Omnichannel commerce is becoming the new norm in retail. Consumers expect highly personalized shopping experiences with the ability to buy and return products interchangeably across all channels. As retailers scramble to align their distribution centers (DCs) to optimize omnichannel processes, they are relying ever more heavily on technology to drive efficiency. One such technology is labor management software (LMS).
"We are definitely seeing more interest in labor management solutions in the era of omnichannel commerce," says Christine Hirtz, territory manager at technology company HighJump Software. "Retailers are experiencing the challenges of handling this new complexity of how orders need to be fulfilled. Driving efficiencies with, and promoting the productivity of, a valuable work force is critical."
As e-commerce sales rise and retailers offer more buying options such as "order-online-pick-up-at-store" or "buy-in-store-and-ship-from-the-DC," their distribution centers are picking and preparing an ever-greater number of customer-ready shipments. The result is an increase in the labor-intensive and time-consuming processes of "each" (individual item) picking and order packing.
Until recently, the each-pick, direct-to-consumer business was a relatively small part of a retailer's overall mix. Companies could outsource the function to a third-party logistics service provider (3PL) or relegate it to a small area of an existing distribution center. Today, however, these types of orders have reached a critical mass for many retailers. In response to this sea-change, companies are pulling all channels into one distribution center, which allows them to leverage efficiencies associated with sharing the cross-channel labor pool, fixed costs, and inventory.
The distribution center is today home to a new mix of activities such as each-picking, packing individual orders for parcel shipping, more quality checks on order accuracy, returns, and value-added services such as gift-wrapping. All of this requires more labor. Labor management software can be an effective way to drive greater levels of productivity from the work force to improve omnichannel's profitability.
"The retail industry has always been a heavy user of LMS primarily because of the high level of process uniformity in the distribution center, the high number of employees, and the reliance on seasonal workers during the holidays," says Chuck Fuerst, director of product strategy at HighJump. "The shift to omnichannel is changing the reasons why retailers need labor management and in many cases, magnifying the need for it."
Retailers that had used rudimentary standards without the help of an LMS find themselves needing a more formal program and system. Those companies already using a sophisticated approach and system for labor management are realizing the need to change and expand how they use it. Below are a few examples of how the omnichannel distribution center concept is changing how retailers use labor management software:
- Tighter controls on quality and accuracy: Without the store as a middleman, the omnichannel distribution center has a bigger role to play in the development and preservation of a retailer's brand. Thus, quality has joined speed as an important key performance indicator for retailers. "A mis-pick or a delayed order has the ability to truly impact the customer experience," says Brad Anderson, director of supply chain services at Fortna, a firm that helps companies improve their distribution operations. "Retailers that historically focused on labor standards tied to speed and individual worker productivity are adding standards to encompass quality and accuracy or using factored performance standards, which deduct from an individual's overall productivity score for errors."
- Shared work force across channels: Using engineered labor standards, LMS calculates the precise amount of time it should take to complete each task. When most workers in a facility are performing the same type of work for most of the day, it is easy to compare performance on an apples-to-apples basis without sophisticated technology. However, when multiple channels share a single building and a single work force, the lines get blurred. An individual worker might perform a variety of tasks across multiple channels during the day. Labor management in an omnichannel facility requires that the warehouse management system (WMS) understand what an individual is working on at a given time. It must be smart enough to equate that work to an engineered labor task and communicate this information to the LMS so that it can attach the correct standard values.
Many companies are upgrading their WMS technologies to enable this. Commonwealth Supply Chain Advisors recently conducted a poll of distribution companies to understand what factors are driving them to upgrade their WMS software. For companies that already had a best-in-class WMS solution, functionality gaps were cited as the main driver, with labor management being in the top three. - Real-time performance visibility: With a larger work force and a greater reliance on temporary labor during the holiday season in particular, more companies are using real-time reporting on labor metrics to help with training. "Visibility to individual employee performance in real time allows for on-the-spot training and behavior correction, which can be more effective than giving feedback after the fact," says Anderson of Fortna. Not long ago, real-time performance visibility required a tightly integrated tier one WMS/LMS combo. However, as the tier two LMS systems have evolved, most are capable of communicating with the WMS in frequent batches, enabling near real-time information availability.
- Labor in the store: More retailers are experimenting with filling e-commerce orders from their stores. This is causing stores to behave much like DCs and be concerned with pick methodology, inventory locations, and labor productivity. "In-store fulfillment is getting a lot of attention, and while we're not seeing many companies implement full-scale LMS solutions in the store yet, we're definitely seeing companies start to pay close attention to store labor statistics," says Fuerst of High Jump.
The advent of omnichannel commerce has created a more complicated supply chain. It is becoming more important to measure labor efficiency at the point of order fulfillment—whether at the store or in the DC. Labor management software will continue to be a key enabling technology to allow retailers to operate profitably in this new environment.
