Thanks to the wonders of data collection, manufacturing companies around the world have been able to streamline their processes, boosting productivity and efficiency. Yet there remains one problem many firms have yet to grasp, says Wharton professor of operations, information, and decisions Ken Moon: employee turnover. In a case study of one manufacturing firm with a 300 percent annual turnover rate, Moon and his fellow researchers saw exactly how damaging a transient workforce can be. In their paper “Manufacturing Productivity with Worker Turnover,” the team examined why individual exits hurt the whole company and how firms might avoid the turnover trap.

 

1. THE QUESTION

What effect does turnover have on a manufacturing company?

 

2. THE RESEARCH

Moon and cohorts considered the following scenario at the manufacturing firm they studied:

3. KEY FINDINGS

Despite the difference in experience levels of replacement workers, the third line’s productivity suffered roughly as much as that of the second line. The researchers determined that the problem with turnover is less about individual productivity and more about the interruption to social relationships and workflows on the line.

4. THE IMPACT

In the case study, the work-flow interruptions cost the manufacturing firm:

5. THE FIX

One way to stem the tide of turnover? Higher wages, Moon says. Thinking about compensation as a way to protect productive work flows can reduce the disruption and costs associated with turnover: “It looks to us like it could be a win/win.”

Published as “Exit Examination: How Employee Turnover Affects the Bottom Line” in the Spring/Summer 2019 issue of Wharton Magazine.