LMS Before WMS Can Make Good Sense

May 1, 2008
A quicker ramp up and faster return on investment are compelling reasons for choosing a labor system.

Implementing a warehouse management system (WMS) can be very expensive, risky and time-consuming, despite the ongoing consolidation of vendors and increasing maturity of their products. Even in an operation with moderate complexity, limited integration with host systems and typical material handling equipment (MHE), the timeline for WMS selection and implementation can exceed 12 months.

The potential benefits of implementing the right WMS can be compelling: increased accuracy, improved space and equipment utilization, reduced labor and inventory requirements and better visibility are a just a few advantages. Since the payback period of a WMS implementation is typically measured in years rather than months its attractiveness in a tight economy is lackluster at best.

Many businesses decide to implement a labor management system (LMS) as an afterthought. Often, the LMS is never implemented—even when the purchase of the WMS was economically justified and approved based on expected savings to be generated by the LMS.

Compared to a WMS, the benefits of implementing an LMS are more compelling. LMS implementations are generally much less expensive, risky and time consuming. The required infrastructure is far less complex. The timeline for implementation can be as short as two weeks, and the costs very reasonable, particularly given the substantial return on investment (ROI). The payback period of a typical LMS implementation is only six to nine months, and the savings can fund future operational improvements, such as MHE and WMS.

As a result, its generally advisable for businesses with labor-intensive distribution operations to consider putting LMS implementation at the top of their project lists, ahead of the WMS and initiatives that compete for investment dollars. Here are six reasons why.

1. Integrate with Ease
An LMS can be implemented as a standalone solution, or integrated with other application software such as warehouse management, timekeeping, payroll, enterprise resource planning (ERP) and legacy systems. If integration with other applications is desired or required, it is far less complex than with a WMS.

Several common misconceptions about system integration can keep a business from implementing an LMS, even when it makes good sense. One misconception is that a WMS must send all production data to the LMS, or that a timekeeping system must send all time and attendance data to the LMS. The truth is, best-of-breed LMS solutions offer the option to enter production and timekeeping data manually, interface that data automatically or use a combination of both methods.

For example, most other types of application software can generate flat files the LMS can import automatically. If certain data is unavailable from those systems, one or more clerical workers can manually input data into the LMS. The overall labor savings associated with this approach outweighs the clerical costs—so much so that many companies dedicate a small clerical staff to this type of data entry until integration is possible.

Another common misconception is that integration with the LMS is complex, especially if the LMS and WMS vendors are different. The reality is today’s best-of-breed solutions offer simple interface-mapping tools that easily integrate with the LMS. Integration between a WMS and host system may require 10 or more interfaces and many calendar months of work. Integration between an LMS and a WMS is typically straightforward, measured in weeks rather than months.

While the integration effort associated with LMS implementation should not be ignored, time and costs are relatively minimal when compared to the integration effort required for a typical WMS implementation. Better LMS solutions have evolved to provide both built-in integration tools and manual data-entry screens. As a result, integration fears should not discourage companies from moving forward and reaping the benefits of an LMS.

2. Lay the Groundwork for a WMS
Too often a business will select a WMS solution based on a list of high-level requirements rather than a set of best practices, methods and standard operating procedures (SOPs). Consequently processes in the distribution operation are driven by the capabilities of the WMS instead of the best practices. While implementing a WMS requires a business to be somewhat flexible to minimize the software modifications required, the WMS should not dictate the process. The SOPs defined upfront during the LMS implementation can become (or be slightly modified to become) the functional specifications for the future WMS, so they will support the business benefits of the WMS investment.

The most successful LMS implementations are a part of an overarching performance management program. Such programs focus on managing change and building a performance vs. a production culture. They focus on defining benchmarks for the three key variables that impact performance: pace, utilization and methods. As a result, when each critical process within the operation is defined, a key input for the WMS selection process is established.

An LMS can provide valuable insight into planning, selecting and implementing a WMS. Since there is still no such thing as a one-size-fits-all WMS solution, companies will inevitably identify a list of functional gaps. Using real LMS data to evaluate the potential modification required for each functional gap enables businesses to prioritize the gaps and select modifications that will have the most positive impact on the operation after the WMS is implemented. Additionally, firm understanding of which operations are performing well and which are struggling can help businesses get the most out of a new WMS.

3. Aim High to Maximize Benefit
While performance management programs often include the creation of engineered labor standards (ELS), pay variables and incentive-based pay systems for each facility, this should not be perceived as a barrier to entry. The use of reasonable expectations and/or book standards to quantify operations and feed an LMS can yield up to 50% of the benefits of a fully engineered performance management program and LMS implementation. To obtain the most value from a performance management program, however, there are no shortcuts. Accurate ELS, pay variables and incentives—all of which are uniquely designed for the specific operations in each facility—will ensure the business achieves maximum results from the program.

4. Discover the Real Labor Savings
Because a world-class LMS provides visibility into individual, team, operation, department, facility and network performance, it can be an invaluable tool for impact analysis and evaluation of alternatives. The LMS can be used to help the business estimate the productivity improvement and labor savings that might result from other supply chain initiatives and capital expenditures.

For example, consider a business whose supplier-compliance group is working with key, high-volume vendors to improve frequency and reliability of its advance ship notices (ASNs). This type of initiative would reduce the detailed receiving and checking required on the inbound dock, resulting in improved receiving productivity. With an LMS in place, the company could measure the real, quantitative impact of the initiative—not only at the operation or department levels, but also at the facility and network levels.

Likewise, a business could quantify the success of a new WMS, even if some operations and associated pay variables shifted when the WMS was implemented. By using historical data stored in the WMS for benchmarking and reporting, the business could use the LMS to measure the effect of the WMS on labor performance across the facility.

5. Gain Big Rewards with Little Risk
Anyone who has been involved in implementing a WMS understands how much pressure and stress is associated with the cutover to the new system. This is due to the inherent risk of implementing the WMS. If the transition is not successful or if there are other major “bumps in the road,” everyone from the management team, to the associates, to the customer can suffer. If the WMS doesn’t function, the facility probably can’t support customer demand. So the risk associated with WMS implementation is significant.

Everyone aims to avoid delays and post go-live issues when implementing any major system. Unlike a WMS implementation, an LMS implementation can yield significant benefits without the risk of impacting business-critical systems, processes, and—most importantly—the customer. An LMS is not a business-critical system, so an LMS delay has much less impact on the operation. Product and data flows are usually not disrupted. Additionally, compared to a WMS, an LMS usually has a small number of users. Furthermore, the LMS users are typically not those moving product, but rather supervisory and management staff. The risk is mitigated because product can still flow, and customer demand can still be satisfied.

6. Do the Math
Few supply chain professionals dispute the value of a workforce performance management program supported by an LMS. When an LMS is implemented with properly designed ELS, pay variables and incentives, it is not uncommon to see productivity improvements of 30% to 50% in the first year alone—results that even a WMS is not likely to provide. But does it make more sense to implement an LMS before a WMS? The likely answer is “yes,” especially given the compelling ROI and a tight economy.

Benjamin Mokotoff is a Senior Manager with Kurt Salmon Associates (KSA). Since joining the firm in 1999, his predominant focus has been managing large-scale supply chain software solution implementations. His clients include leading global hard and soft goods retailers, as well as grocers and grocery wholesalers. Benjamin can be reached at [email protected]

Kurt Salmon Associates is a global management consulting firm focused on supply chain management. It works to create accelerated value through tailored solutions for business growth, margin management, inventory efficiency, productivity improvement, and technology. It offers a labor management solution, GoalPost.

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