LABOR MANAGEMENT SYSTEMS
Logistics Insight Asia, 1/11/2008
While labor management systems (LMS) have always had one of the lowest adoption rates of traditional supply chain execution solutions, that is starting to change, says BOB TREBILCOCK.
If someone told you there was a magic bullet that could improve workforce productivity as much as 35 percent in labor intensive activities like picking and putaway, wouldn’t you be interested? You’d think so.
Labor management systems (LMS), the supply chain execution software systems that plan, manage and report on labor activities, for years have been delivering 15-35 percent productivity improvements to low margin, labor intensive industries like wholesale grocery.
The savings from a labor management system aren’t limited to just a more productive workforce or getting the same amount of work with fewer employees. A reduction in workforce also translates into fewer lift trucks and pallet jacks, for instance, and increased throughput without expanding the size of the facility or the workforce.
Despite such impressive results, labor management also has one of the lowest adoption rates of the traditional supply chain execution solutions, including warehouse (WMS) and transportation management (TMS).
However, that is starting to change, with labor management moving closer to the top of the “to-buy” list for many distribution centers outside of the grocery industry. These include third-party logistics providers as well as beverage, retail distribution, and pharmaceutical distribution. The reason: reduced costs.
“Many of the companies we’re talking to have already optimized their distribution centers with a WMS,” says Dan Hokanson, product manager for labor management at HighJump Software. “They still need to take costs out of their supply chain and labor continues to account for over 50 percent of those costs.”
The experts say facilities with as few as 50 employees can benefit from a labor management system, especially if they offer laborintensive order fulfillment processes like compliance labeling, custom packaging and value-added services.
MORE THAN SOFTWARE
Just what is a labor management solution? Well, it’s more than just software. It’s a holistic approach to managing the labor in a facility that includes four major components:
• Labor standards: These define the way a task should be performed and how long it should take to perform that task in a safe and repeatable way by the average worker.
• Technology: The software component of a labor management system plans the amount of labor required to fill a group of orders; measures the performance of workers in real time as they complete their tasks; and creates a record of performance that can be used for time and attendance records or historical reporting.
• Change management: With a labor management system in place, the relationship between managers, supervisors and workers changes because workers have a goal they are working toward. Supervisor roles change from that of a cop on the floor, making sure everyone’s doing their job, to that of a coach who can help underachieving workers reach their labor goals.
• Incentive-based pay: Finally, labor management can facilitate incentive-based pay programs that reward people who work above standard and improve a facility’s performance.
Those who have implemented a best-of-breed WMS may think they already have labor management. After all, a WMS directs the activities of order pickers and lift truck drivers on the floor and synchronizes those activities with automated materials handling systems.
What’s the difference? A WMS will tell you the optimal sequence to pick given all of the constraints in a warehouse and track processes like the number of units picked or shipped per hour. Those are important to know.
But a WMS won’t tell you how much labor you need to do that work; it won’t give your operators a completion time to do that work based on labor standards, and it won’t tell your workers what to do next if they run out of work. Those, too, are done by a labor management system, which extends the gains already achieved from a WMS. In large and complex distribution environments, those additional gains are substantial.
CREATING LABOR STANDARDS
While technology is an important component of a labor management solution, the first step is to create labor standards to measure employee performance. There are at least three different approaches:
1. Create a macro standard using historical records Those might include the number of locations visited, the number of cartons created, and the number of units picked to fill the average order. With that information, the system determines the average number of picks per hour or shift per employee. Using that standard, the system then determines how many operators will be needed to pick orders on the next shift.
2. Create master standards data using published standards “Every task is comprised of discrete movements, such as picking up a product and putting it on a pallet,” says LeTart. “Over the years, industry has compiled accepted standards for how long all of those should take. The sum of those movements makes up master standards data.”
3. Create discrete or engineered labor standards An engineered labor standard breaks down each process into its component parts. Through time, motion studies, and work sampling, an industrial engineer determines how long on average it takes workers to safely complete each component of the task.
“Engineered standards are more accurate because they take into consideration things like the difference in weight between a case of ammunition and a case of ping pong balls or factors like worker fatigue at the end of a shift,” says HighJump’s Hokanson.
Once labor standards are in place, the software component of a labor management system can perform a variety of functions, like tracking time and attendance. The most important of these functions are planning and execution.
Through an interface with a WMS or enterprise resource planning (ERP) system, labor management plans the amount of labor required to fill a group of orders based on those labor standards. The system then measures the performance of workers in real time as they complete their tasks. That information is also reported to managers, supervisors and even workers.
CHANGE MANAGEMENT
Labor standards and performance tracking are the first steps, but by themselves they won’t deliver productivity improvements.
“With change management, we’re moving from an environment where the supervisor is driving the cattle into the stockade to one where the employees are self-accountable for their work and the supervisors are trainers, coaches and mentors,” says Jim LeTart, director of marketing for RedPrairie.
What is required is multi-step organizational change, in which the first step is creating a vision – explaining why the change is not only important, but good for everyone – from management to supervisors to the people on the floor.
With a vision and standards in place, management can overcome resistance by showing workers that the system is fair. “We’ll typically start in one area of the warehouse, bring that up, and once everyone is satisfied, demonstrate to the rest of the warehouse that this isn’t a threat,” says Peter Schnorbach of Manhattan Associates.
Just because you have labor standards in place doesn’t mean that every employee will perform at the same level. Some will exceed the labor standards, others will fall behind. Rather than punish those workers, a labor management system creates opportunities for supervisors to train workers in how to perform the preferred method and work up to standard.
The final step for many companies implementing a labor management system is to reward workers performing above the standard through an incentive-based pay program. It’s not uncommon for companies that have implemented a labor management program to gain an additional 10 percent in productivity through an incentivebased program.
However, Steve Banker of ARC Advisory Group notes that leading companies cap their bonus program at 120 percent over standard, because they don’t want people working so hard that they become exhausted or dangerous just to get a bonus.
As to that magic bullet? A labor management system won’t solve all productivity problems overnight. But it comes close.
“Most companies are generally working at 60 to 70 percent of standard when they implement a labor management solution,” says Peter Schnorbach. “It’s not uncommon to get that facility working at 100 percent of standard before the year is out.”
Bob Trebilcock is Editor at Large, Modern Materials Handling (www.mmh.com)
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