Labour isn't working?

Managing the labour requirements for a busy distribution centre is a tough call. Understanding the complex matrix of costs, performance, labour resources and human aspects of the equation could give you a serious headache. But is there an easier way? Steve Smith, Senior Vice President EMEA, Manhattan Associates, discusses the options.

Most distribution centres rely on highly labour intensive operations, often involving multiple shifts and large numbers of people. Labour costs can account for 50 per cent of the operating expenses of a distribution centre and yet, in many cases, attention to the detail of efficiently managing this valuable resource is often overlooked - shrouded by the complexity of applying the right balance of staff with the necessary skills, to the operational requirements and objectives of the day.

Finding the right people, motivating them, training them and then retaining them are all important aspects of labour management. However, attaining the highest levels of operational efficiency at the lowest cost also requires a sophisticated balance of introducing 'lean' methodology into the work place; to remove waste from processes; understanding the nature of each operation in a quantitative way so that standards can be adopted; against which appropriate labour resources can be applied; and critically, gaining visibility of future labour requirements through accurate forecasting.

Many of the challenges in labour management are common across most geographies. One particular problem widely experienced is in attracting new staff.  It is going to be increasingly difficult for companies to recruit the younger employee. For those not having a college education, there are many more choices of career than there used to be, such as home care, customer support and services jobs that don't require a lot of training. There are constraints with regards to the older generation's willingness to embrace new technology, something that is less of an issue with the more tech savvy younger employees. Understanding the unique needs of a multi-generational workforce will enable companies to develop labour programmes that will allow them to attract and retain people more easily.

Money is a big driver. Developing an incentive programme is a critical factor in pushing productivity. One way to attract people and retain them is to incentivise them. For example, pay them a competitive wage, but give them 20 per cent more if they are highly productive. Programmes that reward staff for increased productivity are popular and drive efficiency within the warehouse, but in addition, well rewarded people are less inclined to leave.

The skill sets needed to perform a wide variety of tasks, from quality checking, put away and order-picking, to packing, labelling and despatch require appropriate levels of training in order to ensure that operations are performed correctly and efficiently. Training people is time consuming and expensive, so retaining trained staff is important.

One of the most significant aspects of establishing a 'best in class' warehousing operation is to ensure that 'best practice' methodology is followed for each process and then replicate it across the entire site. To create a process that is consistently deployed throughout the operation, companies need to train people to perform that process in the most efficient way; establish goals based on engineering standards for how much time it is going to take them to perform each process, measure how people are doing against those goals and then provide feedback. It becomes a continuous improvement loop - if people receive feedback they continuously become better at performing those processes.

However, collecting this information in a timely and accurate manner is difficult without some form of technology.  Many companies are deploying labour management systems that interface with their warehouse management systems. By capturing this information organisations are able to understand what each individual worker is doing and are able to apply a standard to that work to measure the productivity of the individual. By applying technology in this way, an incentivisation programme can be put in place that accurately rewards individuals for the work they do.

It creates a very fair and objective base line for measuring how employees are doing. Once that base line is established, employers can start incentivising their staff. If an individual works at 105 per cent productivity, they will receive 'X' dollars more an hour. By having a well understood, clearly defined set of goals, based on a very clear set of standards, incentive programmes that deliver performance related rewards can be put into place. Systems can be implemented to calculate performance and work out what the incentive payment should be, based on that performance.

When assessing and measuring each task it is important to ensure that all considerations related to that task are taken into account, even very granular level information. For example, picking becomes more concise and will take into account not just what goods need to be picked but at which location and with which piece of material handling equipment. The employee will know the travel distance as well as the physical exertion required because of characteristics in the inventory, they will know whether to drive a forklift or whether to walk. The warehouse staff will know all the parameters. Each activity has its own very unique set of characteristics, and by measuring each of those, organisations can come up with a very accurate estimate of how long it should take to perform a particular task.

Most workers in a warehouse who are not being measured are working at approximately 65 per cent productivity. There is a lot of built in waste. It's not that someone isn't doing their job properly, there is a lot of wasted time transitioning from one task to another, getting from "clock-in" to the first activity, how much extra time is taken on breaks and lunches most people seem to take extra time. If someone takes five minutes extra for lunch it doesn't seem like not a big deal but if there is a warehouse of 100 people, multiply that five minutes by 100, and times the total by hundreds of days a year, and it starts to translate into hundreds of thousands of dollars.

So, how do organisations get people to change their behaviour, to perform more efficiently? It's a combination of training and change management. It's a matter of making sure that people understand what the process is and that appropriate discipline and reward programmes are in place. Also, if someone is not doing their job well, they need to know that. People want to know how they are doing, even if they're not doing very well, and if an employee doesn't know, they can't improve.
One of the greatest potential areas for removing waste is around scheduling aligning a labour resource, and the hours that the resource is required, to the volume of work at any given time. In a warehousing operation this can be difficult. Getting it wrong can be expensive, either there may be too great a resource available, or there may be too few trained staff to hand, resulting in overtime payments or costly temporary labour bills.

Most problems on scheduling are due to a lack of visibility into the future demand for labour resources. Implementing a tool for labour forecasts based on taking historical throughput information and turning that into a forward looking forecast can alleviate these issues. The following variables can be taken into account by deploying such labour management systems: What is the increase or decrease in the expected volume? What are the temporary labour and or overtime rates? What is the expected performance level?

Through attaining clearer visibility, management has greater flexibility in the way it can plan shifts. By being able to see what the demand for the workforce is two weeks ahead of time, management can offer more flexible options to people, allowing them to accommodate both staff and operational needs. This is very much in the infancy in the distribution centre, but it's a step that needs to be taken to get to a much more flexible workforce.

Managing labour resources in the warehouse is a highly complex task requiring a sophisticated set of tools to create a cost-effective, productive and happy work force. According to Gartner' using warehouse labour planning and management software, companies can expect to increase workforce productivity by up to 20 per cent, leading to lower labour related costs, higher staff retention and increased order fulfilment.

* Gartner Research paper: 'Improve Workforce Performance in the Warehouse with WFM', 22nd September 2010