Untapped Labor Productivity:

Transcription

1 WHITE PAPER Untapped Labor Productivity: It s Hiding Everywhere Research shows that the typical warehouse or distribution center operating without a formalized labor management program operates at about percent of normal performance levels. Generally speaking, industrial engineers describe normal performance as meeting the minimal expected performance level for an average worker at an average pace for an average day s work. This means that without rushing workers or using special incentives (and staying within acceptable safety and quality levels) you can improve your labor productivity by percent or more by adopting a comprehensive labor management program. If you are the skeptical type you might be saying, If there was something I could do to get that kind of increase in productivity, I would have done it by now. But that s the problem there is no one magic bullet. Instead, there are areas of potential labor productivity improvements hiding everywhere in your supply chain operations. You just have to dig a little bit to find them, and be willing to question why things are done the way they are. This paper will give you tips on finding and leveraging untapped labor productivity opportunities in your operations. Why now? You may understand the potential benefits of improved labor productivity reduced costs, improved service, improved morale, building on your competitive advantage. The question is: why is it particularly important to look at availing your company of these benefits now?

2 There are two recent trends that are heightening the need for improved labor management. First is the talent shortage. Many companies are struggling with finding and retaining supply chain talent. The many experienced workers reaching retirement age, with Millennials not flocking to the supply chain profession, and with today s more complex supply chain operations requiring greater skills, keeping the good workers you have is of paramount importance. In addition, many companies are seeing increased pressure on wages, which makes hiring even more difficult. Studies show that the perceived fairness and objectivity of labor management systems have helped to improve moral, increase retention, and improve safety. In addition, when coupled with incentive programs, these approaches are very attractive to younger works who seek both the need to contribute and recognition of accomplishments. Those companies that embrace a comprehensive labor management approach and develop a rewarding, high performance culture find themselves being a preferred employer in their market. The second trend is omni-channel fulfillment. The need to shift from simple pallet or case replenishment operations to each-picking for direct-to-consumer shipments significantly impacts labor requirements, skills and training. This most significantly affects retailers and consumer goods companies, but is increasingly impacting other industries and 3PLs either through direct-toconsumer fulfillment or through shipping smaller, more frequent orders to customers. Additionally, many companies are turning to increased use of material handling systems and this trend also puts pressure on managers to find good quality, techsavvy workers. These new pressures on fulfillment operations combined with the talent shortage make it imperative that companies consider improved labor management programs and technologies now. Destroying the Myths Before we examine areas of labor productivity savings, let s tackle some of the persistent myths about labor management programs that have kept some companies from moving forward. Our associates or unions won t like it false. Sure, there will be some initial resistance to change. But associates and unions generally like good labor management programs because they know everyone is being judged fairly and accurately. Morale and retention typically go up after implementation. We were able to reduce our workforce by 20 percent, but actually increase throughput. John Guy Vice President of Supply Chain and Distribution Briggs & Stratton We estimate that s saved us about a million dollars. Labor management software will solve the problem false. Labor management systems are enabling technologies that primarily record performance good or bad. They don t change how workers perform their jobs. That takes good job design, training and coaching. The combination of efficient task design with accurate standards, consistent real-time performance monitoring and effective coaching are what leads to productivity improvement. Our associates already work hard, we can t ask them to work any harder wrong concept. It s not about working harder; it s about working smarter and giving associates the right tools. A comprehensive labor management program that is tied to a continuous improvement program promotes associate input, involvement and teamwork. We don t want our supervisors stuck in the office managing a system Just the opposite. Today s labor management systems are webenabled so supervisors get real-time information on their smartphones or tablets while they are out on the floor. More importantly, they will know exactly where the bottlenecks and performance problems are so they can proactively take immediate corrective action. They become coaches and problem-solvers rather than task masters.

3 There are plenty of other myths, but hopefully you re getting the picture that comprehensive, well-structured labor management programs are multifaceted, fair and well-accepted. So let s take a look at some of the places untapped labor productivity may be hiding in your organization. Doing it Right Unlike most automation systems in the warehouse, labor management systems do not increase productivity themselves. They are tools to help you create a more productive environment. While the mere act of measuring workers has proven to increase performance, the real productivity gains come from getting everyone doing the right tasks the right way. System-directed work from the WMS can accomplish the right tasks part, but getting everyone to do their tasks the right way is more complicated. It requires good job design, development of efficient methods, creating fair and accurate labor standards, and embracing a high performance culture through effective coaching. We were able to reduce our headcount by 10 FTEs, mostly through attrition. That is driving savings of $300,000 per year in this supply chain. Steve Sargunaraj Global Contracts Logistics Process Manager UTi Clearly, job design and the development of methods and standards is not something a system will do for you. Yet it is the essential underpinning of effective labor management programs. The failure to adequately complete these steps is the reason why most DCs operate at only percent of their potential performance. Think of it this way, if you have 100 workers in your DC, you probably have at least 100 different ways to do each job. What are the chances they are all the most efficient? By using experienced industrial engineers to study your jobs, equipment and environment, the single most efficient method for completing each job and task can be determined. The engineers can then establish the appropriate amount of time it should take to complete each task based on predetermined small motion studies (Master Standards Data) or time studies. This critical step of developing preferred methods and engineered standards, along with proper training and change management, has enabled customers to improve labor productivity by as much as 50 percent. LEVERAGING STANDARDS Once you know how long it should take to complete each task based on preferred methods and engineered standards, you can leverage this information in a number of ways to improve labor productivity and utilization. Conversely, it should be obvious that not having first taken the important

