3 Strategies for Improving Workforce Productivity - The "Ins and Outs" of Distribution Center Staffing
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3 Strategies for
Improving
Workforce
Productivity
The “Ins and Outs”
of Distribution Center
Staffing
TZA Workforce Performance SeriesStrategies for Improving Workforce Productivity
The demand for additional distribution labor is increasing as companies react
to increased activity levels resulting from the recovering economy, which is
likely to increase exponentially in the next five years, The short supply of
semi-skilled labor and a steady growth in US labor rates has caused
significant concern for senior executives in the logistics industry. The recent
The short supply
recession forced companies to scale back and now that the economy is
improving, the decision to add labor back into the distribution center is a tricky of semi-skilled
one.
labor and a
In an effort to control labor costs and react to fluctuating market conditions, steady growth in
many firms are employing staffing agencies or “temporary labor” as a means
to increase their workforce. Other companies have followed the advice of US labor rates
management consultant Peter Drucker, “Do what you do best, outsource the
has caused
rest.”
significant
Assessing Your Workforce Staffing Strategy
concern for
So what alternative is best for your company? Should you do your own
senior executives
recruiting, use a staffing firm, or outsource all or part of your distribution
business to a third party logistics firm? Should you invest in workforce in the logistics
optimization programs as a way to improve productivity and utilization? Is
there a way to get a tangible return from that investment and can it be
industry.
measured?
To answer these questions, you must first assess your own workforce staffing
strategy. Over the past 27 years of implementing performance solutions, TZA
has observed and worked with hundreds of companies that face this staffing
dilemma. The table in Figure 1 summarizes various strategies or levels of
maturity with regard to staffing and workforce productivity strategies.
1Workforce Productivity Maturity Matrix
No defined process for managing labor
Basic No labor planning
Performance Few, if any, metrics or performance reporting
Generally rely upon short-term staffing
You must first
assess your Some processes for forecasting labor requirements
workforce have been defined and documented
Some throughput reporting at a facility or work cell
productivity Managed
level – typically ad hoc spreadsheets not integrated to
Performance
maturity level other systems
Some historical metrics for measuring productivity
to decide the (units per hour) by work function
best staffing
strategy. Engineered and documented process and information
flows for work functions
Common measurement across work functions for
Engineered labor resource allocation and planning
Performance Historical performance standards at an individual level
Service levels defined, documented and tracked using
units per hour improvements and total delivered cost.
Some defined training programs
Well defined, continuous improvement programs
Dynamic, engineered work standards
Labor management technology and executive dash-
board reporting
High In-sourcing, out-sourcing or collaboration decisions
Performance based on detailed requirements analysis and total cost
of ownership
Workforce incentive and discipline programs well
defined
Formal training programs at all levels of the operation
2 Figure 1The reality is that only a small percentage of companies have reached the
pinnacle of a High Performance Workforce, even though there are significant
cost and performance advantages for those companies that advance along
this maturity matrix. The chart in Figure 2 shows the relative distribution of
companies in terms of their workforce strategy maturity levels.
Company Distribution by Workforce Productivity
There are
60% 25% 10% 5% significant cost
Engineered High
Managed Performance Performance and performance
Performance
Basic advantages for
Performance
those companies
that advance
Maturity Level along this
Figure 2 maturity matrix.
Moving Up on the Workforce Maturity Matrix
Typically, moving up each level along the workforce maturity matrix results in
significant gains in productivity and utilization as well as cost reductions.
Companies moving from a basic level of maturity to a high performance level
have experienced productivity and utilization gains of 10% to 20%. Some
have realized even greater savings in specific functional areas of their
distribution operations. In addition to these productivity gains, cost reductions
in cost/unit can be significant as well.
How do companies progress along the workforce maturity model to capture
savings in what is becoming a challenging labor market? How can they get
there quickly in order to realize these kinds of benefits?
3Distribution Center Staffing Strategies
Determining what is best for your company boils down to three components:
Risk, Cost, and Benefit.
On one end of the spectrum, the use of staffing firms is a popular approach in
which certain components of distribution operations are staffed. Companies
Determining can save money by utilizing the recruiting, administration and benefit costs of
a staffing firm. Depending on the size of a distribution center, the benefits that
what is best for staffing provides include reducing the need for a significant HR staff to deal
your company with personnel issues and a cost savings resulting from a potentially less
robust benefit structure.
boils down
The risks of this approach include the likelihood of creating an under-
to three performing workforce in a fully part time environment or creating a co-
components: employment situation that would negate any benefits savings originally
realized. Training effort and costs, quality and productivity are often cited as
Risk, Cost, and being difficult issues to deal with in short-term staffing solutions. It is often
Benefit. very difficult to create and maintain a high
performance work environment with the constant
workforce churn typically associated with short term
staffing.
On the other extreme, many companies choose to
use third party logistics companies to handle their
entire distribution operations for them. This is a
significant decision and much has been written about
the success and failure of many 3PL arrangements
over the years. Some major 3PL organizations have
achieved high performance status for their clients. As such, they can bring
tremendous value to companies.
One way to jump to the high performance end of the workforce maturity
matrix is to outsource your distribution center to one of these 3PLs. Their
level of sophistication in supply chain operations, technology and integrated
service offerings can make them very attractive.
These companies are looking for a way to balance the costs and risks
associated with strategic workforce options. Just as important, the solution
needs to move companies along the workforce maturity matrix to achieve a
High Performance Workforce rapidly to drive operational and financial
benefits.
