Managing the Labor Supply Chain part 1 .

"Labor typically ranges between 35 percent and 65 percent of a company's
distribution and other fulfillment costs," notes Peter Schnorbach, vice
president of labor products at RedPrairie Corporation, a supply chain
technology solution provider based in Waukesha , Wisc. "In many operations,
the cost of labor is greater than that of inventory," he says. Yet "very few
companies really have what we would call a 'productivity program.'"
Schnorbach defines a productivity program as one that involves engineered
labor standards, a process, and technological tools for managing them.
West Marine, Inc., a specialty retailer of boating supplies and accessories
headquartered in Watsonville , Calif. , has such a program in place. But it
hasn't always been that way for the company, which sells through catalog,
Internet, and retail channels, with 365 stores in 38 states, Canada and
Puerto Rico .
Several years ago, West Marine recognized that the performance metrics used
in its distribution centers were not a good measure of the work being
performed, reports Joe Turgeon, director of industrial engineering for the
company.
"Historically, our measures had been based on lines per hour,"
Turgeon says. The metrics didn't reflect product characteristics, like
whether the product being picked was a single roll of rope, an inflatable
boat or an anchor. To address the situation, West Marine decided to
implement engineered labor standards and a labor management system ( LMS )
in its two distribution centers.
After evaluating several potential vendors, West Marine selected
RedPrairie's labor management system ( LMS ). Engineered labor standards and
the LMS were implemented in 2003 in West Marine's 460,000 sq. ft.
distribution center in Rock Hill , S.C. The LMS is integrated with West
Marine's highly customized warehouse management system from JDA Software
Group, Inc.
Moving from virtually no standards to engineered labor standards
was a significant change, so West Marine carefully introduced and explained
the standards, system, and impact to associates and supervisors. Initial
meetings with associates introduced the concept of engineered standards as
well as the timeline and process for the change.
There were plenty of questions and some apprehension initially, Turgeon
observes. Getting out on the floor and answering associates' questions
helped alleviate any concerns they might have had, and the change was well
received overall. "People recognized that lines and units per hour are not a
fair measure," he explains.

Implementation and Training
The engineered labor standards were developed by a team from RedPrairie,
which trained West Marine staff so that they could maintain the program on
an ongoing basis.
West Marine took a phased-in approach to implementation, first implementing
the standards with a core group of some 150 permanent associates. In 2004,
the company's temporary associates - another 150 or so that are added during
the peak summer months - were brought into the standards program. Today, "we
require our temporary associates to be at 100 percent after four weeks,"
Turgeon observes.
Associates receive a goal time through the system, and can check their
performance through one of four terminals located on the floor. "A lot of
times they'll check at lunch, breaks, and at the end of the day," Turgeon
says. In addition, reports are posted daily for the previous day's
performance.
Labor standards are regularly reviewed and modified to reflect
changes in methods, processes, and products. Supervisors use the LMS reports
to plan and schedule work more effectively as well as to track individual
associate performance and identify high and low performers. A top performer
is recognized every month, and low performers are observed, coached and
counseled. In addition, Turgeon notes, supervisors meet individually with
each associate twice a year to discuss productivity, ensure that things are
going well and that no process changes have occurred.
With the engineering labor standards well accepted and integrated into the
DC's operations, West Marine is considering implementing an incentive
program in its Rock Hill DC this year. The operation is a complex one to
standardize, as retail, wholesale, catalog, and internet customers are
fulfilled from the same building, often with different processes. "We wanted
to make sure we had a good grasp of the system before implementing a pay for
performance program," Turgeon says.

Return on investment
Moving to engineered labor standards has paid off handsomely for West
Marine, resulting in a 23 percent improvement in order selection
productivity at the Rock Hill DC . The company has received a strong return
on investment and realized payback of less than a year. "We have more tools
in our toolkit now, and are giving our managers and supervisors better
information that they can use to make decisions on planning the day,"
Turgeon explains. He expects similar results when standards and the LMS are
implemented at West Marine's distribution center in Hollister , Calif. ,
this spring.



What's your maturity level?
Not all companies are as far along as West Marine in
implementing standards and an LMS . In fact, Schnorbach explains, most
companies don't have truly engineered standards and measure productivity at
the key volume indicator (KVI) level, measuring variables such as orders
picked per hour.
"Those that do use engineered standards often don't have a good way of
reporting actual performance back to employees or supervisors in real time,"
Schnorbach says. "It's one thing to have the data - if you're not doing
anything with it, you're not doing much."
In a white paper written by Red Prairie (Optimizing the Labor Supply Chain),
Schnorbach describes Red Prairie's labor productivity maturity model, which
has five levels of maturity:
Base level - There's little accountability for any productivity for
operations.
Manual effort - Individual productivity is measured on units
over time, and is based on historical or industry numbers.
System supported - Engineered standards are introduced for some
activities. Measurements are at the key volume indicator (KVI) level.
Resource optimization - Companies use discrete engineered labor
standards for all activities, and track direct and indirect activities at
the task level.
Future state - Engineered standards incorporate real-time
environmental feeds.

