When engine and generator maker Briggs & Stratton began to implement a labor management system (LMS) in its DC, David Zuern thought he knew what to expect. The company already had a warehouse management system (WMS) in place, so he assumed he'd find that the DC was operating at pretty close to maximum efficiency. As it turned out, there was a surprise in store for him. "We discovered that the way we were slotting product was very, very haphazard and created a lot of wasted time for the pickers," explains Zuern, who is the company's director of distribution operations. As a result, Briggs & Stratton reslotted its product to boost efficiency.
Discoveries like this are typical for companies that implement an LMS. Labor management systems build on warehousing systems (many WMS vendors have developed LMS modules), but they approach the process from an entirely different perspective. Whereas a WMS manages order and inventory, an LMS tracks the activities of people, based on input from the WMS about tasks that must be performed.
"People have started to max out what they could do with inventory and are turning to the next big project, which is labor," says Peter Schnorbach, senior director of product management, labor and slotting at software specialist Manhattan Associates. He notes that labor costs typically account for close to half the cost of distribution, which makes them an obvious place to look for savings.
When Briggs & Stratton implemented its LMS, RedPrairie's DLx Labor, Zuern saw productivity increases in the 20- to 25-percent range. That's typical, says Greg Aimi of AMR Research. Implementation of a labor management program typically results in a 10- to 30-percent gain in productivity, he reports. That may not sound like much, but for most operations, it actually translates into significant savings. Labor costs can make the difference between profit and loss, especially in low-margin businesses. And payback for these systems can be quick: A study by ARC Advisory Group found that most companies saw a return on their investment in less than a year.
Even those eye-popping savings haven't made the LMS standard equipment in the modern DC, however. Though common in industries like grocery distribution, labor management systems have yet to be widely adopted in many business segments.
No quick fix
Popular perception notwithstanding, the benefits of labor management don't come from just installing a piece of software—far from it. "If you think labor management is software you can take out of a box and plug in, you won't see the full results," Zuern warns. "This is not a quick-fix, outof- the-box solution." Troy VanWormer, a founding partner of XCD Performance Consultants in Rancho Santa Margarita, Calif., agrees. "One of the reasons a lot of these programs fail is [that people] think it's a systems or technology project. It's not. It's a people project."
Rather, the technology should be seen as an enabler for a complete labor management program, a significant undertaking requiring thousands of observations of every task performed in the DC. Those observations provide the basis for the development of engineered labor standards—best practices for each job. The idea is to determine how long it should take to do each specific task and then use the software to compare workers' performance against those standards.
In the end, says Zuern,"[l]abor management programs are about working smarter, not harder—getting more done in the same amount of time." Once Briggs & Stratton embarked on the observation phase, he says, it became obvious that "the barriers to productivity were more prevalent than we had imagined. Discovering this forced us to look at and re-engineer processes—and this was a good thing."
Ready to give LMS a try but don't know where to turn? Here's a short list of consultants and software suppliers that specialize in labor management systems.
These observations must be done for each facility where the LMS is being implemented, even if each handles the same products as a sister site. "That's the only way to do it, because each DC has different characteristics," explains Lillian Warrington, engineered labor standards project manager for food-service distributor Perlman- Rocque, which implemented LMS in all four of its warehouses in 2005. "They use different equipment. Some handle different product." And each warehouse's layout is a little different, too.
Observing and quantifying tasks can take several months, but VanWormer explains why it's necessary: "You can base your data on historical averages, but if you're historically bad, the number is not very high." You could also set standards based on what seems like a reasonable expectation: "You pick 120 units per hour, so we think you can do 150." But that standard is subjective. And a blanket units-per-hour measurement is not accurate, either. If one worker is picking items that weigh 60 pounds each while another worker picks items that weigh half a pound, they obviously won't be able to pick the same number of units per hour.
Chris Smith, director of process improvement for pharmaceutical distributor McKesson, explains how engineered standards are helping his company. "Under the old productivity metric, you only had one overall score on how someone did. You had no visibility if they were doing well in one area and not in another." Now, he says, you can see if they need help in a particular area, and that has helped employees succeed at meeting labor standards—as well as helping the program succeed as a whole.
A shift in culture
Perhaps the biggest change that resulted from Briggs & Stratton's labor management program was the culture change within the DC. In the old days, says Zuern, supervisors had no way of knowing whether people just looked busy or were actually being productive. "But now," he says, "employees have to meet the [productivity] standard every day. They're responsible for their own performance. That means employees come to us very quickly with problems that are getting in the way of productivity."
