Manufacturers looking to wring an extra ounce of productivity from their warehouse or distribution center should consider adding a labor management system (LMS) to the mix. A good LMS can help boost efficiency and maximize worker performance.
LMS software platforms are available as best-of-breed standalone systems or as a separate component in a broader warehouse management or supply chain execution suite. They measure the productivity of labor resources against predefined standards, allowing companies to compare performance across functional areas, identify and eliminate bottlenecks, and monitor performance levels, often in real time. Unlike the labor management capabilities found in warehouse management systems (WMS), which track and report on the specific tasks and productivity of individual workers, an LMS goes a step further by measuring the worker’s ability to perform a task against a so-called engineered standard, resulting in a more accurate and actionable indicator of performance.
Labor management software builds a better warehouse
Vendors contend that by implementing an LMS, companies can expect to improve labor productivity in the warehouse by as much as 30% beyond what they were able to achieve with a traditional WMS. Such improvements are critical to manufacturers’ cost reduction and lean manufacturing strategies, since warehouse labor expenses often account for close to 75% of the total cost of operations, industry experts say. In addition, vendor research shows that the productivity of a typical warehouse worker stands at around 65%, which suggests there is ample room for improvement.
“If you are the vice president of distribution and it’s budget time, [management] is looking to you every year to slash costs, but to also become more efficient,” said Steve Banker, service director for supply chain management at ARC Advisory Group. “You can only go so far with a core WMS before you have to look at add-on solutions for increased productivity.”
The same kind of labor benchmarking against engineered standards can also be done on the manufacturing floor, but that capability is typically provided by a separate category of LMS associated with shop floor systems and manufacturing execution systems (MES). Both categories of LMS should not be confused with traditional time and billing systems or the human capital modules in enterprise applications, which focus more on time and attendance, vacation and personal time, and scheduling and forecasting, as opposed to metrics for productivity and performance.
LMS systems also push the limits of labor management by providing a benchmark for coaching workers in productivity improvements and for systemizing and supporting incentive-based pay when workers reach or exceed performance goals. By establishing the engineered standards for a specific task and making them public, companies can leverage the LMS to keep individuals in the loop about their performance, in some cases helping to establish a self-directed workforce. Vendors say they have observed that if people are made aware of the performance metrics and trust that the metrics are fair, they will take corrective action if they think they are falling below expected performance levels.
The job of creating the engineered standards and populating the LMS with the right data is fairly complex and will often require hours of consulting assistance from the software provider and, in many cases, industrial engineers who can help document existing processes and break down tasks so they can be codified and certified.
“It’s not like you buy these things and turn it on—they’re somewhat underselling the level of effort required to develop the engineered standards,” said Kevin Hume, principal at Tompkins Associates, a consulting company that specializes in implementing supply chain applications, including LMSs. As a result of the complexity and expense, an LMS is probably not a fit for companies with small warehouses of fewer than 50 to 100 workers.
Despite such heavy lifting, Randy Woody, distribution center operations manager for Northern Tool & Equipment in Burnsville, Minn., is sold on the benefits of LMS, having overseen at least five LMS implementations in the course of his career. “I’m a big believer in LMS—there’s always been a benefit and an opportunity for improvement even if it’s not purely through getting associates to work faster,” said Woody, who’s currently using Manhattan Associates’ Labor Management module. “Perhaps, it just provides more opportunity for them to stay on task.”