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Labor Management: Beyond the punch clock

While adoption remains low, savvy managers are putting engineered labor standards and related labor management systems to work to jumpstart productivity and gain a new level of operational visibility. Here’s how they’re getting it done.
By Maida Napolitano, Contributing Editor
August 01, 2012

Integration with warehouse management systems (WMS)…check. Integration with time and attendance, radio frequency (RF), and voice systems….check. Smart phone and tablet support…check. Web interface and access to cloud computing and storage….check. 

Clearly, today’s top labor management systems (LMS) are keeping up with the times, evolving from basic stand-alone systems into sophisticated, packaged WMS-LMS solutions geared toward offering real-time visibility of tasks occurring within the four walls of a warehouse or distribution center. In fact, all of these functionalities have been developed just to make it easier for supply chain professionals to manage one of the most complex components of the supply chain: its workforce. 

As such, Tom Stretar, practice leader for enVista, a supply chain consulting firm and LMS integrator, sees labor management as only growing in importance primarily because of how it improves overall performance. He speculates that operations not using any form of LMS are only operating at 60% to 75% of their capabilities. “Depending on how far you want to go with your standards and incentives, you can get upwards of 115% to 120%,” says Stretar.

Given the costs of labor, Larry Parker, principal for Aries Consulting, another LMS firm specializing in the development and maintenance of engineered labor standards, concurs that LMS adoption will only increase. He cites organizations that support Lean and Six Sigma initiatives as other drivers of the technology.

With such promising potential, it’s surprising that LMS hasn’t penetrated a larger part of the market—reportedly only 20%, if that. Crystal Welker, director of solutions design and continuous improvement for third-party logistics provider Genco ATC, says in the 50 sites that she oversees in her business unit, there are probably 30% where LMS would actually not make sense. 

“Those specific sites are simply too small, and it’s relatively expensive to install,” says Welker. “You have to identify all the interfaces and configure it, and you need to do the engineering standards, which take time.” She adds a company typically doesn’t implement LMS at a site unless the team can realize a return on investment within two years. To achieve that, they generally need to have a minimum of 30 to 35 variable employees at the site.

However, the experts we spoke with agree that LMS is jumpstarting productivity when it’s put to its fullest potential, going beyond punch clocks and engineered labor standards to track overall performance. Here’s a closer look at how savvy managers are now using the systems to achieve operational visibility, shrink unproductive time, employ incentive programs, plan workforce levels, develop true activity-based costs, and simulate what-if scenarios.

Achieving real-time visibility
Previous systems operated in batch mode, with supervisors going over performance reports at the end of the day, or even at the end of the week. Today’s LMS providers have risen to the occasion, providing Web-based dashboard technology to users in real time on their smart phones and tablets.

These dashboards display information regarding labor performance on a single screen and direct the supervisors and managers to where they need to focus their attention. Configurable reports may include the complete listing of tasks along with a measure of the utilization and efficiency of each worker.

If performance isn’t up to par, the system can alert supervisors immediately with a text or e-mail so they can initiate action. “We’re moving from ‘we didn’t do so well this week; we need to pick it up next week’ to ‘we’re not doing well right this moment; let’s try to identify why,” adds Stretar.

This detail provides a critical layer of transparency to the DC, allowing proactive managers to avoid any dips in productivity. So, what’s the challenge? Some host WMS have difficulty processing data in a near real-time environment, preventing potential corrective actions to be addressed immediately.

Identifying unproductive time
Pickers may be paid for eight hours, but with reports from the LMS supervisors can see to the element level why there were only six and a half hours of actual productive time.

According to Welker, this is where the LMS has been invaluable to her team. “It gives us the ability to really capture that time where we’re not physically picking,” she says. It’s not necessarily because workers are catching up on last night’s game, for example. Pickers may be spending 10 unproductive minutes waiting for pick tickets, doing safety check sheets, or waiting for product to be replenished. 

“We can find those reasons that they’re not doing productive tasks and eliminate them, making them productive for 7.5 hours per day instead of only 6.5 hours,” says Welker.

Implementing an incentive program
While implementing engineered labor standards may improve productivity by identifying those lagging the curve, it’s the implementation of incentives that sells LMS internally to most workers.

Let’s say it takes a worker two hours to complete a task. If he completes it in only one hour, then he saves the company an hour of labor time, worth $20 per hour. With incentives, the company takes that $20 and shares a percentage of that with its workers, perhaps keeping $10 then giving the worker $10. “Obviously with incentives, productivity increases,” says Welker.  “What we also find is that people then become more creative, with many taking the initiative to improve processes because they want the incentive.”

Parker warns that incentive plans may not be as effective in an environment where overtime is commonplace. “Incentive pay must be more lucrative than overtime,” says Parker. “One should minimize overtime for several months before implementing incentive pay.” He also cautions that incentive pay should never be tied to productivity alone. “Quality, service and safety are also part of an effective incentive pay system.” 

