Labor costs are the bane of the distribution center.
Or they were.
In decades past, uncontrolled labor costs would eat into the already slim margins that were–and continue to be-a grim reality for those in the food and beverage industry. The failure to track workers who loafed, or to make an accurate calculation of the time required for tasks such as picking, palletizing, loading and unloading, resulted in overtime costs that all-too often spiraled out of control.
"We're in a country that demands productivity increases in the distribution world," says Bob Morgenroth, the director of supply chain management for Retalix Inc., Dallas.
The demand for productivity increases and the concern for the already slim profit margins in the industry were the driving forces in the development of software that was designed to help warehouse and distribution center managers control total labors costs. Labor management software (LMS) gained a foothold in many of the larger companies initially because they operate in union environments.
Due to their size and the vast amounts of monies that could be saved, these companies went the extra route of having precisely engineered labor standards built into their systems with the help of labor engineering consultants.
According to Morgenroth, the smaller warehouse operations have shied away from using labor management software until recently, when they began to realize that measuring time, movement and tasks reduced their overall labor costs.
"Every distributor talks ‘through-put' regardless of what tools they're using," adds Morgenroth's colleague Tammy Weant, senior vice president of supply chain solutions for Retalix. "They've always done elementary crewing adjustments even if it's just exploiting numbers on spreadsheets. What our software does is it kicks it up many notches and allows you to be more proactive than reactive."
"The (LMS) industry is moving toward the mid-level or small-sized DCs," says Morgenroth. "The non-union DCs are beginning to realize that you need to measure and improve your labor statistics and the behavior of your employees. Clearly if you don't measure it, most people just don't see it. That's what the software is driven to do."
Labor management systems feed off of information supplied to them by a warehouse's warehouse management system (WMS). The WMS controls the work load in a warehouse, driving all of the tasks that occur there, such as order picking. The LMS is driven by the data generated by the WMS and it uses metrics, or qualifiers, that have been programmed into the software, to calculate what is the expected standard rate that workers should be performing tasks at.
It also records what their actual time performances are. Managers can then do what is required to encourage workers to meet the expected standards.
However, just having an LMS installed in a warehouse is only the first step. To create standards that actually promote, as well as reward productivity, warehouse managers need to do their homework and make sure that the metrics they use to formulate standards are accurate.
"What types of performance metrics are organizations tracking?" asks C. Thompson Brockmann, project director for Tompkins Associates, Raleigh, NC. "Are they the right performance metrics to be tracking? How are they setting their goals?"
Measuring Activities, Time
According to the experts, company implementations of LMS systems live and die by the metrics that they use to gauge their employees' productivity. And what activities are they measuring?
"The most popular activity being measured is picking and we're seeing over 70 percent of the people out there using a labor standard and/or incentives in picking operations," says Brockmann. "Second to that is shipping and third is put-away." According to Brockmann, these types of tasks are easy for an LMS to measure and it's usually an individual that's performing them, which makes reporting easier.