Labor Productivity:It’s Hiding EverywhereResearch shows that the average warehouse or distribution center operating without a formalized labor management program operates at about 65-70 percent of normal capacity – what industrial engineers describe as a fair day’s work for a fair day’s pay. This means that without rushing workers or using special incentives you can improve your labor productivity by 30-35 percent by adopting a modern labor management program.

If you are the skeptical type you might be saying about now, “if there was something I could do to get that kind of increase in productivity I would have done it by now.” But that’s the problem – there is no one magic bullet. Instead, there are bits of labor productivity hiding everywhere in your operations. You just have to find them and root them out. This paper will give you some tips for finding and leveraging labor productivity opportunities.

Why now?OK, so you’ve heard pitches for improving labor productivity before – reduce costs, improve service, gain competitive advantage. Why should you take another look at labor productivity issues now? Two events have significantly elevated the awareness of supply chain in general, and labor productivity in particular, in the minds of corporate executives.

The floods in Thailand and the earthquake / tsunami / nuclear disaster in Japan made supply chain a front page story. Suddenly, executives had to take notice that supply chain disruptions can significantly impact their abilities to continue operations. At the same time, the recession and the uncertainty of the slow recovery layers another dimension on the importance of supply chain operations as management first cut bodies to cut costs, and now is reluctant to hire back – forcing distribution centers to do more with less. Meeting these management mandates within this new heightened awareness of the importance of what you do has placed a premium on aligning with corporate goals. Supply chain labor productivity improvement is thus central to not only your goals, but corporate success.

W H I T E PA P E R

Destroying the MythsBefore we go hunting labor productivity savings, let’s tackle some of the persistent myths about labor management programs that have kept some companies from trying them.

• Our associates or unions won’t like it – false. Sure there will be some initial resistance to change. But associates and unions generally like good labor management programs because they know everyone is being judged fairly and accurately. Morale and retention typically go up after implementation.

• Labor management software will solve the problem – false. Labor management systems are enabling technologies that primarily record performance – good or bad. They don’t change how workers perform their jobs. That takes good job design, training and coaching.

• Our associates already work hard, we can’t ask them to work any harder – wrong concept. It’s not about working harder, it’s about working smarter and giving associates the right tools.

• We don’t want our supervisors stuck in the office managing a system – wrong idea. Today’s labor management systems are web-enabled so supervisors get real-time information on their smart phones or tablets while they are out on the floor. More importantly, they will know exactly where the bottlenecks and problems are so they can take immediate corrective action. They become coaches and problem-solvers rather than task masters.

There are plenty of other myths, but hopefully you’re getting the picture that modern labor management programs are multifaceted, fair and well-accepted. So let’s take a look at some of the places labor productivity may be hiding in your organization.

Labor Productivity

Quick HitsWithout starting a formal labor management program or implementing a labor management system, there are still many ways to quickly improve labor productivity. Here are some functions you can leverage within your warehouse management system to quickly improve labor productivity.

System-directed work – If you are still using a paper-based approach to assign work, you are losing both efficiency and accuracy. Workers waste time travelling back to a central location to pick up their next work assignment. More experienced workers tend to cherry-pick the easiest tasks while less experienced workers end up with the toughest tasks. With system-directed work, workers receive their next assignment on their hand-held, wearable, or equipment mounted devices as soon as the previous task is completed, so wasted travel is eliminated.

Dynamic Task Management – Also known as task interleaving, this automated function takes system-directed work to the next level. Workers are directed to the next best task based on priorities, proximity and their qualifications. For example, a forklift driver replenishing a forward pick area from bulk storage might be directed to take a nearby finished pallet to a loading dock or return a stack of empty pallets to a palletizer before returning to bulk storage. This significantly reduces travel time and speeds throughput.

Wave Planning – By intelligently grouping picks into “waves,” modern WMS solutions can significantly increase picking efficiency by enabling workers to pick multiple orders at the same time. This reduces travel and order cycle times.

