by Curt Barry
http://www.fcbco.com
©
2009
Typically, labor rates were in the $7.00/hour range
five years ago. In many direct businesses today they have reached $12.00 to $13.00,
plus a 20% benefit rate added on. But overall productivity has remained flat over
a 5- to 10-year period. So, after factoring in the increasing labor rates, productivity
has actually declined. Then consider employee turnover. Industry experience is
that employee turnover in many centers is 15%-25% or higher. Turnover costs range
from $3,000 to $10,000 in people time, training, testing and the ramp-up to full
production. This does not include expenses for agencies, ads, etc., which must
be added on.
Given the current economic climate, most businesses
are mandated to get more out of the resources they have. Here are 10 ways to improve
productivity by managing labor more effectively.
1. Improve
your odds with new employees
Hire right. How many times
have you had new employees quit because they didn't understand what the job entailed,
or didn't like it once they tried it? No matter how good the person comes across
in an interview, you can't tell how well you've hired until they start working.
* Some companies have had good results by giving prospective
employees some limited instruction and then letting them try the work.
*
Determine if there are tests you can give that assess whether people can do the
work or have a good chance of fitting into your culture.
*
Use a "buddy system" with a seasoned employee in the department to get
the new employee off to the best start.
* Look at whether
you have an effective training program by function. Will cross training improve
production and give you flexibility in staff utilization?
2.
Measure employee turnover and do something about it
Set
up a system to track and calculate employee turnover monthly. Develop a turnover
report showing the number of employees hired, employees who started training,
employees who left while in training and the number who leave once they graduate
to the production staff. Establish an exit interview process to learn more about
why people leave. Look at the turnover by months and years of service. Are you
seeing turnover with long-term employees? New hires? Calculate the cost of recruiting,
training and losing an employee and get management to understand the reasons and
the costs. From there establish a plan of action for change.
3.
Set standards or expectations
There is an old industrial
engineering axiom: You can't improve something you haven't measured. Set up production
goals by department and individual. (Departments or functions include receiving,
put away, replenishment, picking, packing, shipping, and returns.) There are two
ways to do this: engineered standards, and benchmark goals or expectations. Engineered
standards are expensive for small to moderate sized companies to establish and
maintain. However, most companies can gain from setting expectations based on
benchmarking with other companies. This will let you understand productivity,
costs and best practices in other businesses. Study your operation and set up
internal production standards that can be measured and are fair. Don't just use
someone else's standards, as they probably will not fit your operation. The most
important benchmark exercise is to measure your production against yourself, seasonally,
by month and week. Increase the "height of the bar" over time and you'll
generally see overall productivity increase. The most difficult part of all this
is getting accurate production data.
4. Develop labor budget
by function
Many operations have a planned dollar budget
for the month. While dollars can be derived from this, a labor budget shows the
number of hours needed by function based on the order and work flow. The budget
should be planned by month, week and day if possible. For each of the various
flows, identify the major activities: orders, receipts, returns, etc. The starting
point for the orders is the projected order flow that marketing is expecting.
For receipts this can come from purchase order files of expected receipts. Returns
can be planned from the expected return rate. Production expectation for hours
are derived based on the benchmarks that you set for your operation as described
above.
The key here is to convert the transaction volumes
expected to units of work. For example in the receiving area, it will mean estimating
pallets and cases by the week and preferably by the day. In picking it means extending
the number of orders by day into the units per order. Identify and plan variable
and fixed labor required to meet these volumes.
Sum this
all up to a weekly level. Over time as you get more experience and history you
can experiment with taking it to a daily level. Challenge your supervisors to
see this as standard for hiring and bringing in personnel. We all know that there
is "play" in these volume estimates, but using this methodology will
help you plan for improving customer service and keeping overtime to a minimum.
5.
Give employees feedback
Most people want to feel they are
part of the bigger company picture. They also deserve to have accurate feedback
about their production. LifeWay Christian Resources, a religious nonprofit based
in Nashville, TN that is the publishing, retail and direct commerce arm of the
Southern Baptist Convention, is a great example. In their logistics management
offices they display monthly graphs for the past year of metrics such as total
error rate, cost of a transaction, reported savings, etc. Actual against plan
is shown. Current production is displayed on terminals and boards, and they not
only acknowledge department records for various departmental functions, but individual
record holders for such activities as packing. LifeWay also uses monitors in packing
and other departments to show production versus plan for the day.
6.
Provide incentives
More and more companies are using incentives
to increase production. A large multi-brand catalog client we work with volunteered,
"Incentives require engineered standards to be fair and to keep productivity
increasing. If they are not continually evaluated, chances are that you'll end
up paying an incentive for production that you have gained over time."
7.
Deal with seasonal spikes
Each year the customer buys closer
to the peak and counts on operations to deliver on time-compressing the peaks
dramatically. Stay in contact off-season with part timers who have worked the
peaks for you. Consider using bonuses smartly:
a) rehiring bonus; b) stay the
season bonus; c) refer-a-friend bonus. Try temporary help agencies to meet the
peak requirements.
8. Streamline functions
Three
areas-picking, packing and returns processing-make up 60%-80% of the labor cost.
Look at each of these areas to determine how to reduce the work required. For
example:
* In picking, 60% of the pickers' time is in walking.
Can you slot fast-moving product (which is 20%-30% of the product) in closer proximity
("hot pick" zones) to reduce pick time? Are there other picking methods
like cart/bin, pick to light or voice pick which will increase production?
*
In packing, can the pack station be engineered ergonomically to increase production?
Can low tech solutions such as box builders or envelope inserters speed up production?
*
In returns, can the steps be simplified? Can a team approach speed up processing?
9.
Set up a continual improvement process
Streamlining labor
functions is not a one-time activity. You will need to set up a continual improvement
process-a set of activities designed to bring gradual, but steady improvement
through constant review-to reduce and simplify the steps and number of times you
"touch" product. Each time you touch product, you add cost.
10.
Look at what more you can do as a manager
Each of us needs
to look introspectively at our leadership and managerial capabilities. Here are
a few questions we need to answer:
* What motivates staff
members to excel beyond normal expected performance?
* Have you delegated
and empowered your staff to achieve success?
* Are your team members the most
capable and talented people you can afford to hire?
* Are any of the staff
too weak to enable you to achieve the success you were hired to achieve?
*
How effectively and objectively do you evaluate the performance and development
of your team members?
One of our clients at a large multichannel
company summed it up best: "Managing labor is a game of reducing a few pennies
here and there on an organized basis to reduce the cost per order overall. At
the same time, we need to take into account how we can motivate and increase productivity
fairly to achieve our company's goals."