In fact,he says, employees brought to light a number of procedural holdups that had long gone unreported. "Once we started to hear about them, we realized that we really did need to fix these issues so we could be more productive, and that really got us rolling," he says. "Labor management has changed the culture. ... Supervisors and associates are working together to maximize productivity, rather than against each other. ... Supervisors are now problem solvers more than enforcers. ... So what we ended up with was a much more productive, smarter-working workforce, higher throughput, and a culture of process improvement."
Realistic standards are crucial to worker acceptance of the project—and to its overall success, Zuern says. He reports that Briggs & Stratton encountered very little resistance when it went to expand the LMS beyond its pick, pack and ship operation to its kitting and packaging operation because workers could see that the standards were achievable.
It's more than a matter of employee morale, however. Companies that set unreasonably high standards in hopes of promoting a little workplace hustle risk compromising both accuracy and safety. Ultimately, the costs associated with quality problems and accidents could end up erasing any savings resulting from productivity gains.
Of course, some positions lend themselves more readily to the development of credible standards than others."Those positions that have more variability in the tasks—shipping and customer return—provided more challenge," says Chris Smith. "Our philosophy was never to force a standard where it didn't make sense." The company chose to count tasks that couldn't be measured easily as "indirect time," which was weighted differently than direct time but nonetheless recorded. "The system counts the indirect time," he says, "so we can see what they're doing."
Selling the system
Aside from the amount of work that goes into engineering the labor standards, one of the main challenges of implementing an LMS can be handling the transition. "One of my biggest messages is 'Don't underestimate the change management aspect of the program,'" says McKesson's Chris Smith. "Make sure there is strong support from senior executives. Make sure there is tight alignment with field operators and with human resources." At McKesson, field operators were shown P&L statements indicating the savings that could be achieved from the LMS program, which helped secure their cooperation.
Managing change also entails making sure pickers and packers know why the system is being implemented: "not just to lower costs, but to remain competitive," explains Zuern. And Warrington says that at Perlman-Rocque, where three out of the four DCs are unionized, "we not only solicited the union's involvement, but had them work with us on it, which I think helped the process tremendously. We had an open-book project. Anything they wanted to know was available to them." Workers even did some work-process observations. "Addressing their concerns was paramount. I think that made the project a success."
Ongoing external changes are a factor, too. "Our business is dynamic, so our engineers are supporting ongoing training, and our DCs go through process improvements—in part to improve productivity, but also to accommodate legislative changes," notes Smith of McKesson. The company has a dedicated human resources person to manage the personnel aspects of the program, including an incentive program that's based on the productivity standards.
Once standards have been established, there will be a transitional period as employees learn to work to the standard. At Briggs & Stratton, employees were given 60 days after the system went live to gradually work up to full productivity.
Similarly, there's a learning curve in implementation as a whole. When McKesson started implementing a WMS a little over two years ago in two pilot DCs, it took six months to get each DC up and running. "Today our rollout is three months," says Smith. The company has implemented LMS in 26 of its 31 DCs to date, and the remaining five are expected to be online by April 2007.
Worth the effort
Now that they know what's involved, would the managers who've been through an LMS implementation do it again? "There are a lot of benefits to this, but implementing an LMS is [a] very detailed [process] and it's very hard work," says Zuern of Briggs & Stratton. Still, he char acterizes it as a worthwhile effort. "Today, we can truly operate with fewer people, and the greater throughput is evident in the DC." Productivity increased roughly 20 to 25 percent across both operations. The company was able to reduce pick, pack and ship headcount by about 18 percent right away. A few employees left because they didn't want to work under the new standards, he says, but most found it easy to meet the standard after learning how to eliminate the non-valueadded activities in their daily jobs.
In the end, he believes, the program has been a positive experience. "It took a lot of pressure off everybody. Managing employee expectations is a lot easier when everyone knows exactly what those expectations are and feedback is readily available." And the benefits didn't end there, he says. "The culture change is the big improvement—it lets us focus on the things that matter most to our business and our customers."
At McKesson, Chris Smith has no trouble ticking off a list of benefits he's seen from the LMS: "The enhanced productivity within our DCs, reduction of overtime, service-level improvements, the visibility regarding performance." This visibility allows supervisors to continually improve their coaching and feedback to associates, and thus to keep improving performance over time.
Perlman-Rocque also reports good results from its LMS installation. "We saw improvements in productivity and reduction of cost of up to 20-plus percent per DC," says Warrington. There was no workforce reduction, but the company did reduce overtime. And, she says, it has made the job of the front-line supervisors much easier. "They're probably the happiest folks here, because now they know how long work should take. They can manage better. They're less under the gun because there's less ambiguity." Though it required a lot of time and effort to make sure the labor standards were fair, it was worth it, she says. "I'm thrilled with the results we accomplished over the last year and a half."