Work Order Management – Modern WMS solutions can direct workers through multi-step processes in the most efficient way possible through configurable workflows. The WMS can provide step by step instructions for functions such as value-added services, light manufacturing, and other postponement processes. This increases both productivity and accuracy of fulfillment.

Cartonization – Cartonization routines within a WMS can direct pickers to efficiently pack products into shipping cartons as they pick. This can eliminate the need for separate packing stations, removing a potential bottleneck from the fulfillment process. Cartonization can also reduce shipping costs by more efficient use of carton space.

Voice enablement – By using voice systems to direct work, workers’ hands and eyes are free to execute tasks much more efficiently. And required voice responses help ensure accuracy. The leading vendor of voice systems claims improvements in pick rates of 5-10 percent and productivity gains of 10-25 percent, while accuracy improves to as much as 99.995 percent. Payback for these systems is typically less than one year.

Slotting – If the inventory in your DC has any degree of seasonality, if you support large promotional fulfillment, or if you have a fair amount of new SKU introductions, you could benefit substantially from proper slotting of your forward pick areas. Proper slotting of high velocity SKUs can significantly reduce pick travel time and thus make pickers much more productive. Slotting tasks can be integrated to normal DC work by your WMS so re-slotting does not disrupt operations. And when integrated with labor management systems, expected savings and ROI can be computed so you can choose which slotting plan will be most efficient at any given time or condition.

Labor Productivity

These are a few of the “quick hits” to labor productivity you can achieve by leveraging and extending modern warehouse management systems. But to take labor productivity to the next level, advanced labor management programs are a sure bet.

Doing it RightUnlike most automation systems in the warehouse, labor management systems do not increase productivity by themselves. They are tools to help you create a more productive environment. While the mere act of measuring workers has proven to increase performance, the real productivity gains come from getting everyone doing the right tasks the right way. System-directed work from the WMS can accomplish the “right tasks” part, but getting everyone to do their tasks the “right way” is more complicated. It requires good job design, development of efficient methods, and creating fair and accurate labor standards.

Clearly job design and the development of methods and standards is not something a system will do for you. Yet it is the essential underpinning of effective labor management programs. The failure to adequately complete these steps is the reason why most DCs operate at only 65-70 percent of their potential capacity.

Think of it this way, if you have 100 workers in your DC, you probably have at least 100 different ways to do each job. What are the chances they are all the most efficient? By using experienced industrial engineers to study your jobs, equipment and environment, the single most efficient method for completing each job and task can be determined. The engineers can then establish the appropriate amount of time it should take to complete each task based on predetermined small motion studies (Master Standards Data) or time studies. This critical step of developing preferred methods and engineered standards, along with proper training and change management, has enabled customers to improve labor productivity by as much as 50 percent.

Leveraging StandardsOnce you know how long it should take to complete each task based on preferred methods and engineered standards, you can leverage this information in a number of ways to improve labor productivity and utilization. Conversely, it should be obvious that not having first taken the important step to properly set these methods and standards will at best make the following steps less effective, and at worst, could be counter-productive. The following capabilities can be provided by today’s advanced labor management systems.

Planning and Forecasting – Wouldn’t it be helpful to know ahead of time how much labor you will need to accomplish your distribution tasks over the next week, month or year? By knowing how long the work should take and your expected order flows, the system can forecast how much and what type of labor you will need for any given period, thus enabling you to plan headcount that avoids overstaffing or expensive overtime.

Labor Scheduling – Scheduling takes labor planning down to the day or shift level by adding “people” factors such as work rules and preferences, skills and certifications, labor regulations, and cost factors. It automatically schedules exactly the right number and mix of workers for that day’s or shift’s workload. Managers can review and adjust the schedule, as well as monitor progress during the day.

Intra-day Adjustments – Because managers and supervisors are given real-time views of work progress, they can make adjustments during the day to move workers from less critical areas to higher priority or time-critical tasks that may have fallen behind schedule, thus ensuring the most productive utilization of available resources. It can also alert them ahead of time to the likelihood of not meeting critical goals so additional labor can be called in or overtime assigned.

