You no longer compete solely on the price and functionality of your product. Labor, and how it’s managed, affect production costs and, in turn, profits.
by Clyde E. Witt, executive editor
If you were heading off on a perilous adventure, which tool would you choose: compass or clock?
While time may be of the essence in business, direction is more important. And the direction your company takes is determined by the employees you choose and how they work. Whether it’s distribution center labor or building quality products, it always comes down to managing people. As more than one management guru has noted, you can’t manage what you don’t measure. An exclusive MHM Web poll indicates that while more than 75 percent of respondents measure labor productivity, less than one-third use sophisticated software to do so. Most (46 percent) use some manual form of measurement.
Unfortunately, the development and capabilities of most warehouse workforces and supporting information systems, says Dr. Ed Frazelle, president and CEO, Logistics Resources International, are found wanting in the face of e-commerce, same-hour delivery and no-fault performance.
The U.S. is facing a potential crisis on the human resources front, and Frazelle is not the only person sounding a warning. Robert W. Coon, director of human resources at Menlo Logistics Inc., speaking at the Council of Logistics Management conference, cautioned managers about a shrinking labor pool. Coon offered suggestions on preparing for the worker shortage. He cited several major human-capital changes occurring in the workforce:
• America is running out of workers. Over the past 35 years, the gross domestic product in the U.S. has gone up 106 percent. At the same time, the birth rate has dropped 35 percent.
• There is a dramatic trend toward a contingent work force, i.e., part-timers, on-call workers, temps, etc. The U.S. Census shows that more than 32 percent of the working population falls into this category.
• There will be constant voluntary turnover. Not only will employees change jobs often, there is an attitude that it’s okay to do so. The best thing a company can do is control the speed and direction of employee turnover.
• America has changed from a manufacturing society to a service-oriented information society. About 80 percent of what a manager really adds to the processes, control, methodology, and success of the company centers around information.
Monitoring is not measuring
A labor management system is a fast, relatively inexpensive way to reduce costs in the supply chain and improve productivity as much as 30 percent, according to labor management software manufacturers. Certainly a warehouse management system (WMS) can improve productivity, but it lacks some of the refinements of software dedicated to labor management.
“While a WMS focuses on supply chain execution and collaboration,” says Gil Sullivan, manager of manufacturing marketing at Kronos Inc., “it does not focus on the employee and managing the costs of labor.”
A labor management system focuses on employees, and the employee-related pay rules, attendance policies, shift coverage and leave benefits. For example, while a WMS typically doesn’t have functionality to calculate complex shift premiums, and vacation and sick balances, these are common configurable components in a labor management solution. These are responsibilities that managers often do manually, and it is non-value added activity. The benefit of an automated labor management tool is that it eliminates the non-productive manual paper processing required for capturing labor information.
Find a system that pays
Labor management systems track discrete standards, offer labor planning and have robust labor-reporting capabilities. As with any meaningful, workable tool, it’s best to involve the shop floor personnel in its design. When workers are part of the standards and processes design effort, a more positive work environment is created. People want to know, specifically, what their jobs are and how they are performing.
Labor management, and particularly the software programs designed to measure and track labor, are more than just a sophisticated way of looking over the employee’s shoulder, says Sullivan.
“Labor management requires the ability to apply complex pay rules, and to break down an employee’s time into two dimensions,” he says. The first dimension is the rate or type of pay; for example, regular pay, daily overtime, weekly overtime, as well as complex union premiums. The second dimension is what the employee did, which could be the cost center charged with the work, a work order, a task, a job, an operation.
Chance to re-educate
Measuring the effectiveness of your workforce helps pinpoint inefficiencies. Steve Bragg, director, warehousing and distribution, at DIY Group’s Muncie, Indiana, facility, says when it installed and implemented its WMS, some strange things began to happen.
“What we learned,” says Bragg, “was that people were using the WMS as they understood it, not necessarily the way it was meant to be used.”
For Bragg, it was a matter of retraining people, often one-on-one, to eliminate shortcuts in order processing and picking that had developed.
“It’s a matter of re-educating people not only on what is supposed to be done, but why,” he explains.
Bragg adds that any successful warehouse project, no matter how automated, begins and ends with people. For reasons ranging from the high costs of labor management systems, to his personal belief in the power of one-on-one instruction, Bragg’s system is handled the old-fashioned way, basically pencil and paper. Whatever he’s doing seems to be the right thing. In 2000 and again in 2001, DIY Group was named Distributor of the Year by its largest client, Alltrista Consumer Products Company.
The company uses a WMS, radio frequency data transfer and other sophisticated tools for its daily operations. And when it comes to labor management, “We basically work with an abacus,” Bragg says with a laugh. “I have a clerk at a window who issues orders [after they have been generated via the WMS] to be picked. The time the picker gets the order is logged, along with when it goes out and when it’s complete. The clerk enters that information onto a basic spreadsheet each day, and at the end of the month we separate the info to see not only individual times but how the team did.”
To establish orderpicking standards, Bragg says he reviews historical data, then adds a grain of salt and some common sense to come up with target times.
“The obvious benefit of collecting the data is to track current production against historical production,” he says. He also tracks team time. “I tell them, for example, the team averaged 22.5 minutes per order on LTL orders this month, compared with whatever from last year or last month.” This gives employees a sense of where they and their team are in relation to others in the warehouse.
Collecting information on individuals is critical for spotting a problem before it becomes a crisis, says Bragg. A downward trend in the individual’s performance could indicate an equipment problem, something about where stock is located or a personal problem — all have the same impact on the bottom line and need adjustment. Maybe, if a person is consistently slow, she simply needs more training. Cross-training employees can be an effective way to level the fluctuations within a warehouse and stimulate the workforce. It also reduces overall staffing requirements that might be based on peak activity levels of all departments.
