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Distribution operations that implement a workforce performance management programme can achieve labour cost reductions of 10 to 20 per cent.
Our people are our most important asset. A statement professed by many a manageryet a statement not always supported by the facts. Its true that companies make significant investments in staff, but these investments are often limited to: wages, benefits and minimal levels of training. It is less common for companies to invest in tools or programmes with a specific aim to increase staff productivity and improve staff retention.
In distribution, there has been considerable investment in the supply chain with sights on improving customer service and reducing costs. Generally, these investments have focused on inventorystriving to reduce holding costs and to improve the flow of goods. However, there is another key element in distribution that is often neglectedlabours impact on supply chain effectiveness.
Costs are increasing
Labour costs typically account for 50 to 65 per cent of a distribution operations variable costs. Additionally, due to increased distribution complexity, labour costs have been rising as a percentage of total operational costs making this opportunity even greater. In fact, according to Greg Aimi and Mark Atwood of AMR Research, Operations including value-added services, late-stage assembly, high-volume item-level picking, or other labour-intensive capabilities are increasing headcount requirements and driving up costs.1 This represents a huge opportunity for improvement that is being passed up by many companies.
Does this imply that companies are not trying to improve in this area? No. In fact it would be rare to find an organisation that is not trying to improve its cost position in all areas including its labour bill. However, a common approach is to use the budgeting process to mandate improvements. For example, each year the wage budget may call for an improvement of a few percentage points and it is up to front-line management to find a way to meet this goal. No specific tools are provided to achieve these improvements. These incremental gains generally prove attainable by competent managers but a more significant step improvement is being missed that is achievable with a formal productivity programme.
Checks and balances
A limiting factor in a managers ability to make gains in labour productivity is the measures that are used in distribution operations. The most common measures are operation-wide throughput metrics such as units per hour or cost per unit shipped. These types of measures can provide a good indication as to whether improvements are being made, but they neither provide insight as to where further improvement opportunities lie, nor do they provide reliable information as to how individual staff members are performing. This limits the front line mangers ability to recognise and reward strong performance, a key to improving motivation and productivity.
So what can managers do to drive labour productivity increases in their operations? There are four key components to an effective workforce performance management (WPM) programme:
Fair and attainable employee expectations
Real-time resource planning and reporting software
Thorough training and coaching practices.
Best practices are commonly used by companies to define operational procedures that will improve productivity and quality. These best practices generally focus on what needs to be done at a departmental level to perform a job function properly. Preferred methods are different from best practices. Preferred methods focus on how the job should be performed by individual employees. This how to preferred method supports the best practices, but also provides an instructive tool for managers to coach individual employees to perform their role most efficiently by eliminating wasted effort and thus enabling employees to work smarter rather than harder.
Preferred methods are the foundation of the second key element of a WPM programmefair and attainable employee expectations. As the preferred method prescribes the steps required for individuals to perform their work, it also forms the basis for applying time expectations to these steps.
For these performance expectations to be accepted by the workforce, they must be fair. A fair expectation will include the detailed work content of the job as well as the variability of the job. As conditions and work content change, so should the expectations. For example, if one employee is tasked with picking an order of 200 units with 150 line items and another is tasked with picking an order of 200 units with 25 line items, the expectations for these two orders should be quite different due to the large difference in the number of line items. However, since most operations measure productivity on a units per hour basis, these two orders would end up with the same expectation. This becomes demoralising to the worker that is assigned the 150 line order and leads to cherry picking of work assignments.
Expectations that take into account the detailed work content such as travel distance, product characteristics and facility layout prove to be much more effective at motivating the workforce. Additionally, as order profiles and work make up changes day-to-day and season-to-season, the expectations become self adjusting, ensuring that they will continue to be accurate and fair to the workforce.
Solving the administrative problem
One reason that many distribution operations do not have a formalised WPM programme is the difficulty in administering such programmes. Whilst most execution systems contain data that would be useful for measuring output of individuals, most do not have a mechanism for converting this information into relevant management information. Instead, to produce even rudimentary units per hour reporting information, time and effort is needed to create the reports. Further, as the information is not available on a timely basis, it becomes less relevant for managing the workforce.
A solution to this administrative difficulty is a robust WPM software tool. To run an effective WPM programme, managers need such a tool that provides resource planning and productivity information on a real-time basis. This information can then be used to proactively manage the operation as well as individual productivity. As the information is real-time, potential problem areas can be addressed before they adversely affect the operation and service level goals. Having advanced planning information ensures that the operation is properly staffed for the workload and that individual operators are proactively allocated to the right areas of the operation.
Arguably the most important part of an effective workforce performance management programme is training and coaching. The other three aspects of the programme are critical to its success, however without proper training and coaching of the workforce, the benefits gained from the programme will not be maximised. The aforementioned preferred method becomes the primary training tool for new staff as well as existing staff. For new staff it ensures that the employee performs the job correctly from the start. For existing staff it provides a method for identifying why a particular employee is not meeting the expectation.
Distribution operations that implement a WPM programme using these four components typically achieve labour cost reductions of 10 to 20 per cent. This is a significant opportunity considering the large labour bills that companies face. Further, as companies grow and the ability to attract and retain staff becomes more difficult, having a WPM programme can provide a competitive advantage enabling companies to recognise and reward strong performance.
Using warehouse labour planning and management software, companies can expect to increase workforce productivity up to 20 per cent, leading to lower labour-related costs, higher staff retention, and increased order fulfilment.2
1,2 Greg Aimi and Mark Atwood, Looking Ahead in Distribution Labor Management, AMR Research, August 2005.
David Mott is consulting director for RedPrairie EMEA. The organisation provides industry-tailored solutions for diverse markets, including consumer goods, direct to consumer and traditional retail, food and beverage, high tech/electronics, third party logistics, industrial/wholesale, automotive and service parts, and pharmaceuticals.