One of the most commonly asked operational questions asked by clients is “what can we do to drive down labor costs?”. Labor usually makes up 50%, or more, of the total cost of operating a distribution center when you consider direct and indirect labor, occupancy costs, and packaging materials.
Given this high cost, it is no wonder that it is one of the first issues raised during an operations assessment. Now more than ever, with rising wages and quality labor increasingly harder to come by, it is paramount to get the most from your current labor force.
Developing Warehouse Efficiency Ideas
The adage of working smarter not harder still applies today, but the actualization of that adage is becoming more difficult. In many companies, the responsibility of coming up with “smarter” ideas falls to management.
Some organizations formalize a process that involves the employees performing the work to share ideas on what improvements they think could be made. This is a better idea but still requires management time to facilitate and guide the process to develop meaningful ideas. What about an alternative that can provide significant long-term benefits?
Measuring Warehouse Performance
As a distribution center, it is imperative to measure the activities being performed in the operations, across all departments and functions. The saying “You cannot improve that which you do not measure.” is simple, but so very true. How can you take a function being performed in your facility and expect it to get better when you aren’t even sure what the baseline is to improve from?
The goal should be to determine how to take the lowest-performing employees and train them or move them to another function that works more towards their strengths. But this can be almost impossible when you are unsure who the best and worst employees are from a statistical perspective.
Measuring productivity can be as simple or as complex as needed within each distribution center. The most complex is an engineered labor standard, truly only needed by a small number of industries and corporations. The simplest can be developing critical metrics such as items picked, or orders fulfilled per man-hour worked. For many companies, the recommended path would be somewhere in the middle of the two approaches.
To begin capturing the necessary data, utilize the systems already in place to your advantage. It may mean an optional module, is there a module offered that you could take advantage of to help with productivity tracking and monitoring? If not, it at least should many of the data points needed to get started on your very own productivity measuring process.
Operations Management: Involving Your Workforce
When performing operations assessments, we find that most people want to know what is expected of them, and how well they are doing against what is expected. Surprisingly though, very few facilities take advantage of this human trait. This is where the second most critical step comes into play – sharing the results of the analysis with the workers.
This process doesn’t have to be complicated either, companies should consider taking the outputs derived from the analysis and sharing them with the workforce. Some common ways of achieving this are going over the numbers in a pre-shift daily meeting, displaying the numbers on a TV near the breakroom, or sharing them individually.
Unfortunately, there are many companies that collect and analyze the data but do not post performance results for the workers to see. Knowing individual productivity is one measure, but how will a team or shift know that they are meeting the targets if the data isn’t visibly and publicly shared? You will also find that the workers will begin to self-correct by working together (to some degree) when issues arise or throughout targets are missed.
Warehouse Performance Measurement Processes
The data collection and analysis process should be simplified as much as possible – leveraging good systems to do the heavy lifting. If the process becomes very cumbersome and laborious – requiring lots of resources to manage everything, it tends to be inaccurate or fall by the wayside. Sometimes, simpler is better.
If you can measure the overall facility in terms that you use such as total man hours and orders processed, you can use this process. If you measure to a more detailed level, you have to decide what will work best for you as motivation – is it the warehouse, function, or individual level of posting that will get the best results?
How Results Sharing Improves Labor Productivity
Most operations that start to post results, and corresponding goals or standards, see increases in overall productivity. These increases come as a result of individuals knowing how they are doing as individuals or as a unit and wanting to get better. This is referred to as the Hawthorne Effect, which refers to a type of reactivity in which individuals modify an aspect of their behavior in response to their awareness of being observed or monitored.
Often, this spurs healthy competitions internally to see who the highest performer in their respective department can be. It can also lead to those at the bottom trying their best to be in the middle of the pack as no one wants to be last. It is not uncommon to see increases in overall productivity of 10 -15% using this concept. Once an organization is comfortable with its process, and there has been solid buy-in by the employees, incentives can begin to be introduced into the equation.
You can expect to see even more gains in productivity and throughput once the employee knows they will be compensated for their efforts going above and beyond what is expected. An incentive is a great tool, as the employee is being rewarded but the company is only sharing a small amount of the labor savings they are able to recoup.
Getting to this point as an organization is an important step in the process towards getting more work from your current labor force. Short of investing in high-end automation, this is one of the best options in today’s labor climate to try and improve throughput without the need for adding more headcount.
It's easy to start small and begin to improve the measuring process over time. It doesn’t need to be perfect and all-encompassing on day one. Utilize the system resources and management resources to your advantage to help improve your throughput while keeping your headcount flat.