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Is my Labor Large Enough for a Management System?

Is my Labor Large Enough for a Management System?

Distribution centers, from the largest, most advanced automated facilities to the smallest operations without enough volume to justify expansive automation, all require labor in some measure or another. Management of the operation's human resources can have as much science and focus applied to it as management of inventory, assembly lines or raw material consumption, but often it does not. A Labor Management System (LMS) is one such engineered tool that can be applied to enhance the productivity of an operation's human resources, but it generally comes with a hefty price tag — a large upfront investment in money, time and engineering before implementation. A lack of clearly identified savings or productivity increases with which to justify the LMS investment or a lack of understanding of how much benefit the system will garner and if the existing labor costs are large very often discourage a business from investing in a full-blown Labor Management System. All that said, there are some very proven means to fit labor management to your operation's specific size and opportunity for improvement.

First, let's start by defining what we mean by Labor Management System or LMS. It is both a tracking and reporting system that is usually a module of a warehouse management system (WMS) licensed and supported by the WMS provider, or a bolt-on software module licensed by another provider that could work closely with your WMS. An LMS, in general, has the highest price of admission for entering the world of engineered labor management, and though it can have tremendous value in some operations, it can be the equivalent of attempting to kill a fly with a sledgehammer in smaller operations. For this reason, let's distinguish between a labor management system as a purchased software application, and a labor management program, which we will identify as an operation's focused effort on measuring, managing and improving its labor productivity with whatever tools and approaches offer a profitable return on their effort and investment expense. The key is to understand how much opportunity you have (small staff vs. large staff, good productivity vs. poor productivity, existing WMS or little to no electronic tracking capability at all) and invest in proportion with the potential for annual savings throughout productivity improvement.

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At the lowest cost level of investment, a labor management program could consist of tracking historical performance, posting the results and analyzing and using those results to make more informed personnel decisions than you could without the information. This would include understanding who your highest and lowest performers are and making reward and coaching decisions based on their performance. Such measurements will also allow for an understanding of associates that may perform better in one department as compared with another. For example, an individual may be one of your most productive shipment receivers but only an average picker. This allows for the intelligent application of resources where they have proven to be the most effective. Such an approach might be useful for an operation that has a small staff of personnel (less than two or three dozen) or that is effectively productive already.

At the higher levels of investment are Labor Management Systems, which include engineered labor standards for all jobs within the operation, capability to track productive time compared with paid clock time through both operational and time and attendance systems, software to report the performance of all those jobs to the standards and resources to maintain the program and the standards developed. Such an application would be suited for a larger operation that can return a payback on what can easily approach or surpass a seven-figure investment in a time frame acceptable to the overall business.

A lower risk investment to start with for a large operation or a solid approach for midsize operation might be a mix of some of the extremes defined above. This could include a mix of engineered labor standards with a manual reporting system managed by an engineer or senior operations clerical resource. These could often be run via a spreadsheet tool developed for or by the operation, in lieu of a large licensed LMS application.

No matter what level of investment a business pursues to manage the labor component of its operation, the returns on the investment clearly need to justify the investment itself. A fair rule of thumb for the gain in productivity resulting from implementing labor management programs as outlined above fall between 5 percent and 15 percent. With proper utilization of the lower level investment approach, you should expect gains of 5 to 10 percent. If you utilize the full LMS with all the tracking bells and reporting whistles mentioned above, then a 10 percent to 15 percent benefit is possible. While these are general rules of thumb, when evaluating your operation and the potential payroll savings that could be realized, they represent very solid places from which to start your evaluation of the potential return from implementing a labor management program.

Any labor management program can have pitfalls if you do not properly specify, manage or maintain it. Regardless of size, implementing the program too quickly can be disastrous. Before you begin to take action based on the program's tracking and findings, to either reward or sanction performance, you must ensure that the output is accurate and fair. By fair, we mean that you consider the complexions of the job tasks before taking action in light of the performance analysis. For example, if the measurement of productivity is in item picks per hour, ensure that the labor management reporting can differentiate difficult from easy orders. If an associate picks refrigerator doors by hand, that associate will probably pick fewer units per hour than another picker who is picking only nuts and bolts. If those subtleties are not understood before taking action on the performance metrics, your staff will realize the measurement is unfair, and they will not be incentivized properly to perform at optimal levels; quite the opposite will happen. Make sure the system and measurement reporting is both stable and fair before commencing actions based upon the performance reporting.

Likewise, once you are sure the reporting produces actionable output, ensure that you maintain the standards and information collection processes. Over time, changes in your operation (more items, greater amounts of inventory, shifts in order profiles) may result in changes to what you should expect in the productivities for particular job tasks. Sometimes associates bring innovation to the process and improve achievable productivity rates. In either case, the expected performance should be updated to maintain the efficacy of the labor management program deployed.

A labor management program, whether it employs a formal Labor Management System or not, if properly sized, implemented and maintained, allows for the achievement of productivity levels that not only offer the right level of return for your labor management investment, but reduce your cost to meet your customer demands on an ongoing basis and allow for the realization of a true competitive advantage.


Bryan Jensen has 29 years of experience in retail and wholesale distribution, transportation and logistics and is a vice president and principal with St. Onge Co. in York, PA, assisting clients in developing and maintaining world-class distribution operations. Matt Kulp has 15 years of experience in the planning, justification, specification, design and implementation project management of distribution center operations and their associated labor management programs and systems. St. Onge Co. is a material handling and manufacturing consulting firm specializing in the planning, engineering and implementation of advanced material handling, information and control systems supporting logistics, manufacturing and distribution since 1983 (www.stonge.com). Contact Bryan at 717/840-8181 or [email protected]. Contact Matt at 717/840-8181 or [email protected].

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