Don’t underestimate the power of personal recognition. “Simply posting monthly productivity times,” says Bragg, “generates a level of competitiveness. Some people always want to be the best and it brings out the best in them.” People are rewarded with their names posted on a board near the office door. Although Bragg does not use the productivity data to assign personnel, data does give him knowledge to predict when times will be slow and training can be implemented without interfering with day-to-day operations.
Measuring labor appears to benefit everyone involved. Employees win because they are being paid fairly, consistently and dependably. Managers win because a labor management tool eliminates hours of non-productive administrative work, and delivers critical information regarding who’s here, who’s missing, how is the department doing right now regarding labor budget versus actual hours. And, says Sullivan, “the company wins by getting real-time access to valuable labor information, information that they can’t get to for several weeks in a manual world. Without an automated labor management system, you can’t catch and deal with labor cost issues when they arise because you don’t see the information for several weeks after payroll has been processed.”
The issue of incentive pay ties in directly with labor management. If the company initiates a program to give its managers a bonus based on labor savings (avoiding overtime, for example), it must have in place tools to track and manage labor. Sullivan says there is some movement toward activity-based pay for employees based on their production. Again, you need the proper tools to measure and manage this activity.
In his latest book, World-Class Warehousing and Material Handling, Frazelle says there is a management philosophy that theorizes if you take the top half of the workforce and pay each of them twice as much, you accomplish three times as much work as was previously being accomplished.
“Our clients who focus rewards and attention on the top performers,” says Frazelle, “who pay higher than industry norms for qualified warehouse personnel, and who work to weed out operators who are impeding the overall effectiveness of the entire workforce, have much lower overall operating costs and much higher shipping accuracy.”
Measurement as a business strategy
Is the implementation of a labor management system costly? The answer is a clear yes and no. As we’ve seen with the DIY Group example, involving employees at all levels of the program and using a pencil and paper can be a low-cost (albeit high-labor) way of measuring and managing labor.
Sullivan says it all depends on the kind of system you implement. “If you select a mature solution with a depth of configurable rules and flexible user screens,” he says, “the implementation cycle is considerably shortened.
“If you select an add-on module from the human resources/payroll or ERP vendor, it typically has less standard functionality and requires more effort to customize the rules and user panels.”
You can’t manage what you don’t measure. That’s the message. How and what you measure is the challenge managers face on a daily basis. Only through the use of historical data can you make accurate budget projections, set service-level goals and satisfy employee needs and staffing requirements. It’s a balancing act worthy of the best circus performer. And in the end, if you do it right, you not only get applause, you can cut operating expenses. Labor measurement and management is particularly difficult in material handling because the subject has so many moving parts. It can be done and has become critical to the success of many companies. After you’ve mastered workforce measurement within your company, experts say you need to measure the performance of your company with your customers, and your suppliers with you.
What makes a good measure? A report by the Council of Logistics Management, Keeping Score: Measuring the Business Value of Logistics in the Supply Chain, says a good measure is quantitative — one that can be expressed as an objective value. Also, a good measure is one that is easy to understand and encourages appropriate behavior.
Do your standards measure up? Take a look at your programs, consult the list of sources at the end of this article, then talk with your human resource folks on how you can raise the bar and generate more dollars for your company. From the standpoint of business economics, now is the time to act. You should view a business slowdown period as a time for opportunity. Now is the time to learn how to do more with less. As consultant Ken Ackerman suggests, send employees to seminars and training programs; challenge them to enhance their skills. Dare them to be creative. MHM
Wal-Mart Removes Assessment Blinders
Employee assessment starts during the job interview. Candidates for a distribution center position, whether at the floor level or in the management suite, can bring a wide variety of capabilities to the job — some you didn’t even anticipate. That’s why it’s important to avoid skewing your assessment with your own preconceptions or prejudices. It not only limits your potential to find a valuable contributor, but you might be breaking the law, as well.
Wal-Mart learned that lesson the hard way — more through ignorance than out-and-out prejudice. Between 1994 and 1998, Wal-Mart sought disability-related information from applicants through their “Matrix of Essential Job Functions” questionnaire before making conditional offers of employment. That’s a violation of the federal disability law, and formed the basis of a lawsuit prepared by the Equal Employment Opportunity Commission (EEOC). The EEOC alleged that Wal-Mart’s pre-employment questionnaire violated the Americans with Disabilities Act (ADA).
“The law says, just sit down and talk the job through with the candidate,” explains Lynn Palma, senior trial attorney, EEOC San Francisco District Office. “You may reassess your assumptions. Wal-Mart didn’t offer people jobs before asking about medical and physical requirements in the forms they were using. A conditional offer is, ‘We’ve done all of our background checking, here’s the job. Now we want to run some medical information.’ You’re permitted to do this after you offer the job. That allows the applicant to offer documentation showing he can do the job.”
In the Wal-Mart case, instead of bringing the lawsuit to court, the parties arrived at a $6.8 million consent decree, which resulted from months of negotiations between Wal-Mart and a national negotiation team for the EEOC. The settlement calls for nationwide training on the ADA and the lawful making of job offers. Also under the decree, Wal-Mart will provide priority consideration for hiring at its distribution centers to applicants who were qualified for employment but rejected based on medical- or disability-related information requested during the now defunct interview process.
The courts are still struggling with the definition of the term “disabled.” However, what is clear to every appellate court that has made a ruling in cases like this is that an employer can obtain medical information from applicants and employees in very limited circumstances — whether they meet the employer’s definition of disability or have any disability at all.
“One court put it very well,” notes Palma, “saying ‘it makes no sense to ask somebody to prove he is disabled so the employer doesn’t have to ask whether he’s disabled.’”