Manufacturing Productivity with Worker Turnover

Abstract

To maximize productivity, manufacturers must organize and equip their workforces to efficiently handle variable workloads. Their success depends on their ability to assign experienced and skilled workers to specialized tasks and coordinate work on production lines. Worker turnover may disrupt such efforts. We use staffing, productivity, and pay data from within a major consumer electronics manufacturer’s supply chain to study how firms should manage worker turnover and its effects using production decisions, wages, and inventory. We find that worker turnover impedes coordination between assembly line coworkers by weakening knowledge sharing and relationships. Publicly available unit-cost estimates imply that worker turnover accounts for $206–274 million in added direct expenses alone from defectively assembled units failing the firm’s stringent quality control. To evaluate managerial alternatives, we structurally estimate a dynamic equilibrium model (an Experience-Based Equilibrium) encompassing (1) workers’ endogenous turnover decisions and (2) the firm’s weekly planning of its production scheduling and staffing in response. In counterfactual analyses, a less turnover-prone, hence more productive, workforce significantly benefits the firm, reducing its variable production costs by 4.5%, or an estimated $928 million for the studied product. Such benefits justify paying higher efficiency wages even to less skilled workforces; furthermore, interestingly, rational inventory management policies incentivize self-interested firms to reduce rather than tolerate turnover. This paper was accepted by Vishal Gaur, operations management.

The Effect of Collective Decision-Making on Productivity: A Structural Equation Modeling

“…The undeniable importance of productivity has prompted experts to further investigate factors affecting productivity (Rosid et al, 2022). Many factors affect productivity, but to maximize productivity, manufacturers must organize and empower their workforce to be more efficient and effective in their work (Moon et al, 2022). Hence, factors related to productivity empowerment are important, such as cognitive and decision-making skills (Adhvaryu et al, 2023).…”

Managing the Interrelationships Between Manufacturing System Elements for Productivity Improvement in the Factory

“…The study is limited to the investigation on process interruption as a problem to be managed for productivity. Moon et al, (2022) investigate the problem of worker turnover and staffing and its effect on productivity. They analysed managers alternatives and found out that, even though the work in the manufacturing environment is standardized, productivity is still reliant on shop floor managers' coordination of the workforce (Moon et al, 2022).…”

“…Moon et al, (2022) investigate the problem of worker turnover and staffing and its effect on productivity. They analysed managers alternatives and found out that, even though the work in the manufacturing environment is standardized, productivity is still reliant on shop floor managers' coordination of the workforce (Moon et al, 2022). Indeed, the term 'control problem' is applied in OM, but predominantly used to define and address the problem of production control (Rivera-Gómez et la., 2016;Delpla et al, 2023) or inventory control (Jakšič and Fransoo, 2015;Manafzadeh Dizbin and Tan, 2020).…”

“…Most of the research on productivity has been done on the implementation and results of the lean manufacturing concept Tortorella, 2021), for instance on the visual management methodology 5S, Shop floor management (SFM), TPM with overall equipment effectiveness (OEE), or Value Stream Mapping (VSM). Despite of all the research that has been done on productivity improvement, we widely do not have, besides a few examples (Cai et al, 2018;Moon et al, 2022), an understanding of the specific controls problems and tasks shop floor managers go through to continuously improve productivity outcomes in day-to-day operations on the shop floor. Knowing the control problems, the multiple controls to address them and the task to be managed would help managers to understand why certain manufacturing environments fail to meet productivity objectives.…”

“…This article makes three contributions. First, it contributes to productivity management research (Cai et al, 2018;Moon et al, 2022) as it demonstrates the three major control problems shop floor managers must handle for productivity. The deconstruction of the three control problems into 12 tasks provides deep insights into the mechanism of coordinating and motivating the shop floor teams for productivity outcome.…”