4 step to properly set these methods and standards will at best make the following steps less effective, and at worst, could be counter-productive. The following capabilities can be provided by today s advanced labor management systems. Planning and Forecasting Wouldn t it be helpful to know ahead of time how much labor you will need to accomplish your distribution tasks over the next week, month or year? By knowing how long the work should take and your expected order flows, the system can forecast how much and what type of labor you will need for any given period, thus enabling you to plan headcount that avoids overstaffing or expensive overtime. Labor Scheduling Scheduling takes labor planning down to the day or shift level by adding people factors such as work rules and preferences, skills and certifications, labor regulations, and cost factors. It automatically schedules exactly the right number and mix of workers for that day s or shift s workload. Managers can review and adjust the schedule, as well as monitor progress during the day. In today s competitive labor market, oftentimes flexible scheduling is a critical factor in hiring and retaining good workers. Intra-day Adjustments Because managers and supervisors are given real-time views of work progress, they can make adjustments during the day to move workers from less critical areas to higher priority or time-critical tasks that may have fallen behind schedule, thus ensuring the most productive utilization of available resources. It can also alert them ahead of time to the likelihood of not meeting critical goals so additional labor can be called in or overtime assigned. Monitoring Productivity With real-time views of work progress on an individual by individual basis, supervisors are alerted to who may be falling behind so they can evaluate the situation and provide coaching, if necessary. Barriers to productivity such as congested aisles or low batteries can be addressed immediately. Or supervisors might identify improper work methods that can be corrected with on-the-job coaching. Indirect Time A real hidden barrier to productivity can be the amount of time workers spend on indirect tasks such as charging batteries, cleaning work areas, waiting for work to be assigned or available, or repositioning equipment. Also, the time lost to extended breaks, chatting with co-workers, and other unauthorized personal time can rob productivity. Studies by JDA indicate the average worker has 75 minutes per day of indirect time, an area ripe for productivity improvement through monitoring by advanced labor management systems. Incentives Once a labor management program is in place and the workforce is up to 100 percent of goal levels, you can achieve a further boost in productivity by adding incentive programs. Incentives reward above goal performance by sharing cost savings in the form of monetary rewards most often per hour rate increases. Quality and safety gates are usually added to ensure savings from performance increases are not swallowed up by accuracy or accident costs. Leading labor management systems make all of this possible without additional administrative burden. Process Modeling Knowing how long each task should take at a granular level allows you to model new processes to determine their impacton productivity and cost. These processes can cover a wide spectrum of new orders, new layouts, new equipment, new products, improved procedures, or even new facilities. Advanced labor management systems have these what if modeling capabilities built in so you can better understand the true impact of inventory, plant & equipment, and process changes. Pulling it all together So there you have it a whole list of places where productivity gains might be hiding in your operations. And this is by no means a comprehensive list that will vary from company to company. The key is to understand that no one process or system will solve all of your problems or single-handedly maximize productivity. It takes a coordinated program of examining all of the potential areas of productivity improvement to determine which will have the greatest benefit for you operations, and then putting procedures and/or systems in place to accomplish this. A good place to start is to examine your current operations in light of the labor items mentioned above to create a baseline. Depending on your situation, this could be done by simple observation, by mining existing performance data, or in an automated function. For example, you can install a labor management system and turn it on using basic labor standards to get a feel for current productivity levels and where variations and potential problem areas are before implementing the full labor productivity program.

5 You may also want to look at related factors. Are your overall operations as efficient as they could be? Are you able to identify non-productive steps or processes that erode productivity improvements? Could your DC layout better facilitate your current and future operations? Do you have effective employee communication and training programs in place? Do you have industrial engineers trained in developing preferred methods and engineered standards? Who will handle the critical change management process? Are your supervisors and managers trained in how to properly analyze performance metrics and provide effective coaching? These are all important aspects of maximizing the benefits from a labor management program. The Benefits The benefits to be had are very real. A study of labor management system implementations conducted by ARC Advisory Group showed 65 percent of respondents got full payback on their investment within one year, with 100 percent achieving payback within two years. Similarly, Steve Sargunaraj, Global Contracts Logistics Process Manager for logistics service provider UTi, says, We were able to reduce our headcount by 10 FTEs, mostly through attrition. That is driving savings of $300,000 per year in this supply chain. You can achieve these kinds of benefits and more as well. Whether through leveraging existing systems and processes or adding new ones, a consistent and coordinated search for labor productivity wherever it may be hiding in your operations will have significant benefits. These savings are there for the taking. You can achieve these kinds of benefits and more as well. Whether through leveraging existing systems and processes or adding new ones, a consistent and coordinated search for labor productivity wherever it may be hiding in your operations will have significant benefits. These savings are there for the taking. After implementing JDA s Warehouse Labor Management solution in their service parts distribution center, for example, Briggs & Stratton experienced significant savings. We were able to reduce our workforce by 20 percent, but actually increase throughput, says John Guy, Briggs & Stratton Vice President of Supply Chain and Distribution. We estimate that s saved us about a million dollars. jda.com info@jda.com Copyright 2015, JDA Software Group, Inc. All rights reserved. JDA is a Registered Trademark of JDA Software Group, Inc. All other company and product names may be Trademarks, Registered Trademarks or Service Marks of the companies with which they are associated. JDA reserves the right at any time and without notice to change these materials or any of the functions, features or specifications of any of the software described herein. JDA shall have no warranty obligation with respect to these materials or the software described herein, except as approved in JDA s Software License Agreement with an authorized licensee