Are You Missing a Trick In Reducing Warehousing/Distribution Costs?

The Issues

The warehouse and order fulfilment/distribution processes have traditionally been the poor relation in a retail/e-commerce business. They are usually the department still left holding out the hat at the end of each year’s budget rounds yet logistics directors are under constant pressure to reduce costs in that area. Even though the industry is under more pressure to take in orders later and get them picked earlier they are still expected to produce orders for a lower cost per case/parcel.

Many warehouses are still using traditional shift patterns with employees working 8-hour shifts irrespective of whether there is 8-hours work on hand at any given time. This is simply because that is what they have always done. When business demand peaks overtime levels are high and expensive agency workers are brought in who lack the skills of the permanent workforce. It is often the case that the best ones find full-time jobs elsewhere and the not so good agency workers slow the core workforce down. During quieter periods the workforce have to scratch around for something to do and management are concerned that their most skilled core employees may move on. The requirement to work unexpected overtime at the last minute means the goodwill of the workforce is often stretched to the limit which disrupts their work/life balance resulting in higher than usual casual absenteeism and employees worried in the quiet periods expecting imminent redundancy or short time working.

Warehouse planning managers often pore over complicated “one man knows it all” spreadsheets that create complex shift patterns which can’t be adhered to. They may have already deployed a technology to make the workforce more productive such as scanning or Voice but have now come up against a brick wall in the search for ways of reducing costs further. Do they go for automation and remove some heads from the business and then sweat through a lengthy ROI period of a few years? Or do they just remove some heads anyway and hope everybody else can cope? Does any of this sound familiar?

The fundamental problem is that the hours the workforce actually work do not match the demand of the business, but there is a solution …

Lean Employee Resourcing

We need to take a leaf out of the manufacturers “Lean” book and employ “lean employee resourcing” techniques (Lean ER®) which can deliver significant savings and, at the same time, create a more contented workforce with a decent work/life balance. This can be achieved by “flexing” their working hours to match the requirements of the business.

This doesn't necessarily mean cutting or increasing the number of employees but simply means using their time more effectively – this is the main principle of Lean ER®. Workforce Management systems (WFM) have been around for some time but traditionally they have mostly consisted of time and attendance systems for recording the hours that a worker is present in the DC. Other functionality may include allocating work to people with the relevant skills and reporting on each worker’s efficiency; this is fine if you don’t currently have this additional data but it is not going to save much from your labour overhead. What is required is a working time change project and a specialist company that can guide you through it from start to finish and then supply the tools to make you self-sufficient for the future as far as continuous improvement is concerned. This is particularly important when dealing with a workforce who are suspicious of change and may be a bit sceptical for historical reasons.

If you were to inform your workforce that you were going to pay them more and give them more time off without affecting productivity they would probably think you were crazy. However, there are lots of examples of exactly this being achieved as the result of a working time change (WTC) project.

A WTC project is possibly beyond most businesses’ capability to carry out totally unaided without big internal expense and risk - and why re-invent the wheel? You will need support from an independent specialist third party which has long experience in this type of work. This support should include a deep dive into your business and its processes to establish a typical labour demand for your product on a daily/weekly/monthly/yearly basis, there nearly always is a pattern but there are still solutions for when there isn't.

Communication with the workforce should commence at a very early stage to explain the issues/objectives and to assure employees that their valuable input will be sought along the way. This will help to ensure that there is no knowledge vacuum or job-loss panics and they know exactly what is happening throughout the whole process and what the options will be. The third party specialists can help you facilitate and run working parties of management, workers and union representatives and liaise with them themselves if you’d like to step aside from this process. The working parties will be responsible for analysing and signing off labour demand and the co-creation of new ways of working which meet that demand. The final stage is to change the contracts of the workforce to cover any new working hours that are deemed necessary and being very careful to explain that this does not mean zero-hours contracts!

New shift rosters can be much more flexible if workers are multi-skilled and a training programme can be instigated to enable this. Sophisticated software can then be used to create several shift pattern options that can be agreed via the working parties using their working knowledge of what will work and what won’t. You then agree on a final choice of shift pattern(s) that suits your business for the forthcoming day/week/month/year or more.

Employees can be given a timetable showing when they will be working, when they won’t be working and when they might be working if an unexpected peak in business or unforeseen circumstance occurs which is referred to as Reserve or Bank hours and are a safety valve for when that unexpected problem hits the fan. This gives employees the peace of mind that they can plan ahead for non-working days which improves their work-life balance. There will be no pressure put on them to work overtime or overly long hours as there are unlikely to be any available. It also gives the company some peace of mind that there are planned reserve hours available, if required.

The Results

With shift rosters now matching the work requirement you can be assured that when an employee is at work he/she will have a full shift of work ahead of them but during quiet times there will simply be less employees but still all kept busy. Historically the results are that your workforce is much happier with a better work/life balance. They have more time off than before and in some cases are better paid than before because all the dead time is cut out. They know exactly when they won’t be working and their personal requirements can be factored into their rosters. The employer on the other hand will see a drastic reduction in the requirement for premia overtime payments and agency workers with the reserve hours being the safety valve (potential holiday/overtime legislation not such a worry either). A return on the initial investment is usually obtained in a matter of months and the company will see casual absenteeism drop drastically. There will also be decent savings from a reduction in holiday and absenteeism admin. Some employers may even decide to share the savings made by raising the basic rate of pay and rewarding increased flexibility (and loss of overtime earnings). A win/win situation if ever there was one.

Are you looking for ways to overcome dependency on overtime and ultimately reduce your labour costs, to be more flexible regarding employees’ personal commitments? It is not often that savings can be made which suit everybody but Lean Employee Resourcing® has been shown to deliver on this promise. For more information contact Working Time Solutions  or call +44 (0)161 720 5050 or apply to attend their next Working Time Forum event at The Celtic Manor Resort in March 2015 where you can learn for yourself how Lean ER® can be implemented into your business. Watch us on YouTube.