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Outsource magazine: thought-leadership and outsourcing strategy | August 19, 2017

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Cream of the Crap

Cream of the Crap
Damian Scallon

This is a continuation of the article ‘It’s not in your budget… seriously…‘.


 

On my Monday morning drive to Indiana, I reflected on an article I read over the weekend which validated a recent feeling I had about our key customers. All of the major Original Equipment Manufacturers, or OEMs as they are typically known, were continuing the trend of outsourcing non-core activities to suppliers, and, for the most part, were not happy with their service experience. The article really hit home to me as our company had thousands of people working inside hundreds of customer facilities performing inside-outsourcing services, and in the past few years we were experiencing an increased lack of satisfaction by our customers. More of my time was being spent at customer locations with our on-site management teams discussing our reaction to changing customer needs and our inability to get in front of those needs.

The article stated that as OEMs continue the trend of outsourcing and reducing their in-house resources and investment in non-core areas, they are by default becoming reliant on their service providers to fill this ownership gap. As a service provider in the “good ole days,” we were judged by how well we executed activities assigned to each outsourced service. Today we are judged by how well we take ownership to the non-core areas and make them core to our business. Core to our business means assigning resources, as well as research, investment and focus, to become experts in the areas our customers deem non-core to their business.

As I pulled into the visitor parking lot, my phone rang.  “How far out are you?” Jeff, our site manager, asked.

“Just pulled in,” I responded.

“Great.  I’ll meet you in the lobby.”

“Got it.” I said, turning the car off and grabbing my site pass. Jeff sounded pretty uptight. It was the beginning of a new month. He now had confirmation of our performance at his site for the previous month, and it was less than spectacular.

“Good morning, Jeff. How are you doing?”  I asked as we started walking towards our in-plant offices.

“I will be doing much better if today goes well,”  Jeff retorted.

“With the research you have done, and buy-in from your team, I think we may just be able to alter the current trend, and stop chasing our tails,”   I said as we ascended the stairs to our meeting room.

As we walked in to the room, I quickly tossed my stuff onto an empty spot at the table and walked to the white board on the wall. “Good morning. Before we get into the immediate pressing issues, I’d like to share an article with you that I read over the weekend.”

On the white board I drew an illustration to support what I was about to share.

Damian Scallon Mar 2015 graph 1a

“For the past half decade, our customer at this plant has been increasing what it outsources to us.  Symptomatic to that trend, customer resources associated with each outsourced service have been decreasing, whereas our labour and resources have been increasing. Really nothing new to anybody in the room, right?”  I stated as I drew a large question mark on the graphic. “Something hit me, though, as I read the article. What does this question mark represent?” I asked.

“Well, it’s a gap,”  Missy, our third shift manager, said.

“Definitely, but a gap in what?” asked Jeff.

The room went quiet for a while and Brian, our engineer in the group, broke the silence by stating, “If the X axis is the OEM investment, then it’s safe to say the gap is the amount of resources invested by our customer.”

“Agreed, and from the article what hit really hit me is that it’s an ownership gap, a loss of control by our customer. Our customer is not just outsourcing activities; it’s actually outsourcing outcomes – the ownership and responsibility to invest in these areas to continually reduce waste.”

“I know you don’t like the phrase ‘chasing my tail’, but until we resolve our employee turnover issue and get the level of talent we require, we’re never going to be able to focus on our customer’s true needs and take ownership. We are pre-occupied with trying to complete day-to-day activities, as opposed to focussing on outcomes and acting as owners,”  Jeff said, taking some notes and capturing the illustration on his notepad.

“We have arrived at why I asked you all to meet with me today. Let me bring you up to speed on our corporate leadership team meeting last week,”  I said to the team.

While you are doing that, let me put the information you requested on the white board for everyone to see,”  Jeff said, standing up.

“Perfect,” I responded, handing him the marker.

While Jeff copied information tables onto the white board, I filled the group in on the actual impact our employee turnover was having on our bottom line, which in turn impacted our ability to further invest in improving our services and taking more ownership from our customers. The team was astounded at the amount of money being lost to turnover, and quickly understood how this strain to our bottom line hurt our ability to re-invest.

 

Indiana # of People %
Site requirements 225 100
Hired last year 85 38
Turnover:
Less than 90 days 40 47
Less than six months 10 12
Less than a year 5 6
Total turnover last year 55 65

As Jeff finished up the table, I pointed out that our data indicated 47% of our turnover issue was based on the fact we had employed people who should never have been hired, and actually who should never even have been interviewed.  “It is known as hiring the Cream of the Crap,” I said.

The phrase “Cream of the Crap” resulted in some very disturbing looks from the team.

“Let me try to explain.  If you have ten candidates for a job, of which none are actually suited for the position but you hire four of them because you desperately need people, you have actually hired the best of the worst.”

