Labor costs have increased by 10% to 15% during the past five years, according to our research. But the measure of true productivity (units of work measured over a time period) has remained relatively flat. That means there’s been an increase in the labor cost per unit of work performed.
And when you consider that employee turnover rates of 25% or higher are not uncommon, it’s clear you need to make the most of your return on investment in the operations labor force. If you can better manage your labor cost, you will improve the bottom line.
How do you do this? While the primary accountabilities of a manager — planning, organizing, directing and controlling — have not changed much in 50 years, it may be time to take a fresh look at your approach. Here are a few ideas for developing and managing your labor force.
- Hone your hiring
Take the time to review and fine tune your hiring process. You should explore any way to increase the odds of a successful hire.
A few companies go the extra mile during the interviewing and hiring process and show the prospective employee what the job entails. This can be a good use of the interviewing time — provided the candidate has passed some initial screening processes.
There are several pre-employment tests that focus on the required skill sets needed for the job in question. Some companies also use a profile-generating test format that can be matched to existing successful employees’ profiles to try to hire employees with similar attributes and interests.
If you can identify what it takes to succeed in the position, the chances of finding the right match increase.
- Don’t skimp on training
After spending significant time and money in selecting and hiring the right person, don’t pinch pennies and minimize the training you provide to that new hire. It’s worth the investment to help increase the chances that the employee will be successful for the long term.
Separate the training process into two phases: the initial training required to teach the job skills and procedures required to complete the task; and ongoing training designed to enhance those skills learned on the job and to better prepare the employee for success now and in the future. Forgoing the ongoing training can be as big a mistake as not providing enough initial training.
In addition to telling new hires what is expected and the processes to follow, pairing them up with an employee who exemplifies the type of work ethic and skills you want your hires to emulate works well in this initial training period. This process should explain both the quantitative and qualitative requirements of the job, including any productivity and service-level metrics to be met.
Another aspect of an effective training program is to provide documentation for processes. This has many benefits, including training consistency, evaluation of how the work is really getting done vs. how we think it is, and discovering opportunities for improvement.
The last point is key, because the people doing the job usually have a better idea than management about how best to complete the job. If there is an easier way, they will find it! As long as you provide proper measurements and controls, enlisting the help of the workforce to come up with improvements makes sense.
- Track turnover
No matter what, you are going to have turnover. It’s important to track turnover to find the root causes of the number and to determine if there is something in the hiring or training process that is contributing to turnover. How?
- Set up a system to track and calculate your employee turnover monthly.
- Develop a turnover report showing the number who were hired; started training; left while in training or once they graduated; were long-term employees; or were new hires.
- Establish an exit interview process to learn more about why people leave.
- Calculate the cost of recruiting, training and losing an employee.
- Communicate reasons and costs to management, and establish a plan of action for change. You should also measure turnover costs to provide the basis and justification for developing a retention plan to reduce those costs.
- Establish expectations
Setting goals and objectives leads to cost reduction, so you need to develop measurable performance expectations for your warehouse staff. This is a crucial part of managing your labor effectively.
Most companies can gain some understanding from setting expectations based on benchmarking with other companies. But don’t just use someone else’s standards — they probably will not fit your operation.
The most important benchmark exercise is to measure your production against yourself — seasonally, by month and by week. Increase the “height of the bar” over time, and you’ll generally see overall productivity increase.
Set productivity and service-level goals by warehouse, department or function, and individual. Base them on realistic expectations that reflect your operation — not the industry or another company’s numbers.
You can select the right level for establishing expectations based on the return expected, any potential issues with morale, and the availability of the necessary data to manage the reporting process at various levels.
Goals and objectives communicate direction and let you identify and evaluate individual contribution. The process can also provide measurable criteria that enable you to objectively review performance.
What’s more, spending time communicating with warehouse employees can go a long way to improving the negative culture found in many distribution centers.
- Provide feedback
Employees want to feel they are part of the bigger company picture, and deserve accurate feedback about their production. One of our clients displays monthly graphs for the past year in its logistics management offices, showing actual against plan metrics such as total error rate, cost of a transaction, reported savings, and so on.
The company’s DC posts current production on terminals and boards. It acknowledges not only department records for various functions, but individual record holders for such activities as packing.
You should provide good and bad feedback and offer targets to raise productivity in the warehouse. Posting and reporting back how well the warehouse is performing can raise productivity in and of itself without other changes.
Many warehouses see gains of 10% to 15% from measuring and reporting performance back to employees. The ability to identify and focus on the bottom percentile of performers produces gains that lift overall productivity.
You can do expectations and reporting results at the warehouse, functional or employee level. Pick the level that makes sense for you. Don’t overly complicate it or try to create a process that cannot be easily supported by the information technology available. Gear the level to a rate of return on a realistic investment level.
- Offer incentives
Many companies now use incentives to increase production. The downside is the time and cost to develop and maintain a detailed incentive system and the inherent erosion of the motivation over time.
You can develop an incentive system predicated on the performance of the whole warehouse with a few key measures shared by everyone. Although possibly not as effective as a more detailed system, you can gain some benefit.
The real measure should be the ROI of the effort vs. the gain to the company. Group incentives are easier to establish and monitor, but they may give up some potential benefits. Individual incentive systems require a lot of work to establish and maintain, but they can yield greater benefits.
Many companies use nonfinancial incentives to recognize high productivity. These can take many forms, but we’ve seen many warehouses successfully use incentives such as a Mercedes for a month, best parking spots, pizza parties and newsletter recognition.
The three keys to successful labor management are to provide a focus for the employees’ efforts, give clear expectations and provide measurements, and communicate the accountability (reward/penalty) outcomes. Focus, clarity and accountability should be the mantra of your warehouse operation.
Curt Barry (firstname.lastname@example.org) is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consultancy.
THE MANAGER’S ROLE
The immediate reaction when discussing labor management issues is to try to fix the employee. But what about management and supervision? We all probably need to look at our leadership and managerial styles and abilities and ask the following questions:
- 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?
- Do you truly know and understand your relationship with your management staff?
- Are you reluctant to delegate tasks and responsibilities to your staff?
- Do you trust your associates to effectively and accurately complete tasks, or do you find yourself constantly checking their work?
- Do you believe any are qualified to succeed you?
- Have you initiated individual action plans for worker development and success?