Labor Management Software: The Final Profit Frontier

Labor Management Software: The Final Profit Frontier

WMS users looking for the next wave of productivity improvement are turning to labor management solutions.

It may be a clichè, but employees really do hold the key to the success of any high performance operation. Warehouse and distribution center employees also represent the biggest cost, accounting for upwards of 60% of total operating costs. Any productivity improvements will therefore have a big impact on the bottom line.

For users of warehouse management systems (WMS), by more efficiently matching available labor to the work that needs to be done, the labor management capabilities of today's software can take productivity to the next level.

At facilities where a WMS has been in place for a number of years, managers have used the software to optimize material flow. They've used it to make sure that the right materials are in the designated locations. They have optimized their inventory levels. They've put fastmovers in the appropriate zones. They've achieved their return on investment and they are ready to take the next step.

"A lot of the early [WMS] adopters are now looking for the second and third level of reporting of labor standards," confirms Bill Tomasi, a senior consultant with Provia Software (Grand Rapids, Mich.). "With compensation going up and pricing going down, it's no wonder companies have to look to squeeze every bit of efficiency out of the warehouse that they can."

Implementing a labor management solution, which may be integrated with the WMS or purchased as a separate module, starts with performance measurement. Activities within receiving, picking and shipping are tracked and compared against work standards, which may be fairly simple or quite complex. The software can then report, in near real-time, productivity performance (or the adherence to the work standard) at the individual, team or unit levels.

Based on this information, supervisors can be automatically notified of labor bottlenecks so that they can respond to problems before they escalate into major headaches. (What software companies describe as "events-based management.") Warehouse managers can review workload requirements based on the anticipated inbound receipts or outbound waves for the day, and move people to where they are most needed. Incentive pay systems can be refined, and the subjectivity removed from employee performance evaluations, so that top performersare accurately rewarded.

Reported productivity improvements from implementing labor management systems range from 10% to more than 20%, and a return on investment between 3 and 12 months. Other reported benefits include improved morale––because employees receive a fair day's pay for a fair day's work––better quality, and better customer service.

"If you get your employees to meet the standard, think about all of the benefits the company can enjoy then," says Paul Wolfe, v.p. of workforce performance for RedPrairie (Waukesha, Wis.). "They can schedule and plan better. They can meet expectations for customers for getting the product out the door better." Sound like a slam-dunk? Not so fast.

Anything impacting employee pay and how employee performance is measured requires a high degree of sensitivity during implementation for the potential gains to be achieved. Not everyone will embrace job accountability.

A British trade union (GMB) offered a stark example of this in June when it demanded an end to the use of handheld computers by warehouse workers, which it described as the "electronic tagging" of people. Union representatives said that following computerized picking instructions was dehumanizing, and specifically objected to the work-monitoring capability of such devices. If this were true, you would expect a high level of resistance when labor management software is implemented.

Carey Caile is manager of technology services at TNT Logistics, a third-party logistics provider based in Jacksonville, Fla. He is currently overseeing the implementation of the labor management capabilities of Manhattan Associates' (Atlanta) warehouse management system at 15 TNT locations. In addition to meeting the performance reporting requirements of customers, TNT hopes to improve labor visibility across its facilities. Acknowledging the importance of communication, Caile says it hasn't been difficult to get employees on board.

"They bought into it because they were getting true information," says Caile. "You expect some resistance going in, thinking people are going to be worried about their numbers being posted. But in general, after a short time, they realize the benefits."

TNT is currently reporting employee performance by shift and for the week. Although the company hasn't tied it into an incentive pay system yet, Caile says they've seen an immediate productivity bump just from posting performance. Employees have an instant incentive to do better because they can see how they are doing in comparison to others. Because some of the TNT facilities have a lot of temp labor, performance monitoring has also let them quickly identify those temporary employees who are performing well and those who are not.

Work standards are key to the success of any labor management program. At TNT they're pursuing a phased approach, starting with some broad baseline standards, such as picks per hour. Caile says they will soon be following up with more engineered labor standards, based on performance data collected by in-house engineers who will measure what tasks people have to do and the distances they have to travel. They will enter this data, as well as equipment travel speeds, into the system, which will then perform the calculations.

This is a typical evolution of work standards, moving from the broad to the detailed. Taking the specific travel distances and machines into account allows for a more fair comparison of employee performance to the expected standard. Lines or orders per hour, and similar performance measures many warehouse managers use to measure productivity, can be very inaccurate measures of output. An experienced worker will grab orders requiring the least travel time, or orders with the most case quantities and fewest eaches, to make his numbers look good.

Instead of engineered standards, which can be expensive and time-consuming to gather, users can also calculate work standards based on historical performance, which are derived from the transaction data collected by the WMS. Even though they aren't as accurate as calculating the specific components of a task, calculating work standards based on averages is sometimes sufficient.

However warehouse managers choose to calculate work standards, how the labor management software tracks tasks must be flexible enough so that it can change as the warehouse changes. Productivity improvement is a moving target. For example, the initial focus in a warehouse might be the travel time of order pickers. As the operation evolves from handling full pallets to more full case and single-piece picking, managers' may change their focus to the time that order pickers spend at the pick face.

In addition to getting the work standards right, successful labor management software implementations tend to start in one department, such as receiving, before moving to other areas. Supervisors also need to be fully trained in the best practices that are embedded in the work standards so they can help people meet their performance objectives. Communication never stops.

"You're pretty much working with a blue-collar workforce in most distribution centers," says RedPrairie's Wolfe. " People just want to do a good job. The problem is that many times they don't know what's expected of them, or they don't know how to do their job, and they end up performing less than the expectation."

Once a labor-management system is in place, not only does the work of direct labor change, but so does the job of managers and supervisors. Armed with accurate data, managers quickly know what's working and what isn't. When there are mistakes, they can look at the work standards and figure out what went wrong.

"Putting real-time, quality information in the hands of managers gives them the tools to effectively manage, maybe for the first time," says Christopher Heim, president and general manager at High-Jump Software (Eden Prairie, Minn.). With Internet connections and handheld computers, warehouse managers become just as wired into the system as people on the floor. Real-time data and network connectivity means that no matter where managers are, they can check on each shift's progress to goal. Better labor performance data also improves supply-chain decisions.

Accurate labor metrics make it easier to determine if it makes sense to have vendors perform more value-added activities, such as final assembly and kitting, or if they should be postponed and done in the distribution center (DC). In the retail supply chain, managers can use labor data to see if price ticketing and labeling should be done in the DC or the retail store.

Managers at Sport Chalet, a California sporting goods retailer that distinguishes itself in the market by keeping fast-moving items in stock, did exactly this type of analysis. They determined that it made economic sense to put price tags on goods in the warehouse and label shipments by department. When the shipments arrive at the store, they can be taken out of the boxes and placed directly on the shelves, "as opposed to sitting in the back of the store someplace while some associate who should be servicing the customer finally gets around to putting it on the shelf," explains Chad Collins, director of product strategy at HighJump.

How the labor metrics are ultimately used to monitor and motivate employees depends upon the managers and the company's needs. It's best to balance a carrot and stick approach.

"If these tools are just used to beat people up, you're going to get a different response to this type of information," adds Collins. "At the end of the day, the warehouse-staff and the supply chain organization-need to be committed to using the tools that the software provides to drive continuous improvement."

A TNT Logistics facility.

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