“The Cream of the Crap,”  Missy stated.

“Cream of the Crap,” I repeated.

Cost breakdown # of Hours $ per Hour Total
Company orientation 16 $21.00 $336.00
Safety orientation 24 $21.00 $504.00
$840.00

 

Indiana # of People $ per Person Total
Site requirements 225
Hired last year 85
Less than 90 days 40 $840.00 $33,600.00

As Jeff finished up at the white board, he took his seat and explained to his team what each of the tables meant. He explained the site was losing in the neighborhood of $34,000 a year on employee turnover which occurred within 90 days from the date of hire. He went on to say that of the 40 people who left within the first 90 days, two thirds of them were terminated, and one third left on their own accord because the work did not suit them.

“Do you have reasons for the terminations?” asked Brian.

“Yes. Of the thirty, two thirds were terminated because they would not adhere to our safety polices and roughly one third due to punctuality issues,” Jeff reported.

“You know this amount does not fully represent our true costs,” Brian stated.

“Very aware. Part of the assignment to get ready for this meeting was to fully identify the impact of our turnover on all of our key performance indicators. The bad hires are directly impacting the volume of safety incidents, re-work, and scheduling issues we are facing. The true cost of this turnover is easily three to four times what I am showing you on the board,” Jeff said to the team.

“We focussed on the most tangible of the costs to get corporate buy-in for a plan to stop the problem at the source,”  I said.

“What is the plan?”  Missy asked.

“We are going to implement an online aptitude assessment that will be given to each candidate right after their application has been screened and before they are interviewed.”

“What kind of assessment?”  Brian inquired.

Jeff explained the research he had done with many corporations to discover ideas and best practices for reducing turnover problems by eliminating bad hires, or at least a vast majority of bad hires. Jeff said it was possible to profile behaviours required for someone to be initially successful as an hourly employee at the plant, including:

  • Aptitude for following safety rules.
  • Aptitude for completing assigned tasks.
  • Aptitude for being punctual.
  • Aptitude for working as part of a team.
  • Aptitude for doing quality work.

“Seriously?”  Missy asked with enthusiasm.

“And these tests work?  It’s proven?”  Brian asked, also showing an uncharacteristic level of enthusiasm.

“70% of the time at a minimum,” Jeff said very matter of fact.

“So our worse-case scenario with the implementation of this plan is to eliminate 70% of the current problem,”  Brian summarised.

The group moved into a quick discussion on what this would mean to them, both as a team and personally. Each of them realised the toll turnover was taking on their ability to better manage services for their customer, and each knew that the elimination of this issue would allow them to become more effective and take full ownership of their areas of responsibility.

“How long will it take to get this implemented?”  Missy asked.

“We can start this week. The program has been set up, and tablets for applicants to use to complete the assessment will be here tomorrow,” Jeff stated.

“What’s the catch?”  Brian inquired.

“Not sure if I would call it a catch, but if you look at the tables and the level of turnover, you can quickly calculate that the vast number of applicants would not have passed the assessment,”  I said, looking at everyone in the room.

“We are going to need to increase our candidate pool to allow for fall-out from the assessment,”  Jeff said.

“Personally, I would rather invest time into increasing our candidate pool than hiring the Cream of the Crap,” Missy responded.

“Agreed,” Brian piped in.

“I also agree. I would like to schedule a meeting for tomorrow to brainstorm ideas for increasing the size of our applicant pool. We always hesitated to do this before because we did not have time to interview hundreds to find the ten good ones. With this tool, we will be able to screen out ninety and be left with ten to interview. Statistically, we would be successful hiring seven of the ten,” Jeff said confidently. Jeff’s confidence stemmed from his research and interviews with many other professionals who had used this best practice to eliminate their turnover issues.

“We are going to go mining for talent, and now we have the means to identify that talent,” I said.

“We will not stop there either. Once we get a handle on the initial 90-day turnover, we will focus time and energy on our site level orientation and recognition to reduce the other two areas of turnover,”  Jeff said, with a real sense of direction and authority.

“I’d like to suggest bringing in several of our team leaders to participate in tomorrow’s brainstorming meeting,” Missy said.

“We need to communicate our plan and solicit ideas from the balance of the team at  start-of-shift meetings, as our turnover frustrates many of our well-performing team members,” Brian stated.

“Very much on target. Can you take charge and ensure that happens?” Jeff asked Missy and Brian.

“We’re on it.” Both pulled out their phones, and started sending texts and meeting invites.

“Sounds like we have a plan so I will leave you all to it,” I said, gathering my stuff off the table.

“Do we want to plan a follow-up meeting? Let’s say 60 days. We’ll review the progress on our KPIs,” Jeff asked.

“Perfect.”

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