- Minimum wage rise puts even more pressure on margins
UK companies must become more productive in order to absorb the impact of the 10% jump in the minimum wage on April 1st, says INVERTO, the Boston Consulting Group subsidiary specializing in procurement and supply chain management.
The UK National Living Wage will increase from £9.50 to £10.42 per hour, putting even more pressure on labour-intensive businesses’ margins. The rise in labour costs will hit these companies and their suppliers at the worst possible time, when margins are already being stretched to their limit following rising raw material and commodity prices over the last two years.
The upcoming rise in labour costs should prompt labour-intensive businesses to invest in increasing their internal efficiencies and ‘smarter’ ways of working, which will yield long-term financial benefits and competitive advantage. This is best driven through close collaboration with strategic suppliers addressing total cost of ownership (TCO).
Sushank Agarwal explains that in in order to minimise the impact of increasing labour costs, companies can take steps in partnership with their key suppliers, including:
- Increase investment in automated tools and equipment
“Investment in modern, automated equipment could help workers deliver more output in less time, cutting waste. This can allow the same amount of work to be completed by, for example, 10% fewer staff. They can then be redeployed to other tasks. The level of investment in this equipment by some businesses has lagged for a long time – now is a real inflection point for them to invest the necessary capital.”
“Automation can also make the work itself less physically challenging and more attractive to staff. It can also open up the possibility of increasing pay as productivity increases.”
- Upskill existing staff to increase flexibility
“Companies can obtain more value from their workers by “cross training” them, enabling workers to be flexibly deployed across multiple tasks. For example, cleaning/catering staff could be trained to do regular equipment maintenance, allowing the business greater flexibility of deployment, and even creating potential for pay rises for existing staff – an important form of support during the cost of living crisis.”
“Investing in staff training will not only improve productivity but also agility for workers to have wider job opportunities, making the employer more attractive to potential new hires.”
- Increase digitalisation and insights from data analytics
“Businesses should ensure that they are making best use of data and technology – for example, analyse passenger traffic at different parts of a facility to target areas for cleaning tasks more efficiently. This enables triggering cleaning tasks based on actual needs rather than a fixed frequency, cutting wasted effort.”
Adds Sushank Agarwal: “The minimum wage rise is very daunting for many UK businesses that are already struggling financially. Even so, they should try to use this moment as an opportunity to invest in becoming more productive in the long run, collaborating closely with the key suppliers.”
Investment in productivity has been neglected by some UK companies for some time, but productivity improvements are now a necessity. UK productivity (GDP per hour) has only increased by about 5% since 2008, which lags well behind other western economies such as France, Germany and the US. In fact, UK productivity was 20% less than U.S. productivity in 2021*.
*Source: Office for National Statistics