Good labor management has become a necessity in today’s very competitive distribution environment. In our hundreds of implementations, we have learned that there are 7 key factors you must have for a successful labor management program (LMS). They are:
1. Track 100% of Time – The goal of any labor management system should be to see how 100% of the employee’s time is spent. Most labor management systems simply integrate with the warehouse management system (WMS) and thus can only see what the WMS tracks. At best, this is about 60% of time spent and in many cases much less. When you track less than 100% of time, any productivity gains in your tracked time will be obscured by increases in indirect time and missing time. The goal is to have employees fully engaged in direct labor (since that is what drives the value for your business) as much as possible.
2. Fair and Consistent Labor Standards – Once you are able to allocate 100% of employee time, then it is time to focus on productivity. In order to hold employees accountable, you need fair and consistent performance standards. Companies will often try to simplify their standards to be a single measurement of cases per hour. However, work flow variances must be taken into account when creating your labor standard. There are two basic approaches – industrial engineered labor standards and data driven standards – and both have their advantages. I suggest reviewing our blog post on this topic for a deeper dive into designing fair labor standards.
3. Timely Reporting and Feedback – It is important for employees and management to receive timely feedback on performance. At a minimum, performance reporting should be given for the previous day. Ideally, it should be provided in near real time. We often see homegrown labor management with a reporting delay of a week or more. In the fast-moving world of distribution, it is hard enough to remember what you did the previous day, let alone a week ago. Timely feedback is critical for both maximizing employee engagement as well as allowing management to properly address performance issues.
4. Management Buy-In – If your management team is not fully committed to the labor management system, then it will be difficult to make the changes needed to be successful. We found this to be the case when we implemented a labor management system and pay for performance program for a local company. The majority of the supervisors bought in, and their teams’ productivity scores increased from 80% to over 120%. However, one supervisor did not buy in to the new system, and her team’s productivity actually went down. After receiving an ultimatum, she supported the changes and her team’s performance improved. To have a successful labor management system, you need full management buy-in.
5. Proactive Change Management – This follows along with management buy-in. Your labor management system can provide incredibly powerful insights into your business, but if management does not take action with the information, then your results will be nominal. Management needs to be proactive with the results from the LMS. To learn more, please see our blog post on change management. One of the challenges we frequently see is management’s reluctance to counsel poor performers. The LMS will clearly show who is performing and who is not performing, but it is up to the management to take action with this information, which leads us to the next key issue.
6. Praise in Public and Counsel in Private – In our training at the US Naval Academy, they drummed into us that you should praise in public and reprimand in private. Calling someone out publicly for good performance is great positive reinforcement for the system, as well as a great way to boost morale and motivation. However, when you want to address poor performance, it should be done in private as opposed to calling out that person in front of everyone. Embarrassment is not a good motivator and will lead to resentment.
7. Cost to Serve – Cost to serve is your ultimate measurement of success. The labor standard is important for measuring individual performance, but true process improvement and gains in productivity are measured through cost to serve. If your productivity is going up but your cost to serve is also going up, this is a red flag. There is either a problem with your labor standards or your work mix has substantially changed from baseline. Please check out this blog post on Cost to Serve for a deeper analysis of the importance of this measurement.
Labor Management is a powerful tool to help you transform your business. The above 7 key factors will help you design and maintain a successful program.