Do more with less: How to Thrive in a Challenging Labor Market

Sean Wallingford, Senior Director, Strategic Operations, Intelligrated

Sean Wallingford, Senior Director, Strategic Operations, Intelligrated

The State of the Operational Workforce and Market Influences

The MHI U.S. Material Handling and Logistics roadmap indicates a shrinking pool of qualified labor due to the retirement of baby boomers and a lack of skilled younger workers to replace them. Turnover is also a major pain point, as MHI estimates the annual turnover rate for material handling and logistics positions at 25 percent. As older employees retire, their legacy knowledge goes with them, increasing competition for capable labor and pressuring management to bridge the gap between required skills and the actual proficiency of available workers.

While the skilled labor pool shrinks, there is no corresponding reduction in demand, especially with the rise of omni-channel retail and the associated increase in direct-to-consumer orders. This forces distribution centers (DCs) originally designed for store replenishment to deconsolidate case and pallet loads to serve individual e-commerce orders, resulting in more labor-intensive fulfillment operations.

Combined with the push to increase service standards with shorter order cycle times and higher accuracy rates, labor assumes a critically important role in driving customer satisfaction and earning repeat business. Demand for labor is causing higher base wages in the U.S. As increased labor costs become an established piece of the contemporary distribution puzzle, businesses strive for improved employee performance and measurable returns on workforce investment.

Finding the Right Approach to Optimize the Workforce

To efficiently serve demand, fulfillment operations aim to maximize per capita productivity, reduce overall cost per unit and increase units per hour.

Some develop their own in-house tools in an effort to gain visibility into labor and improve workforce productivity and efficiency, such as manually populated spreadsheets to catalog basic labor tracking metrics and uncover opportunities for improvement. However, most in-house tools possess significant limitations that result in productivity plateaus. These systems also carry the risk of reporting errors and high overhead costs due to manual data entry.

Another approach to meeting throughput demands is to simply add labor. While additional workers can increase capacity, the current shortage of qualified labor makes this an especially risky strategy. Adding too many workers can become counterproductive, causing bottlenecks and preventing maximum per-capita productivity. As order volumes and employees increase, the law of diminishing marginal utility eventually takes over and excessive manpower no longer increases throughput.

A Motivated Workforce is a Productive Workforce

Increased competition for a smaller pool of qualified labor increases the threat of workforce instability and turnover. High turnover triggers a costly cycle of training and retraining that inhibits the effectiveness of workforce investment and limits employee growth. Therefore, providing an attractive, rewarding work experience is the key.

LMS fuels career development that aligns with business goals and improves overall employee engagement. With engineered labor standards, employees work towards clearly defined, realistic targets with the confidence that their actions yield both personal and operational benefit. This approach produces consistent development as overall throughput improves with incremental individual gains.

Coaching Sessions Build the Foundation for Success

Any performance management program requires buy-in throughout the organization to realize maximum benefit. Coaching modules provide opportunities for employees to show just how productive they can be and enable supervisors to provide real-time training input on the floor. Supervisors and workers must agree that productivity goals are realistic and clearly understand the steps required to generate necessary improvement.

Consider a supervisor who identifies an underperforming resource and corrects procedural inefficiencies. After coaching, the worker improves from 50 to 75 percent of productivity standard. Management effectively added another half labor resource through a couple coaching sessions, yielding a foundation for fast, realistic and easily communicated return on investment.

“Investing in the workforce with a performance management program enables fulfillment operations to not just survive but thrive during the labor shortage”

Coaching sessions also enable supervisors to observe the most productive employees to identify process improvements for the rest of the workforce. First hand observation also leads to early identification of high- and low performers, enabling remedial attention or reassignment to positions that better utilize their talents.

For Managers, Knowledge Equals Efficiency

LMS automatically tracks labor and provides extensive reporting and analysis to alleviate the burden of manual reporting. This frees management to discover new opportunities for consistent improvement and make more informed decisions that maximize available labor. As DCs look for more labor efficiency, a robust LMS can look beyond a single facility and leverage the entire distribution network to identify best practices.

Understanding the relationship between labor yields, processes and facility output creates a virtuous cycle of more efficient staffing allocations. Accounting for anticipated order volume, expected employee performance and past temp performance enables smarter allocations that protect operations from insufficient staff while avoiding excess labor.

Long-term Value

In contrast to less robust, in-house systems that plateau after one or two years, a well-engineered LMS program yields continuous benefit over a multiyear cycle. As a program matures, operations can take advantage of detailed analysis to get ahead of trends and use training, coaching and multilevel bonuses to reap additional improvement.

Operations can also compare multiple facilities within their distribution network according to overall output, individual processes and labor performance. Even if some facilities have different names for the same process, an LMS with robust reporting and analytics can execute apples-to-apples comparisons by equating different names with the same function. On the ground, these multisite analytics encourage healthy competition against other locations across the country.

The Numbers Add up

Investment in LMS pays off through its effect on labor and improved operational efficiency. More productive and efficient employees reduce cost per unit and increase units per hour to not only improve service cycle times but also increase operational capacity.

Optimize Labor to Face the Challenges of Tomorrow

For an industry in flux, the flexibility of LMS positions it to solve today’s labor challenges and adapt to emerging issues. Labor is the most flexible fulfillment tool in the distribution arsenal, and LMS offers the most efficient means of tailoring the workforce to operational challenges. Whether it is on boarding new employees, updating experienced workers or incentivizing process improvements, LMS offers an effective platform to drive individual accountability and continuous improvement.

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