One of the hottest debates today in the supply chain industry is whether it’s better to use a labor tracking or labor management system (LMS). There are benefits and drawbacks to both, of course, and you should consider both options carefully to determine which is a better fit for your business.
Limitations of labor tracking
If you have a warehouse management system (WMS), you may already have access to basic labor tracking functions that will help you evaluate performance. Basic labor tracking functionality can help you analyze general trends in performance for an employee or department at a high level. However, it won’t give you the functionality you need to establish accurate standards and the ability to achieve your true performance capability.
Labor tracking typically involves pulling data from a WMS and placing it into spreadsheets for performance tracking purposes. Sometimes, this is enough to get the job done, but this method does not offer the level of accuracy needed to truly understand your performance. It also fails to provide the analytics needed to identify additional performance gaps in the operation. Another issue to consider is that up to 50 percent of labor hours can go unreported when using spreadsheets to track labor.
Companies using basic labor tracking often find themselves also struggling with:
– Capturing non-scanned activities
– Data that isn’t updated in real time
– Not having a formal process for improving performance
– A one-determinant performance standard, which doesn’t account for differences in order mix, resulting in unfair performance expectations
– A system that doesn’t effectively support incentive pay
Unlike traditional labor tracking, a labor management system includes the ability to calculate engineered labor standards (ELS) and manage the execution of those standards which results in optimal performance for the operation. A LMS provides real-time analysis and reporting, making it easier for managers to evaluate and address labor availability issues, down-time and coaching needs. It also delivers real-time data that allows managers to make on-floor adjustments within minutes—rather than the hours or days it typically takes to create and access a spreadsheet.
Trends in labor management
In recent years, companies have increasingly made the move from labor tracking to more robust labor management systems in order to significantly improve their cost per unit. The ability to manage teams in real-time, results in higher levels of performance, reduced overtime, and increased retention. Furthermore, using a cloud-based system decreases the cost and complexity of implementation and puts labor management systems in reach of more organizations.
In a recent Logistics Management interview, Dwight Klappich, research vice president at Gartner, explained the trend towards labor management systems in this way, “Where in the past, a company needed 200+ employees or ‘users’ to justify the time, effort, and cost of buying an LMS, these systems are now capturing information and applying that logic in new ways. That’s making LMS more applicable for a wider range of users.”
Many companies are also using labor management systems to help them make better employee allocation decisions during high and low seasons and across multiple facilities. In Modern Materials Handling, Klappich elaborated further on the trend. “Companies want to see labor performance and metrics across facilities and compare and contrast the information (for example, to determine why one facility is outperforming another), whereas in the past each warehouse was usually managed independently,” Klappich said.
How one company improved productivity and reduced labor costs with a LMS
Four Seasons, a division of Standard Motor Products, is the largest aftermarket mobile climate control parts supplier in the automotive industry. Their distribution center in Lewisville, Texas processes 9,000 orders/week, which includes 90,000 lines and 350,000 units/week. This is a double digit improvement over previous performance levels. The company has used TZA’s ProTrack labor management system since 2002.
“One of the benefits about having ProTrack is that everyone feels they’re on the same playing field, everyone’s being measured the same,” explained shipping supervisor Jerry Leal. “We can monitor in real time. This way, if we have an associate who is doing well, no redirection is needed. But, if an associate is behind, we can see where, capture that time in real time, and see where real adjustments have to be made.”
Fair and accurate expectations
ProTrack has also helped Four Seasons use engineering standards to measure performance accurately, giving employees a fair expectation, and ultimately setting the stage for better results. “Now our employees know what is expected of them,” said distribution director Mauricio Ortiz Segura. “They know that the standard is fair and attainable.”
Continuous productivity improvements and cost savings
Overall, the move to a labor management system has been a positive one for the company. In the past ten years, Four Season’s productivity has increased between 25 to 30 percent, saving the company between $2 and 2.5 million in labor costs annually.
As the size of its distribution centers continues to increase, Four Seasons can’t see operating without a labor management system in place. According to Segura, “When you have a warehouse of half a million to a million square feet, the only way to measure performance is with a labor management system that uses engineering standards. Without that, you really don’t know how your people are doing.”
Why moving to a labor management system makes sense
Ultimately, the foundation of a good performance management program is real-time productivity information and accurate performance expectations. Both are typically lacking in a labor tracking environment. By comparison, a company using a true labor management system has access to real-time reporting, the ability to build accurate multi-determinant standards, and more importantly, the management tools necessary to operate a high-performance operation. Typically, a performance improvement of 12 to 20 percent is achievable with a labor management system.
Want to learn more?
Watch the ProTrack Productivity Profile: Four Seasons video case study to learn more about how they’ve used the ProTrack labor management system to improve performance.