by Director, Seth Spofford
Did you know that a distribution center only achieves about 60% of its labor productivity potential without a well-run performance management program? It’s an alarming metric that sadly is the reality for far too many businesses. Especially today, in an economy where good workers for distribution centers are difficult to hire and retain, optimizing the output of every hour of labor invested is the largest single opportunity most DCs can leverage.
There are multiple benefits that a labor management program provides and the outcome is changing a production environment to a performance environment. Here are just three of the benefits that you can expect when you employ a labor management program:
1. Transforms Direct Labor and Front Line Management Effectiveness
- Daily personal feedback/accountability creates an engaged workforce as each individual’s contribution is measured and communicated on a regular basis
- Multi-variable standards allow for accurate performance calculations regardless of work mix which is more fair than holding everyone accountable to a generic UPH expectation
- Provides the chance to leverage opportunities such as performance pay incentives to raise average wages while simultaneously driving down overall labor costs
- Supervisors have the data needed to effectively manage their areas by the numbers and are able to communicate results in a common language of performance and utilization
2. Improves Staffing Information for Operations Management
- Provides a basis for managers to learn to “staff to work mix requirements” without adding excessive buffer staff. This is often where the first and most impressive gains are made when the program is rolling out across each of the departments
- Highlights cross-training needs in order to fully utilize labor hours by adding flexibility. To optimize labor, it will become apparent that cross-training will be critical to success
- Allows management to leverage overtime and short shifts to tailor workforce to workload variations. Instead of flexing overall headcount up and down which is very costly, organizations will see that it is often much less costly to leverage overtime for short-term volume spikes and send low performing associates home for part of the week when volume is temporarily low
- As a further benefit, the performance history generated by these programs can be a measure for hiring contract workforce to full-time positions based on detailed individual contribution. Best-in-class organizations that leverage performance management use their contract labor pool as a testing grounds for their next full-time hire. This both incents performance at the contract level as well as better ensures that quality of performance for each new hire
3. Builds a Foundation for Further Optimization
- Provides an accurate base from which to develop ROI models for future process improvement or MHE upgrades
- Clearly shows the impact of changing work mix on capacity utilization and average costs per unit processed, leads to more effective budgeting process as well
- Can uncover hidden capacity constraints and test effectiveness of potential solutions
When a distribution operation/network effectively installs and maintains a performance management program with engineered multi-variable standards, they typically see productivity improve 30% or more over the following two to four years if they stay the course and leverage the wealth of opportunities that are brought to the surface.
Transform your DC
To accomplish the best results for your organization, you will want to enlist the help of a partner that has deep experience in leading such efforts. They can lead you and your team through both the development of multi-variable standards and the subsequent performance culture transformation. Without the proper internal and external support, an organization can end up with a wealth of detailed performance data but no results.
LogistiPoint prides itself in being one of the most experienced partners in the industry in leading such a transformation and would be happy to discuss with you how these efforts typically have an accelerated ROI that can pay for the implementation in less than 12 months from project completion and often much sooner than that. If your distribution center has 150 or more FTEs and no multi-variable standards, a performance management installation with LogistiPoint is most likely your single best ROI option that will most efficiently leverage your capital spend. Check out our case studies to see how we’ve helped other companies just like you.