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back to index backLATINtalk October,  2015

Is Turnover Mexico’s Formidable Foe?

HMC’s* plant had just ramped up a couple of years ago outside of Silao, Mexico. Top management had been summoned to the US headquarter offices to review financial results. The CFO had been tracking the investment plan related to the new component facility south of the border and the expected short term, and trending long term returns were not adding up.

Low labor costs?

Two of the managers in the meeting were expats living in Silao and responsible for the operation there. Both were fluent in Spanish and had received numerous hours of intercultural training while preparing for their assignment. But a very important detail that had not been discussed during the planning stages was now a key contributor to lost productivity, poor quality and late deliveries to the customer. In addition, operational expenses were substantially above the budget.

True cost of manual labor

Stability, repeatability and reliability are three essential concepts required to maintain an excellent level of performance. Where high manual labor is required these become critical and personnel turnover will tend to increase variance and impact these three concepts dramatically.  

What HMC’s cost calculations did not consider

In our very low margin sector, accuracy in costing is indispensable and HMC had developed a robust feedback mechanism to adjust the plan to reality.

In the case of their newest investment however, and considering a high manual labor operation, they met up with a surprise: high personnel turnover.

They had completely missed the following - and some other- details that were now impacting their real costs:

- Productivity costs above the planned costs because of the use of new and untrained personnel on the lines.

- Higher cost of direct labor to was planned since turnover is creating salary inflation in a supply and demand environment.

- Increased costs to recruit and interview personnel- and if you’re not competitive less people (or less talent)  may show up to your door when you need them.

- Disproportionate training and development costs and suspecting that you might be investing your training money for the benefit of your competitor.

- Lost knowledge and its impact on getting things done effectively.

"Same as" costing

HMC had a standard factor for turnover that was so low it was never discussed in management meetings. The same factor was assumed to be true when they prepared and presented the financial justification to build a plant in Mexico and transfer some of the processes from the US. They had used same as” calculations without considering real data from Mexican sources.

Cookie cutter solutions do not work in all environments

Mexico is going through an unpresented period of growth and transformation which brings with it several aspects that must be taken into account when estimating the real costs of manufacturing.

Turnover is partly rooted in  this growth and will not go away any time soon. Your company is neither alone nor defenseless – there are several ways to confront this problem.

In the meantime consider these steps:

a)  take this topic seriously and bring it the surface

b) set up a robust metric to know its true impact

c) absolutely consider a realistic turnover factor in your calcuclations

Potential solutions for turnover and multiple cultural issues related to Mexico and automotive will be explored in Troy, MI on Nov 6 in a half day intercultural workshop.

Sam Yankelevitch is a speaker and trainer, and the author of two books on Lean Communication. He has adapted Lean thinking to solve problems rooted in miscommunication and has over 30 years senior level experience with Mexico manufacturing and automotive.

Que pasa? What is Mexico's media saying

Just Google Mexico rotación de personal and translate the many pages that pop up. There is abundant information on this problem that is plaguing Mexican companies and of course the automotive sector as well.

**HMC is a fictional name for a generic automotive manufacturing company and not associated with any company with the same or similar name.

Note: Mexico is not the only country with a realtively high turnover rate and turnover is not the only problem that impacts operational costs.

Source: Sam Yankelevitch via LinkedIn - GAI

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