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.
"At the most basic instance, a company can say it's going to measure the number of cases that are picked," says David Erickson, vice president, product development for RedPrairie, Waukesha, WI. "That's going to set an expectation for the number of cases that it wants picked and it's going to measure against that."
However, many companies need to account for the fact that a case isn't always a case, especially in a DC that may be shipping a variety of products from thumbtacks, all the way up to table saws. Companies who operate under the "picking is picking" or "putting-away is putting away" school of thought risk creating false statistical information, not to mention employees who become disgruntled due to unrealistic expectations of them.
"It's not going to be the same if you're unloading paper towels as opposed to cans of green beans, there's a lot more effort in the cans," agrees Tompkins' Brockmann.
According to the experts, companies must strive for a more "granular" data capture, a more adept description of the actual work being done, each individual move and action. "What exactly are my workers putting away and how long should that particular item take?"
In terms of receiving metrics, the same applies. "If you're looking at how many cases you're receiving per man hour, it really depends on what shows up at the door," says Brockmann. "If it's a straight load, then everything's hunky dory and your cases per man hour is going to be extremely high, but if the next week, you're getting a lot of imports, everything's floor loaded or something, the productivity is going to drop dramatically."
Brockmann says that if his clients look at only one particular metric, it becomes misleading and confusing. "People need to look at a balance of metrics." A true labor management system will take into consideration the fact that a worker may do the same task twenty times and each time the task may have slight variables. The LMS should have the different frequencies programmed into it and calculate twenty different expected times.
Time metrics utilized in the creation of standards also need to be realistic. The best way for this to happen is for managers to perform actual time studies.
"That's where you're going out there and timing an operation," says Brockmann. He notes that an LMS is good at calculating how long it takes a worker to travel from one point to the next, but there are some elements the LMS isn't going to be able to track.
"You don't want to not account for an operator that has to get off the lift truck and go adjust the cases on a pallet, so what you have to do is go out there and do some labor engineering standards. Make some frequency checks. It may be 10 percent of the time that he has to get off the truck and do some adjustments. You have to add all the frequencies in there."
With accurate information, companies will be able to set exacting time goals-goals which they will be able to defend to any detractors because they've accurately modeled the nuances of the job.
Model The Activities
Another important thing that managers sometimes fail to remember when they are modeling a job for their LMS to track is not only how fast they want the job done, but how they need it to be performed-in other words, what other metrics do they want measured while an employee is picking?
"Model the job to ensure that such things as efficiency, accuracy, quality and safety also go into the model," notes RedPrairie's Erickson. "In recent years we've added capabilities in our system to measure quality, to measure safety, to ensure proper training of employees and proper supervisor observation-all those dimensions of the preferred method-to bring them into a holistic picture and bring a reporting structure to bear that says: ‘I'm going to measure you on every facet we're trying to achieve with these engineering efforts.'"
Erickson's colleague at RedPrairie, Jim Le Tart, director of marketing, cites an example of how modeling accuracy metrics into a large food company's LMS led to a dramatic efficiency change for the company.
"We were looking at the work flow in the facility and they realized they had a lot of narrow, dead-end aisles that forklift drivers would go down. Other pickers would have to wait at the end of the aisles to do their picks, until the truck would back out. It was very inefficient," says Le Tart.
Red Prairie's engineers looked at the situation and told the food company that, since it had more processing going on on the other side of wall, the best way to proceed was to knock holes in the walls so that they no longer had dead end aisles. This would let work flow through from one end to the other and develop a more efficient traffic pattern within the warehouse. "It significantly increased their productivity," says Le Tart. "They were up over 50 percent because a simple thing like a traffic pattern was allowing them to be more consistent in how they did things."
Another metric that many companies should be concerned with modeling into their handling standards is food safety. "This is a hot topic right now, with all the recalls for the industry," notes Le Tart.
He says companies can improve the safety level of food by building the proper procedures for handling it into their LMS standards. "If you're handling meat for example, how long can it be in a part of the warehouse that isn't refrigerated? Don't leave it sitting on the docks. All the issues around food safety really can be part of the process of the best practices that are implemented, so you're really combining two separate areas into one correct process."
Many warehouses use incentive programs to raise worker productivity levels. However, they may be implementing them wrong, or in such a fashion as to actually lower worker productivity and raise the level of resentment. During the engineering process that is required to properly implement an LMS, such pitfalls can be identified and corrected.
Retalix's Morgenroth sites a recent LMS installation that Retalix performed at Southern Foods, a Bowling Green, KY-based foodservice distributor. "They had an incentive program and it was based on the CPH (cases per hour) number, based on the square footage and the aisle travel within the primary zones of picking-which would be the cooler and the freezer and the grocery-the first thing we identified, once we put in engineered standards, was that a cases per hour rate incentive should not be used."
According to Morgenroth, picking 88 cases in a cooler requires less travel than picking 88 cases in the grocery area, which makes picking in the cooler easier. This leads to the unfair rewarding of selectors who work in the cooler, over those working in dry, who are actually doing much more work. Engineered standards, which take into account the different travel rates in both environments, put them on a level playing field.
"Your grocery guys are going to pick more cases per hour than what your cooler guys are because it's all based on travel," says Morgenroth. "Your incentive plan is going to be fair and equitable now. If you didn't have this tool to measure utilization, you'd be giving money away that you shouldn't be."
"The new standard involves giving you time to pick based on the layout of the warehouse" explains Kim Capps, vice president of special projects for Southern Foods.
"And you're not getting penalized because you're going to the freezer or you're going to the dry area."
In addition, according to Morgenroth, new metrics for Southern's picking teams will eventually include "a productivity piece, a production piece and a service level piece that they will have to meet. Those are the measurements that will eventually drive the incentive plan."
"The incentive will be for staying on production and having fewer service failures" Capps adds.
Experts like Tompkins' Brockmann believe the best incentive program should contain a mix of metrics. "What I like to see included is a set of qualifiers, let's say you have a facility-wide safety goal, a facility wide inventory accuracy goal, a facility-wide order fill rate, or customer service metric-so you have four or five metrics out there and your incentive is based on an individual performance, but if the facility doesn't meet the safety and customer service goals for the month then your incentive is reduced by a certain percentage."
A mix like this keeps workers' attention on the fact that, yes there is a time component to getting the job done, but you have to keep providing quality customer service, as well as maintain a safe workplace.