How to Reduce Warehouse Labor Management Costs

Aug 17, 2010 10:06 PM  By

Merchants always want to improve their warehouse operations and reduce costs, especially when the economy is down. Typically, you can make the most effective changes in labor management.

After outbound shipping costs, labor represents the largest single operating cost factor, so it deserves significant and constant attention. How well you manage labor affects not only your costs and profitability, but also your customer service.

A critical aspect of labor management is making sure your employees know what is expected of them and how well they are meeting those expectations. Most employees focus on what they perceive to be important. It’s management’s job to make sure that perception is in line with corporate goals and objectives.

How do you ensure that your operations staff is in sync with your objectives? Start by establishing your current levels of cost and performance relating to your key performance indicators.

You must then establish your goals or employee expectations relating to these indicators. These steps set your expectations and also indicate what is important to management.

After establishing your expectations, you have to measure actual performance and report results back to employees. This satisfies the universal desire to know how well we are doing.

What’s more, this relatively simple measurement and reporting process can result in a productivity boost in many warehouses. Without making any other changes, you could see productivity increases of 10% to 15%. When establishing labor expectations, make sure you initially focus on those areas where you can gain the most benefit. That’s typically the larger areas, such as picking and packing.

Establish standards with physical units of work and labor man-hours expended. This removes any issues relating to using productivity metrics that involve percentages or dollars.

Both of these can be affected by factors not truly relating to productivity performance. Using estimates, historical data, benchmarks and engineered standards can help establish performance standards.

Before you start, make sure you have the correct processes in place and that they’re being followed. You do not want to establish expectations based on a sub-optimized process.

Curt Barry is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consulting firm.