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Finding the right staffing level to maximize profits

by Stephen Hawley Martin
for Virginia Business
November 20, 2007

No one wants to pay employees to sit around and twiddle their thumbs. But on the other hand, the leaders of a company do not want to be caught short when crunch time comes, either. So what’s the right level at which to staff when history shows there are bound to be peaks and valleys due to seasonal fluctuations in demand?

World class, lean manufacturers typically deal with highly seasonal markets by establishing production capacity in the middle between anticipated peak demand and the minimum demand expected. For one thing, it’s almost always easier to expand capacity than it is to cut it back. As a result, many lean producers plan on hiring temporary labor or on adding shifts during peak periods. But there is also another way to deal with seasonality.

As most people know, inventory is a dirty word to lean manufacturers. They try to eliminate it to the extent possible by using “pull scheduling,” which means not making a product until they have an order for it. Even so, it may sometimes make sense to bend the rules, particularly in the case of a company that has a good idea of what’s coming based on historical trends. Such a manufacturer may build some inventory in advance of seasonal peaks. This is done during slow periods when daily demand is down.

The products built will usually be standard, off-the-shelf items, or in the case of build-to-order operations, units completed only to the point that customization can begin to occur. Then, during peak-demand times, standard products will for the most part be delivered out of inventory, and production capacity will be devoted largely to keeping pace with custom or specialty product demand. In this way, a lean manufacturer is able to even out the peaks and valleys and get maximum value from the work force he has employed.

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.