Labor Productivity

Monitoring Productivity – With real-time views of work progress on an individual by individual basis, supervisors are alerted to who may be falling behind so they can investigate. Barriers to productivity such as congested aisles or low batteries can be addressed immediately. Or supervisors might identify improper work methods that can be corrected with on-the-job coaching.

Indirect Time – A real hidden barrier to productivity can be the amount of time workers spend on indirect tasks such as charging batteries, cleaning work areas or repositioning equipment. Also the time lost to extended breaks, chatting with co-workers, and other unauthorized personal time can rob productivity. Studies by JDA indicate the average worker has 75 minutes per day of indirect time, an area ripe for productivity improvement through monitoring by advanced labor management systems.

Incentives – Once a labor management program is in place and the workforce is up to 100 percent of goal levels, you can achieve a further boost in productivity by adding incentive programs. Incentives reward above goal performance by sharing cost savings in the form of monetary rewards – most often per hour rate increases. Quality and safety gates are usually added to ensure savings from performance increases are not swallowed up by accuracy or accident costs. Modern labor management systems make all of this possible without additional administrative burden.

Process Modeling – Knowing how long each task should take at a granular level allows you to model new processes to determine their impact on productivity and cost. These processes can cover a wide spectrum of new orders, new layouts, new equipment, new products, improved procedures, or even new facilities. Advanced labor management systems have these “what if” modeling capabilities built in so you can better understand the true impact of inventory, plant & equipment, and process changes.

Pulling it all togetherSo there you have it – a whole list of places where productivity gains might be hiding in your operations. And this is by no means a comprehensive list – that will vary from company to company. The key is to understand that no one process or system will solve all of your problems or single-handedly maximize productivity. It takes a coordinated program of examining all of the potential areas of productivity improvement to determine which will have the greatest benefit for your operations, and then putting procedures and/or systems in place to accomplish this.

A good place to start is to examine your current operations in light of the labor items mentioned above to create a baseline. Depending on your situation, this could be done by simple observation, by mining existing performance data, or in an automated function. For example, you can install a labor management system and “turn it on” using basic labor standards to get a feel for current productivity levels and where variations and potential problem areas are before implementing the full labor productivity program.

You may also want to look at related factors. Are your overall operations as efficient as they could be? Could your DC layout better facilitate your current and future operations? Do you have effective employee communication and training programs in place? Do you have industrial engineers trained in developing preferred methods and engineered standards? Who will handle the critical change management process? These are all important aspects of maximizing the benefits from a labor management program.

Labor Productivity

The BenefitsCertainly the benefits to be had are very real. A study of labor management system implementations published by ARC Advisory Group in February 2011 showed 65 percent of respondents got full payback on their investment within one year, with 100 percent achieving payback within two years.

After implementing JDA’s Warehouse Labor Management solution in their service parts distribution center, for example, Briggs & Stratton experienced significant savings. “We were able to reduce our workforce by 20 percent, but actually increase throughput,” says John Guy, Briggs & Stratton Vice President of Supply Chain and Distribution. “We estimate that’s saved us about a million dollars.”

Similarly, Steve Sargunaraj, Global Contracts Logistics Process Manager for logistics service provider UTi, says, “We were able to reduce our headcount by 10 FTEs, mostly through attrition.That is driving savings of $300,000 per year in this supply chain.”

You can achieve these kinds of benefits and more as well. Whether through leveraging existing systems and processes or adding new ones, a consistent and coordinated search for labor productivity wherever it may be hiding in your operations will have significant benefits. It just takes the will to go do it.

About JDA Software Group, Inc.JDA® Software Group, Inc., The Supply Chain Company®, offers the broadest portfolio of supply chain, retail merchandising, store operations and all-channel commerce solutions to help companies manage the flow of goods from raw materials to finished products and into the hands of consumers. JDA’s deep industry expertise and innovative cloud platform help companies optimize inventory, labor and customer service levels. As a result, JDA solutions have become the standard for the world’s leading retailers, manufacturers and distributors.

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05.28.13

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