There was a time when labor management systems were primarily used to monitor the performance and the cost of labor, and larger organizations tended to be the ones deploying them. Today, an LMS is becoming as necessary as a Warehouse Management System (WMS). According to Evan Danner, CEO at TZA, “When you have as much as 60% of your operating cost tied to labor, you really need to invest in a solution to help you optimize performance and stay competitive.”
Today’s LMSs are being used to combat the top issues causing high employee turnover rates in distribution centers, including non-competitive wages, too much overtime, and poor management communication. Here’s how…
Creating Competitive Wages
When it comes to increasing wages, most companies with a wage problem can’t just increase their wages significantly. If they could do that, they probably would have already done it. These companies need a self-funding incentive program that encourages associates to operate above the minimum expected performance level.
Building a successful incentive program requires a few things:
#1 Standard Operating Procedures (SOPs)
You have to have fair expectations in place. If your standards aren’t right, you’ll never get an incentive program off the ground. Your associates must believe that your standards were properly developed and that they are attainable. To do this, you must establish an SOP for each of the direct activities in your building. SOPs ensure that there’s one way to do a task and that everybody does that task in the same way.
#2 Engineered Labor Standards
Once you have your SOPs in place, you need multi-determinant engineered labor standards to support a program that is fair to both the employee and the company. Multi-determinant standards use more than one variable to calculate a performance expectation and automatically adjust as work content changes. For example, a standard for picking may use the following:
- Number of lines
- Number of cases
- Number of eaches/inner packs
- Total cube
- Total weight
- Dynamic travel calculation based on specific pick location
#3 A Labor Management System
With SOPs in place and engineered labor standards built, you need an LMS to accurately calculate your standards and report on each individuals’ achievements. However, today’s LMS’s are much more than calculation engines. Tier 1 LMS’s also provide managers with the tools they need to better plan and adjust their day, help associates increase their performance, and analyze operational gaps.
A lot of people try to do incentive systems without an LMS or engineered labor standards. This often results in standards that are way below the minimum expectancy level, which isn’t ideal. Associates wind up significantly beating the expected performance level, and organizations are left paying much more than the work is really worth.
But…if you deploy the right combination of SOPs, engineered labor standards, and an LMS, your employees will earn more and you’ll be able to compensate for that wage increase with an overall reduction in labor cost. It’s really a win-win situation.
In an environment that has constant fluctuating demands, labor planning is the backbone of an effective operation. For many companies, inefficient labor planning and a lack of visibility into real-time progress is the main cause of excessive overtime. Manual scheduling with spreadsheets does not allow organizations to accurately model and plan labor.
An LMS delivers the functionality you need to correctly calculate the number of associates needed in a given period to meet your specific volume. Additionally, more sophisticated LMSs can automatically schedule specific individuals based on their skills, performance level within the area, seniority, and/or home department, which will assure your plan is not only cost efficient, but executable. Proper labor planning and the ability to make real-time adjustments to labor assignments throughout the day can reduce overtime by as much as 25%.
Improving Culture & Management
Beyond increased pay and reduced overtime, associates want to work in a supportive environment. Creating the right culture starts with your management team engaging with your hourly associates on a consistent basis. This sounds easy, but is often hard to do when most days there is more to do than time to do it. An LMS provides supervisors the tools they need to develop an effective feedback loop with associates to build better relationships and drive continuous improvement.
With an LMS you can create scheduled engagements. This results in more consistent interactions that show associates that you care about them and their contribution to the company. An LMS will also automatically identify any associates that need additional coaching and schedule a coaching engagement for the appropriate floor manager.
An LMS also supports the use of Production Boards on the floor which provide critical operational metrics and recognition messaging throughout the day to the associate team. In our experience, this is a great way to recognize high achievers and create some friendly competition at the department level.
Bottomline, the shortage of available labor in the supply chain industry isn’t going to change any time soon. If you’re seeking more information on the competitive labor market, employee retention, and how Labor Management Systems can help, check out our new Q&A – 2021: The Year of The Labor Management System.