the context of overall cost per unit delivered.