Put some hustle in your 'house!

Labor management systems can help you maximize productivity in the warehouse or DC.

By Susan Lacefield, Associate Editor -- Logistics Management, 3/1/2006

On the surface, it's hard to imagine a busier place than a warehouse. Just look out on the warehouse floor: Pickers are hustling from one location to the next, forklift trucks are zipping by with pallets, and product is flowing in and out of the doors. Everything seems to be in motion.

But appearances can be deceiving. The truth is that many warehouses operate at 65 percent of their potential productivity levels, according to research conducted by ARC Advisory Group. It's not because warehouse associates are lazy; rather, it's because their productivity is hampered by "lost" time between tasks, insufficient training, and similar inefficiencies.

One way to plug that productivity drain is by implementing a labor management system (LMS). This type of software lets managers evaluate performance against established standards and provide feedback to associates.

Here's how an LMS typically works: When employees log into a terminal or RF device, the system assigns them tasks. The software tracks how long they take to accomplish their assignments and then compares their performance to established standards. The LMS reports performance as a percentage of the standard, which is represented as 100 percent. The software can provide feedback to employees on a real-time, mid-shift, post-shift, weekly, or monthly basis.

Some labor management systems do much more than simply measure performance. They also determine how many associates will be required for a particular task or whether they will need to be redeployed to other areas of the warehouse during a shift. Others can simulate how changes to slotting, work processes, and warehouse layout will affect labor requirements.

Still, performance measurement and reporting is at the heart of any labor management system. "That data becomes the core of everything," says Peter Schnorbach of solution provider RedPrairie. "Companies tend to start with that and build out from there."

There's a lot more to a successful and effective LMS implementation than simply plugging in the software. Shippers need to think of their productivity program as a three-legged stool, suggests Charles Zosel, vice president of TZA Consulting. The technology itself is only one leg of the stool; the other two are engineering and management execution (change management). Fail to pay attention to all three legs, he says, and the program will collapse. A closer look at the three program components shows why each is important.

1) Engineering: Any LMS implementation must begin with industrial engineering. "[A labor management system] revolves around defining best practices—defining and documenting the right way to do a task," says Schnorbach.

Engineers create standards for these practices using one of three methods: historical averages, time and motion studies, and "master standard data." Of these, historical averages are the least effective because they only indicate whether performance has improved over time, not whether associates are performing to the best of their abilities.

Time and motion studies involve engineers following associates and timing them with a stopwatch as they perform tasks. Master standard data, based on years of industrial engineering studies, represent industry-standard times for certain "micro motions," such as reaching, grabbing, and bending. Under this method, industrial engineers observe associates at work so they can break down tasks into component motions. They then use the master values to calculate how long it should take to perform each task.

Some experts suggest a hybrid approach that starts with master standard data and then uses time and motion studies to validate them. "The hybrid approach takes more time, but the answer is just bulletproof," says Zosel. "And there are benefits to using the different methods. With the time study, you see a lot of what goes on out on the floor. With the micro motion study, because you are going into such detail, it forces you to continually evaluate your processes."

2) Technology: To achieve significant results, shippers need the right technology to support the best practices and standards discussed above.

The lion's share of the LMS market currently is held by three warehouse management system (WMS) providers: RedPrairie, Manhattan Associates, and SSA Global. The relationship is a logical one, as an LMS must be able to integrate well with the user's WMS. There are also a few specialty LMS providers; TZA, for example, has its own solution, known as ProTrack. (For a list of the largest providers of labor management systems, see the sidebar on Page 59.)

3) Management execution: This final piece encompasses gaining supervisor and employee buy-in, providing effective feedback, and managing incentives. These are crucial because productivity programs inevitably are met with nervousness and skepticism, at least in the beginning. Managers can help by being sensitive to employees' concerns. "You have to realize that essentially you are changing the way people are evaluated, changing the way they are potentially paid, and changing the mechanism that they have for getting feedback," explains Mike Gregory, a logistics specialist at consulting firm Kurt Salmon Associates.

Here are some steps managers can take to overcome employees' skepticism:

• Educate associates. Help them understand that the company is setting minimum standards and not "stretch" goals. "You've really got to let folks know that these standards are based on the average person moving at average speed," says ARC Service Director, Supply Chain Management Steve Banker. "You're not asking people to be heroes."
• Take an open-book approach. Allow associates to see how standards are being developed, and encourage them to ask questions. Establish a mechanism for them to report standards they believe are unfair, recommends Zosel.
• Train associates in best practices. Employees should know the best way to move inventory, pick orders, and put away product in the least amount of time. Kurt Salmon Associates recommends having supervisors out on the floor for the first two weeks, coaching associates on how they can work closer to established standards.
• Take it slowly. Teach associates to work at standard before holding them accountable. "You might start by just measuring what people are doing and reporting it without actually tying any kind of performance evaluation to it," says Paul Maurer, senior director of product management for Manhattan Associates. "Just show people, this is what we're doing and this is our standard. And then ask them, 'Do you think that's fair?' "
  Many companies introduce standards in one department or functional area at a time. Typically they either start in receiving or with their largest labor pool (for most distribution centers, this will be order picking).
• Implement an incentive or reward system. An incentive system that pays associates based on how close to the standards they are working or rewards them with a bonus for exceeding the standards can improve productivity. "In our opinion, if you get to the point where you've got engineered standards and you're tying either bonuses or pay rate to performance, we would consider that world-class," says Maurer. To discourage associates from working unsafely, though, it's important to include a cap on performance-based compensation.

Following all the steps needed to ensure that a labor management system is effective and embraced by all employees can stretch the implementation process out to seven months, but it also increases the likelihood of achieving a return on that investment within a year, say experts. Figures vary, but many industry experts agree with AMR Research analyst Greg Aimi's estimate that a typical LMS can increase warehouse productivity by up to 20 percent.

One of the biggest productivity boosts from an LMS is a reduction in "lost" time; that is, the amount of time employees are not working directly on a specific task. "It's not that people aren't doing jobs properly, and it's not that people aren't working hard. It's that there's a lot of time in between things that tends to get lost," explains RedPrairie's Schnorbach. "We found that 75 minutes of every day on average is lost time. If we can capture back that lost time, we can improve productivity significantly."

It comes as no surprise that as warehouse productivity rises, fewer employers are needed. That prospect can be worrisome for associates. However, because the attrition rate in warehouses and distribution centers tends to be high, many LMS users have found that they can reduce staffing levels without having to resort to layoffs, says Zosel.

Despite the fact that labor management systems often result in staff cuts, morale among the remaining employees usually improves. The standards provide an impartial mechanism for evaluating performance and clearly establish for both the associate and the supervisor what level of performance is satisfactory. Furthermore, the standards are dynamic and specific to the actual tasks that the associate is performing. Thus, they are no longer judged by such general performance indicators as lines or cases picked per hour. "[Associates] know they are being fairly measured, and they know there's no way that their buddy is looked upon any better just because he gets better orders or easier jobs," explains Manhattan's Maurer.

Add an incentive program and morale and productivity may improve even more — sometimes by as much as 55 percent. "Now you have the opportunity to share with associates some of the benefits of the program," says Gregory. "And what you get is not just the value of improved efficiency and effectiveness but also the value of improving your culture and [employee] retention."

To be sure, an LMS is not suitable for all warehouses. For example, it might not make sense for a small facility or a highly automated operation, says ARC's Banker. For many shippers, though, it can be a logical next step in the quest to cut costs and spur productivity.

"I think companies have maxed out to a large extent the benefits they can get from focusing on inventory," says Schnorbach. "So now they're looking for the next major area for cost savings, and labor is that area."