Improving workforce planning
Demand volumes can fluctuate seasonally. LMS provide supervisors with a scheduling tool that can define shifts and work schedules. It also allows them to evaluate current and future staffing levels based on both historical and actual work assignment data.

“I know that I have 2 million cases coming in next year,” says Welker. “I know my teammates can pick about 200 cases per hour based on my LMS data. I can then determine how many teammates I need on the floor.”

Even when initiating a new process, managers can use a combination of historical data and predetermined time standards from the LMS to project the time it takes to complete a task and then calculate the number of workers needed. 

Developing more accurate costs
With an increasing number of value-added services being performed at the DC level, many don’t have a good feel for how much they should be charging. More managers are using their LMS to determine exactly how much it costs to ship merchandise through their warehouse and to determine what they need to break even or to realize specific profit margins.

“The system allows the operator to apply cost values to the goal or standard times, thereby calculating the true cost of performing the task,” says Parker. 

Parker notes, however, that most LMS are still limited in their ability to process this data within the system, as providers have yet to build a solid module around activity costing. For now, many simply extract LMS data and enter them into custom spreadsheets to develop detailed budgets and costing reports.

Simulating what-if scenarios
With input from the LMS, operators can simulate changes in equipment, processes or layouts within a facility in a virtual mode to determine the impact on productivity. “Before investing thousands of dollars,” says Parker, “why not take those same orders, reload them into a test environment in the LMS, and compare how many standard minutes it takes with your new layout?”

By simulating within the LMS environment, managers recognize the credibility of the simulation results, making it easier to get approval for any upfront capital. However, Parker notes that not many LMS providers offer this option within their system. “We typically have to extract the data, mimic databases, and request assistance from IT personnel to help process the data.” 

Tips for implementing
According to Stretar, LMS implementations usually involve working closely with employees on the floor to improve the operations. “We usually try to optimize an operation in conjunction with implementing the software. We then build and audit the standards for that operation,” he says. Incentive programs can then be initiated once the standardized operations have somewhat stabilized—typically after two to three months.

Parker believes that the most important aspect of any LMS implementation is really its change management. “There’s going to be resistance,” he says. “It’s important to educate workers on the system from the very beginning.”

Genco ATC’s labor management edge

Genco ATC is the second largest privately held, non-asset based third-party logistics provider (3PL) in North America. The company runs distribution operations for a variety of customers at more than 130 sites, employing about 10,000 “teammates.” Until about four years ago, each site was on its own in terms of labor management, mostly tracking workforce performance manually.

In 2008, this 3PL provider recognized the growing need for its customers to focus on more productive labor and to identify opportunities for improvement. It decided to invest in a team that would be responsible for overseeing the implementation of labor management solutions at sites driven to achieve higher levels of workforce efficiency.

“Our process is to go to a facility, do an analysis of that operation, and identify the opportunity to put in an LMS,” says Melinda Laake, the 3PL’s director of labor management. “For some of our smaller facilities, if we find that cost prohibitive, we use other technologies to help us systematically track performance.” On occasion, the team would bring in consultants (such as enVista, a supply chain consulting firm and LMS integrator).

Since its formation, the team has implemented LMS from three leading software providers at 15 different sites around the country. Many of the sites have engineered labor standards in place, some have gone a step further with the implementation of incentive programs.

Aside from tracking labor, sites use the data from the LMS to primarily reduce indirect or nonstandard time. Supervisors run reports on a daily basis, constantly looking for opportunities to reduce and eliminate this nonproductive time. They also export data from the LMS into an Excel format to create budget reports and compare them to where they should be on standard. Any gaps are immediately addressed.

“We’ve also used the LMS to identify potential opportunities for re-slotting,” adds Laake. “If we see that picking has gone above a 75% travel component, then it gives us an opportunity to re-slot that area and reduce travel times.”

Genco facilities across the country have been reaping the benefits of LMS. On average, labor performance at LMS sites has improved 10% to 25%—with incentives, it’s up 20% to 30%. Before, some sites used to bring in additional temps to handle volume fluctuations. Now, many operations are able to keep the same number of associates and equipment to handle upticks.

Laake warns, however, that these systems do not necessarily solve the problems in an operation. “This is a tool to provide the information to solve the problems in the operation—and that’s an important distinction,” she says.

About the Author

Maida Napolitano
Contributing Editor

Maida Napolitano has worked as a Senior Engineer for various consulting companies specializing in supply chain, logistics, and physical distribution since 1990. She’s is the principal author for the following publications: Using Modeling to Solve Warehousing Problems (WERC); Making the Move to Cross Docking (WERC); The Time, Space & Cost Guide to Better Warehouse Design (Distribution Group); and Pick This! A Compendium of Piece-Pick Process Alternatives (WERC). She has worked for clients in the food, health care, retail, chemical, manufacturing and cosmetics industries, primarily in the field of facility layout and planning, simulation, ergonomics, and statistic analysis. She holds BS and MS degrees in Industrial Engineering from the University of the Philippines and the New Jersey Institute of Technology, respectively. She can be reached at .(JavaScript must be enabled to view this email address).

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