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Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

March 19, 2014



Labor Savings - No Longer Primary Justification Factor

Does the Trend Towards a more Employee-Centric Approach Impact on DC System ROI?


Holste Says:

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While adopting an employee-centric approach is a good thing; still, the effort to protect a few may inadvertently put a lot of risk on the many.
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Previous Columns by Cliff Holste

Sorting It Out : Laser & Camera Based Scanning Solutions

Sorting It Out : The Challenge of Incorporating a Business Within a Business

Sorting it Out: Training & Discipline Are Key to a Smooth Running Operation

Sorting It Out: When Looking For A New DC Shippers Must First Develop a Requirements Document

Sorting It Out : Two Factors Drive Decision to Automate – Cost & Justification

More

Just got back from two very busy days at MODEX 2014 in Atlanta (www.modexshow.com ) where equipment and system providers are exhibiting the latest in material handling technologies. We produced two videos (MODEX 2014 Day 1) (MODEX 2014 Day 2) live from the show floor and will have more information to share in future articles.


As a quick observation we noticed that as in past shows most providers are touting labor saving benefits of their solutions, especially those that include some degree of automation. However, the trend among shippers appears to be more focused on benefits such as increased operational flexibility and agility, faster response times, and the ability to provide more efficient value added services. To some degree this refocus is reflective of shippers adapting to the new demand economy where the pace of consumer change (driven mostly by internet sales) is growing at an unprecedented rate.

While it’s true that labor optimization will continue to be high on the list of desired benefits, most companies have already squeezed labor to minimum levels. As a result - according to the US Bureau of Labor Statistics, US productivity has increased from 96.087 in Jan/08 to 107.288 in Jan/14. That’s about a 12% gain over the six year period. As the US economy slowly recovers, it appears that companies are now projecting ROI based on future labor avoidance, not immediate reductions.

At MODEX 2014 we found a good example of this approach at the Voxware booth (www.voxware.com) where Hollywood Feed, a small rapidly growing provider of natural and holistic pet food, found that with Voxware’s cloud-based solution it can be much easier and faster to add resources for the next five stores versus having to adjust the company and its growth rate. According to Voxware’s CEO, Keith Phillips, their cloud-based solution enabled Hollywood Feed to expand their retail footprint by 50% annually and increase productivity by 33% over their old paper-based picking system while delivering ROI in less than 60 days.

 

Is an Employee-Centric Approach a good thing or not so much?

Information extracted from recent industry surveys and interviews indicates that in an increasing number of top-tier companies, before an improvement project can be approved for purchase, the HR department must approve new labor standards for workers in the affected operations and, more importantly, find positions elsewhere in the company for every fulltime position that would be eliminated. While from a practical standpoint good dependable workers are a valuable resource for a company, especially a rapidly growing one, this developing trend may be (at least to some extent) a response to political and social pressures. In either case it gives rise to a number of interesting questions:

1.

 How many companies look at layoffs resulting from improvement projects in a similar way?

   
2.

 If you just move the people around, do you really get the ROI?

   
3.

 If growth is slow or stagnant – do you wind-up passing on many potentially good projects that would, in the end, require layoffs to generate the projected ROI?

   
4.

 And, perhaps the most important question: can avoiding improvements in some departments that may mean a reduction in headcount eventually lead to a situation where the entire DC operation is no longer competitive?


While adopting an employee-centric approach is a good thing; still, the effort to protect a few may inadvertently put a lot of risk on the many. Perhaps, a better approach is to take full advantage of innovative technologies introduced over just the past few years that enable employees to safely and accurately speed through tasks, lowering operating costs without incurring layoffs.


Final Thoughts

It will be interesting to see how this plays out. Perhaps, going forward equipment and system providers need to pitch their solutions more on operational benefits gained from greater flexibility, adaptability, and agility, while at the same time avoiding incremental labor increases.



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