Just as merchants are developing faster, more nimble supply chains to respond to the new crosschannel retail environment, they must also optimize their labor resources to align with the constantly changing demand and throughput.
Labor, more than half the total cost of the distribution center, is a critical consideration in both delivery and service levels and can be the key to profit or loss. To ensure the proper level of labor, companies must address these key issues:
- Plan and forecast annual workforce budget.
- Establish appropriate level of regular workforce for projected work.
- Optimize the mix of regular, overtime and temporary labor.
- Plan for seasonal changes, new product introductions and promotions.
- Continually optimize staffing levels by day, shift job and zone.
By aligning labor with optimizing the supply chain, companies are realizing substantial savings, increased efficiency, more productivity, higher employee morale, and most of all, higher profits and happier customers.
Not to optimize the distribution workforce to match the new normal in the retail supply chain puts the retailer at a disadvantage in terms of costs, service levels and competitiveness.
Here are three steps you should take to optimize labor in an ever-changing supply chain.
Strategic workforce forecast
The first step to optimizing the workforce, usually completed on an annual basis, is to forecast the projected throughput for the year.
The inputs generally include historical throughput, projected volume increases/decreases, employee productivity, new process improvements and network or facility changes. The outputs from this optimization exercise include a forecast that plots the amount of labor needed to perform the projected work by day, shift, job and zone, an analysis of where there is too much labor and where there is too little, as well as the cost associated with the projected labor plan.
The user can also simulate “what if” scenarios to gauge the impact of adding temporary or overtime labor to fill the gaps and determine the most effective balance of full time, temporary and overtime resources needed to perform the projected workload.
Forecasting the workload as well as the labor requirements in advance provides better visibility as to where bottlenecks may occur and allows the end user to address issues long before they arise.
Workforce schedule optimization
The second step in synchronizing the workforce with actual demand, usually completed on a monthly or even weekly basis, is to schedule the labor in an optimal manner to handle the inventory at the lowest possible cost. This requires taking into account every individual employee’s productivity, labor rates and qualifications and balancing that against every other employee’s productivity, labor rates and qualifications to determine the optimal time and activity to schedule each employee.
This is much more complicated than it may seem. In a typical warehouse with 100 employees and three shifts the variables run into the millions. Only by leveraging advanced optimization technology can a company effectively arrive at the optimal schedule.
The result of this exercise is a schedule aligned with current demand for each employee, by day, by shift, by zone. This optimization means that supervisors no longer view labor allocation in terms of individual area, but in terms of what is best for the overall facility.
Milestone workforce optimization
The third step involves forecasting and scheduling labor around preplanned milestones or events that create unique impact on demand, such as new product introductions, promotions and seasonality.
Precise spikes in demand created by event milestones are difficult to quantify. Analyzing past history and massaging the data for a specific milestone offers visibility to the potential impact and provides a basis for adjusting regular, overtime and temporary labor. It also optimizes the scheduling of individual employees so that new and different work can be completed in the most cost-effective manner.
The result is a labor resource allocation plan that is tailored to the event.
Peter Schnorbach is senior director of product management and strategy at Manhattan Associates.