Most companies are at the base or manual effort levels, according to
Schnorbach, and can potentially realize significant benefit - as much as 20
to 30 percent - by moving to a higher level of labor productivity maturity.

The foundation of labor management
For greatest results, "work measurement should be the foundation
of labor management," observes Jimmy Benefield, practice leader of
engineered standards and incentives for Kom International, Inc., a global
logistics and supply chain management firm based in Montreal .
"A lot of companies might be able to tell you basically what
their productivity is, but they usually don't know at the employee level,"
Benefield points out. In addition, many companies know what their
performance is compared to reaching a particular goal, such as number of
picks per hour - but that's just a start. "Unless the goal is based on an
engineered labor standards approach, you really aren't maximizing your
performance, you're just meeting your goal," Benefield warns. "Goals or
metrics based on historical benchmarks don't accurately report the
operation's effectiveness in relation to its capabilities." A goal-based
metric tracks "what you've done in the past, while the engineered standard
is based on what your company is able to do," the consultant says.
Engineered labor standards involve defining methods and each element in a
method, taking into account the unique characteristic of each individual
task. An industrial engineer developing a standard might observe a number of
associates picking into a carton, breaking the work down into elements such
as look for box, reach for box, grasp box, etc., and determining the best
methods to use for a particular task.
Engineered labor standards are well suited to consistent, repeatable,
measurable tasks, such as those found in many DCs. Labor management tools
support use and maintenance of engineered labor standards, monitor
performance at an individual, departmental, and facility basis. Because they
enable more effective planning and scheduling based on real-time
information, they can sharply improve resource allocation and reduce labor
costs. They also provide supervisors data that they can use to help
associates improve their performance. "An LMS can give the supervisor
real-time information, as it is occurring," Schnorbach says.
For instance, if an associate's productivity is at 80 as opposed to 100
percent, an LMS like Red Prairie's can send an alert via e-mail or page to a
supervisor, who can then address the situation right away.


Getting started
Implementing an advanced warehouse management system ( WMS ) by itself does
not constitute a labor management program. While the WMS does improve
productivity, it does not have the time and motion information that can be
found in a labor management system ( LMS ) nor can a WMS track such things
as travel distance or machine timing such as how long it takes to drive a
forklift down an aisle, Schnorbach remarks.
"Maximizing productivity is one of the benefits of implementing a WMS , but
the WMS doesn't really focus on labor. A WMS doesn't provide visibility into
how long it took an individual to pick a set of orders versus how long it
should've taken, or how long for one person versus another."
If you already have an advanced warehouse management system in place, "look
at a LMS as Phase 2" of your implementation, Schnorbach suggests. Your WMS
may have a labor management module that you're not using. "If you're not
concerned about an incentive program, you can go ahead and let the program
track labor performance," Benefield says. Without engineered labor
standards in place, however, you won't necessarily have a standard for
comparing performance. "You'll know that employee A does 50 cartons a day,
and can put in a goal that says you want her to do at least that much a day.
The mistake made is that people stop there," he observes.
"If you really want to define the capability of your company, then you have
to define exactly how long something should take, then compare that against
performance," according to Benefield. That requires the use of engineered
labor standards, which are generally developed by an industrial engineer.
Standards are generally set so that an average person with average skill,
performing at an average rate, will be able to perform at 100 percent,
Benefield says. While the standard is what people are generally capable of
performing, it's not unusual to see less than 100 percent performance. "It's
hard to get people to report at 100 percent unless you have an incentive
program in place," the consultant notes.
Also, engineered labor standards can't be put into place and
then forgotten, Schnorbach points out. "A lot of companies put standards
into place and then don't go back and change the standards," which should be
modified whenever conditions change, as when a process or the layout of the
warehouse changes. "A Tier 1 labor management system handles a lot of that
maintenance for you; that's a key benefit of the system," according to
Schnorbach.
About a handful of labor management tools are available today
offering a wide range of capability and functions. When evaluating tools,
Schnorbach suggests considering the following:
. For a standalone LMS , check out the vendor's integration
capabilities - does the tool have a standard interface for your WMS ? How
many times has the vendor interfaced their LMS with your WMS ?
. How well does the system support incentive programs?
. What kind of support does the vendor provide with respect to
development of engineered labor standards?
. Can the system generate exceptions alerts, if these are
important to you?
. Is time and attendance included in the system's functionality?
. What type of reports does the system generate? Can they be
customized by the vendor, or are only canned reports available?
"Labor management systems are turning into workforce performance
management solutions for the distribution center," Schnorbach notes. "If
you're not using a labor management tool and labor is a big part of your
cost, consider purchasing an LMS " and implementing engineered labor
standards. Together, they make a powerful tool that can help you maximize
the use of your people.