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First Thoughts
  By Dan Gilmore

March 24, 2005

Labor Management Systems  
  Life is full of ironies and coincidences, and this week was a powerful reminder of that. As I started to write about one of my favorite topics – logistics labor management – word came that the most influential person in the history of logistics labor management, Gene Gagnon, passed away this week (see News and Views nearby) over complications from pneumonia.

I think it’s actually quite fitting to discuss a topic that was Gene’s life passion – use of standards and reporting systems to drive increased productivity.

Most discussions of labor management systems start with the components of a complete system, but I’d rather start with benefits. To put it simply, labor management systems are a powerful but substantially under-used means within distribution to drive out a significant amount of operating costs, improve predictability and consistency, increase operator retention, and get new workers up to speed more quickly. The payback is generally rapid, the implementation is low risk and requires minimal IT resources, and the actual results come as close to the expected results as much as any type of system that there is.

Sounds pretty good. So why is the penetration of such systems still so low?

Ok, now for the basics. Labor management systems include development of best practice, or so called “preferred methods” for tasks in a distribution center; use of engineered, discrete standards; and a software system that provides labor planning capabilities and the ability to report in detail, performance against standards at multiple levels.

Here’s how it works in practice. You engineer the right way to do a task that is the most productive within the constraints of safety and quality, so that everyone is doing the task the same way. Go to most distribution centers, and look at an operation such as pick-by-label or replenishment, and you’ll in fact find that if there are 30 operators, they are doing the task about 26 individual ways – and maybe none of them the most productive.

Second, develop engineered standards using one of several mechanisms, from time studies to master standards data, to quantify expected performance for particular tasks.

Finally, use a software system that is able to take work (order picks, replenishments, etc.) and calculate how much labor time should be required for someone using the right method, given the standard and other factors, including product characteristics, type of vehicle, location, and associated overhead for the task.

The results can be powerful. I am familiar with a major auto parts distributor, with DCs employing several hundred workers each, that when the labor system was turned on, found they were operating at only 65% of standard in order picking. In just 12 weeks, that number was at 100% of standard – a 35% gain. That’s a heck of a savings.

I spoke once with a VP of logistics for a large apparel-related company. The exchange, all of which took place within about 30 minutes, was typical, and went something like this as the conversation and details were unfolded:
He’d never heard of labor management
Ok, he got it now, but it couldn't do them any good, because they had implemented a new WMS, and seen substantial improvements in order picking productivity
When can someone come down for an evaluation? (after he saw another 15-30% gains may be possible).

Labor management and standards started in the grocery and food service industries, and is in fact well penetrated there. Recently, there has been expansion into other sectors of retail, especially among the largest companies, driven part by the benefits, part by individual evangelists who move into a new company with successful experience in the past. Slowly, we are seeing activity in other sectors, as companies as diverse as Kraft, Briggs & Stratton, Dana and McKesson tout the impressive benefits they’ve received from labor management. 3PLs are also starting to take notice.

We’re out of space here – more to come. But in an era where driving out cost continues to be a strong imperative, and workforce retention and management continues to be a critical issue for most logistics organizations, it seems like a lot more companies should be looking in this direction.

Do you have experience with labor management systems? What has been the result? Why isn’t the penetration of such systems much higher?

Let us know your thoughts.


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