Commentary | Viewpoint

Are You in the Dark About Labor Visibility?

Tags: Logistics I.T., Labor Management

Malysa O’Connor is Director, Logistics Practice Group, Kronos. 800-225-1561

This is an extremely challenging time for logistics companies. Margins that were already razor-thin continue to be squeezed due to rising costs and constant pressure to cut prices to stay competitive. At the same time, customer expectations are higher than ever as they demand faster delivery requirements and shorter lead times. In logistics — already a lean-margin industry — these conditions can have an adverse effect on top-line revenue growth and bottom-line profitability.

What can logistics companies do to reverse the trend? Many companies turn to technology to automate processes and seek new efficiencies, but unfortunately, their instincts are only half right. While they focus on gaining complete insight into materials flow throughout their supply chains, they lack the same visibility into their single-largest controllable expense: labor.

Focusing on Employees

Labor management solutions automate critical workforce business processes such as time, attendance, and employee scheduling, and provide real-time visibility into labor performance data. They represent an effective tool for logistics companies looking to improve competitive advantage. Companies that use warehouse management systems alone tend to only operate at 50-70 percent of their optimal performance, according to a recent study by Gartner Research. Meanwhile, those that use labor management technology to measure actual workforce performance against labor standards achieve optimal levels of 90 to 100 percent.

Many logistics companies and manufacturers don’t yet have this capability, however. As a result, they lack visibility into labor data on all aspects of their business, and how it affects costs and productivity. Every day, they deal with employee-related variables that have the potential to add costs or squeeze overall capacity.

For example, management may suspect they have productivity leaks or excessive overtime. Yet without real-time, detailed, and insightful labor data, they simply can’t make decisions in time to change the results.

In the logistics industry, this lack of visibility prevents the organization from identifying two significant obstacles: hidden costs and latent capacity issues.

  • Hidden costs: Labor can exceed 50 percent of the total operating budget, so it’s easy to see how unseen labor costs can have a severe adverse effect on overall profit margins. Idle or under-utilized workers can be devastatingly expensive. For example, for a logistics company with a $10-million payroll, just five percent in non-productive time wastes $500,000 annually.
  • Latent capacity issues: As the economy starts to recover, volumes rise and demand variability requires management to react quickly to meet fluctuations. But many companies face a shortage of qualified drivers due to regulatory issues, or have high DC labor turnover. Both contribute to capacity issues and limits output.

Logistics companies attempt to differentiate themselves by providing better services, so in the pursuit of “perfect orders,” services simply can’t be compromised. Instead, management tends to use more overtime or premium pay employees to meet delivery expectations, both of which cause costs to escalate. Not only does this create bottlenecks that restrict production and revenue, but these companies are forced to rely on costly overtime and premium pay to meet the demand spikes, which decreases overall profitability.

Manual Workforce Management Efforts Don’t Get the Job Done

Past attempts to solve these challenges fell short for a few key reasons. First, companies didn’t have insight into real-time labor performance. Relying on manual management reports that could only provide a “rear-view” perspective on performance made it impossible to react to unexpected issues or adjust staffing in anticipation of demand spikes.

They also lacked visibility into true labor costs and didn’t have the accurate visibility into real costs associated with customers, tasks, or orders. Without an awareness of how paid time is spent — for which tasks, when, and by whom — management was hard-pressed to control labor costs, including unnecessary overtime and non-productive time.

The Labor Management Solution

Even with the perfect plan — the right people at the right cost — many unanticipated events can occur each day to threaten the mix. Orders change, employees get sick, or people come in late, leave early, or just don’t show up at all. Each of these changes impacts your output and put overall productivity at risk. For example, a replacement worker operates 29 percent less effectively than existing workers. What this could mean to a logistics organization is that if 50 cases are expected to be packed, the replacement worker would only pack 35.5, resulting in an unexpected decrease in productivity.

Labor management technology solves the visibility challenge and help logistics organizations identify and overcome the issues related to costs. Consider the following examples where workforce management can help:

  • Scheduling. By aligning best-fit employees with actual demand, management can eliminate understaffing that creates inflated overtime and overstaffing that leads to non-productive time.
  • Absenteeism. When there is unplanned absenteeism, managers can immediately take steps to call in the right replacement at the right cost — critical to avoid lost productivity.
  • Real-time insight for improved control. Supervisors can identify “at-risk” orders and, if needed, re-allocate employees instantly to ensure service levels are met.
  • Reporting and dashboards. With labor data and dashboards at their fingertips, managers can measure employee work against specific orders, activities, or shipments.

Complete Labor Insight

Despite the promise of a recovering economy, logistics companies still need to do everything they can now to improve their overall performance and sharpen their competitive edge.

Increasing labor visibility to identify hidden costs or capacity issues is an extremely effective way to understand obstacles and take action in time to influence positive results. In turn, workforce management gives them the tools they need to improve overall performance — whether they’re looking to cut costs, improve productivity, or create better revenue growth and bottom-line profitability.