Supply Chain and Logistics Technology: LMS and the untapped potential

For most logistics management professionals, managing and maintaining a labor force ranks as one of the biggest costs of doing business.

Measured in terms of base salaries, employee benefits, and taxes, these costs can absorb a huge portion of any company’s budget. Add the potential for payroll errors, compliance issues, and non-productive man-hours to the equation, and it’s easy to see how mismanaged labor processes inside a warehouse or distribution center (DC) can negatively affect the bottom line.

That’s where labor management systems (LMS) come into the picture. Defined by research giant Gartner as a system that provides labor productivity, reporting, and planning capabilities, an LMS can analyze workforce requirements based on a certain amount of work to be performed and a standard unit of time to carry out each element of that work.

However, this valuable software tool and the subsequent labor standards that help make it work are barely visible when you roll up the entire logistics and supply chain management landscape. According to Logistics Management’s recent Technology Usage Study, only 8.3 percent of logistics professionals are currently using an LMS—down from 8.4 percent the prior year. And according to Gartner, that sliver of the market that’s actually putting it work are far from realizing the software’s full potential.

Over the next few pages we’ll explore how those shippers who are using LMS are streamlining and automating their labor management processes, we’ll share the benefits as well as the new developments on the horizon, and then learn from an industrial manufacturer that’s putting the software to work to track attendance, monitor time-off accruals, and better manage its 1,700-person employee base across multiple DC sites.

Assessing software priorities
According to Gartner’s most recent Supply Chain Management User Wants and Needs Study, logistics operations are not maximizing the functionalities of their labor management systems—nor are they coming close to realizing the full benefits.

For example, when asked how well their organizations use labor management systems, 21 percent said such solutions were underutilized, 29 percent said they were moderately utilized, and only 17 percent said they believe that they are fully utilizing LMS. Asked to rate the overall performance of their labor management systems within the context of the overall supply chain, a full 30 percent of respondents told Gartner that such performance was “poor” or “very poor.”

According to Dwight Klappich, research vice president for Gartner, the firm also asked logistics professionals about their supply chain technology investment priorities. “In terms of labor management, about 19 percent of companies are going to invest less and about 20 percent say that they would be investing more,” Klappich explains. “That’s an interesting dichotomy, knowing that for some organizations an investment in LMS would be a great idea.”

Klappich points to warehouse or DC size as one of the main dividing lines between companies that invest in LMS versus those that stick to manual and spreadsheet-based labor management processes. “If you have 20 people to 50 people working in a warehouse or DC, then the time, effort, and cost needed to implement and maintain an advanced LMS is probably not justified,” he says.

Norm Saenz, managing director at supply chain engineering and logistics consulting firm St. Onge Company, says that more logistics managers are evaluating LMS in an effort to stem rising labor costs and better maximize their existing labor investments.

“It’s not something that’s overly invested in at this point,” says Saenz. “However, LMS is on the radar for firms that might be stuck with their legacy systems and seeking productivity gains. We see LMS as a viable option for logistics managers who want to get their arms around their processes and labor standards while building efficiencies.”

For all that LMS has to offer, Saenz points out that these solutions can’t just be “thrown into a warehouse” in hopes that they will produce gains. For the best results, he says shippers must take the time to establish their own best practices, develop optimal processes, establish labor rates, and define the jobs themselves.

“A lot of that homework and effort has to take place before you actually invest in the system,” Saenz cautions. “The good news is that going through that process forces you to establish solid methods, improvements, and procedures for your facility. Once you’re done, you’ll have some established standards to work with.”

On the LMS horizon
Within the LMS market, Klappich says that he’s seeing a growing interest in the use of technology for labor resource planning, or the allocation of labor in advance—versus just reporting on labor productivity after the fact.

“European companies, in particular, are interested in labor resource planning,” says Klappich, “and using engineering standards to predict—based on projected work volume—how much time certain projects should take and how much labor to allocate to the receiving area the following morning.”

Logistics managers have traditionally handled such activities on an ad-hoc basis, says Klappich, and have tended to “fly by the seat of their pants” when it comes to planning out labor needs.

Klappich says software that supports labor resource planning is also being used to manage longer timelines. A retailer anticipating a back-to-school rush in four months, for example, can use forward-looking labor planning strategies to hire and train additional workers ahead of time—rather than waiting until the last minute to address the rush when it hits.

“We’re definitely seeing more interest in this type of labor planning,” says Klappich, who adds that the majority of logistics managers are focused on labor management within the four walls of their own warehouses and DCs. Some include yard labor management in the equation, he adds, but for the most part the broader logistics workforce isn’t included under the LMS umbrella.

If vendors like Kronos have their way, Klappich says LMS will, at some point, extend outside of the four walls of the warehouse or DC. “Some of the workforce management vendors are trying to go after the bigger picture, which includes transportation workers,” says Klappich. “Even so, 98 percent of the labor workforce management that’s happening today applies to individuals who are driving lift trucks or walking around the warehouse.”

Looking ahead, Klappich sees labor management transitioning from being focused primarily on performance reporting to more forward looking analytics and planning. He says both Manhattan and SAP are developing new labor planning tools within the logistics space, and adds that Ehrhardt + Partner is making inroads on the equipment planning side within the European market.

“Over the next three to five years, we’re going to see less emphasis on labor reporting and more on planning and utilization,” adds Klappich.