4With regard to these possible workforce strategies, there is a significant
difference in the range of services available, from simple staffing solutions to
full blown outsourcing agreements. As such, service providers at both ends of
the spectrum are attempting to scale their offerings into contract labor
solutions in an effort to expand their market presence. Some staffing firms
are attempting to take on some operational responsibility by providing on-site
supervision or providing a staff engineer to time study a specific work function Many companies
to offer a piece rate commercial structure.
seek a staffing
At the same time, some 3PLs are trying to scale back their service levels to solution that is
field a labor-only solution. At the same time, larger 3PLs who have achieved
the high performance maturity level are looking for opportunities to bring a “lighter” and
full, comprehensive warehousing solution to their customers. This would
more flexible than
include not only the labor and operational management, but also systems,
material handling equipment and a real estate solution. the expensive,
Utilizing the Managed Services Model
full outsourcing
of a 3PL.
Within this wide spectrum of possible solutions, many companies are seeking
a performance solution that is “lighter” and more flexible than the expensive,
full outsourcing of a 3PL, but carries significantly more sophistication than a
staffing firm model. Companies are searching for a way to gain the process
knowledge and execution expertise that the major 3PLs have to offer, but
want to do this in a more cost-effective manner.
This is where managed services offerings, often called “in-sourcing”, from
software and consulting companies, bring a different approach. Managed
services providers can offer a high performance workforce solution and
implementation methodology built on top of their experience in engineering
and process improvement, performance management consulting, productivity
software as well as training and organizational development programs. These
offerings are designed to provide most of the value of a sophisticated 3PL at
the cost and risk profile of a staffing firm.
5The managed service approach provides the workforce in much the same
manner as a staffing firm, but the workforce is “pre-enabled” with the core
process and technology experience of the managed services solution provider.
In most cases, managed services, or “in-sourcing” solutions include:
Engineering expertise for process improvement and best practices
Managed Cost-based performance improvement plans
Services can Employees trained in best practices and methods
On-site performance managers and supervisors
provide most of
Dynamic engineered labor standards
the value of a
Operational accountability to productivity, quality and safety
sophisticated 3PL Sophisticated Labor Management software
at the cost and Well-designed training and organizational development programs designed
risk profile to develop managers and supervisors into more effective leaders
Guaranteed cost performance through fixed piece rates and/or gain share-
of a staffing firm. based management fees
The managed service approach is also scalable from a single work cell to an
entire facility. The implementation methodology can call for taking over an
existing workforce and/or management team. This eliminates the large, risky
and expensive hurdle of successful knowledge transfer in larger
implementations. The result is the managed service will out-perform a staffing
firm by 30% or more. Essentially, the market demands have created a way to
deliver the value of hiring a 3PL to run your operation at the expense of a
staffing-only solution.
Comparing Staffing Alternatives
The chart in Figure 3 compares the difference in capabilities and value brought
by the different approaches.
As this comparison illustrates, for companies who are looking for new ways to
progress along the workforce maturity model, but have not become vested in an
outsourcing solution or where staffing does not provide the desired operational
benefits, there is an alternative workforce strategy for implementing a high
performance workforce.
6A Comparison of Workforce Strategies
Managed
Staffing 3PL
Services
Human Resources
Recruiting Yes Yes Yes
Benefits Administration Yes Yes Yes Every company
Safety Programs No Yes Yes needs to compare
On-site Management No Yes Yes
the difference
in capabilities
Organizational Development No Limited Yes
Performance Operations
Best Practices No Yes Yes
and value of
Engineered Processes No Limited Yes the different
Dynamic Performance Standards No Limited Yes approaches.
Labor Management System Software No No Yes
Performance Dashboard No No Yes
Incentive and Discipline Programs No Limited Yes
Operational Accountability No Yes Yes
Guaranteed Piece Rates No Limited Yes
Guaranteed Service Levels No Yes Yes
Continuous Improvement
Workforce Training No Yes Yes
Strategic Planning No Yes Yes
Network Design No Yes Yes
Facility Design and Layout No Yes Yes
Slotting No Limited Yes
Asset Management
Warehouse Own / Lease No Yes No
Equipment Purchase No Yes No
Value
Savings Potential vs. DIY -25% -15% to 10% 15% to 30%
2 to 4
Timeline to Savings N/A 18+ months
months
Figure 3 7The Changing Face of Staffing
When faced with increased labor demands in a changing, competitive business
environment, being able to intelligently deploy your workforce to maximize
productivity is imperative to success. Knowing the “ins and outs” of staffing can
help you determine the right strategy for your distribution center.
Managed service
Managed service offerings can provide a compelling financial and operational
offerings can alternative to short-term staffing and full 3PL outsourcing choices. Although you
provide a must assess your company’s position on the performance matrix and determine
the specific capabilities required by your operations, for many companies
compelling managed services can bring significant intellectual capital and experience in
financial and developing a high performance workforce.
operational
alternative.
8TZA, founded in 1984, is a leading supply chain consulting firm delivering management consulting, engineering, technology, managed services and human capital solutions to assist companies to achieve world-class customer service and a least-cost operating position. TZA’s expertise helps develop a high performance culture across supply chains. It has served the supply chain performance improvement goals of some of the world’s leading companies. 3880 Salem Lake Drive, Long Grove, IL 60047 847.540.6543 | www.tza.com ©2011 TZA. All rights reserved. D1062011
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