Leveraging Lean and Labor Management

Q: In the context of retail, what is lean labor management and what does it entail?

A: Lean has origins in manufacturing, but some of its concepts apply in the retail space—notably, reducing waste and increasing quality. Using these lean components as a foundation for labor management increases productivity and reduces costs in a warehouse or distribution center. Companies can leverage this to create new standards and guide employees toward better performance, then recognize and reward accordingly. Lean labor management requires communication between operations staff, IT, human resources, and finance because each function plays a shared role.

Q: How does a company know when it needs to reconsider labor management?

A: There are two primary drivers: when the chief financial officer directs the company to reduce costs; and when a facility is out of capacity and needs to push more volume out of existing infrastructure. The first scenario is most common. If a company makes considerable investments in facilities, technology, and equipment, it wants to reach its full performance entitlement. Lean labor management can target improvements in three areas.

First, a lean labor approach improves processes. This means creating better methods through more straightforward, standardized, and streamlined use of technology and materials handling systems.

Second, companies can improve time utilization. Whether it’s a manual or automated operation, management wants employees working full shifts. Inactivity gaps often signal other problems.

Finally, setting performance goals and giving employees the chance to earn rewards for exceeding them based on daily performance increases work pace.

These three factors, even in automated operations, drive tremendous throughput increases and/or labor cost reductions for the same amount of investment.

Q: How can retailers create a lean labor management program?

A: Think of a lean labor program as a pyramid comprised of four levels. The foundation is lean thinking, process improvement, and quality. After creating a lean base, companies can establish statistically valid goals, such as engineered labor standards, to identify good performance. With these two building blocks in place, management has a platform to provide coaching and feedback, which demonstrates the company’s commitment to continuous improvement.

Finally, at the top of the pyramid, management creates a recognition and reward structure. The trap companies often fall into is starting at the top and trying to implement a pay-for-performance program without any of the other foundational work. Typically, these efforts have a very short life.

Commitment must exist within the organization to ensure the underlying incentive structure is maintained fairly. A company can do it internally or outsource to a third-party logistics provider. Either way, having a lean labor management process in place becomes a fundamental game changer for how the company performs.

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