8 Questions to Ask for Better Labor Management

QUESTIONS

TO ASK FOR

BETTER LABOR

MANAGEMENT

Managing

People & Process

Productivity

Evaluation

Program

Cook & Associates | Management Consultants

About the Author

Don Cook is President of Cook &

Associates, located in New Brunswick, NJ.

After serving as an officer in the U.S. Coast

Guard, he joined Booz Allen & Hamilton,

management consultants. Following this

position, Don founded Cook & Associates.

With the firm, he has provided consulting

assistance to a wide variety of clients and

has done extensive work to improve

productivity and service in retail activities. This includes buyers’

offices, merchandise checking & marking, receiving & shipping,

storage & picking, order fulfillment, credit handling, check-out

counters, and garment alterations. He created the Labor

Management System PEP (Productivity Evaluation Program) and

has directed over 200 PEP installations.

Don holds a B.S. degree in Industrial Engineering from Rutgers

University and an M.B.A. degree from the University of

Washington. He is a registered Professional Engineer and

member of Beta Gamma Sigma, a business honor society. He

has published articles on productivity improvement, efficient

workplace layout, and the use of simulation to solve golf course

waiting line problems. Don is a member of the Rutgers Industrial

Engineering Advisory Board.

This booklet is based on a webcast produced for Logistics Management, a Peerless Media, LLC publication.



What is Labor Management

Are You Doing the Best with What You Have

What is the Labor Management Payback

Are there Cultural Challenges

What are the 6 Most Important Concepts

How about Labor Management Software

What are the Implementation Time & Costs

Why do Companies Wait

THE QUESTIONS

1 Cook & Associates | Management Consultants

The people working in supply chain operations—distribution and

fulfillment centers—are among the most important resources in

any organization. To ensure that these individuals and the

overall process are highly productive, it’s important to apply

effective labor management practices and techniques. So, what

is this “Labor Management” that we are talking about?

In very simple terms, a Labor Management Program is the

system and the skills used by managers to help them reach an

Effective Operating Level.

THE LABOR MANAGEMENT SYSTEM (LMS) is the methods

& procedures designed to gather data, and the software

that efficiently consolidates that data into meaningful &

action-oriented operating reports.

THE SKILLS are acquired through extensive “Change

Management” training and are needed to reach the desired

results. These skills allow management to interpret and use

the LMS reports to:

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WHAT IS LABOR MANAGEMENT?

Develop Comprehensive Management Techniques

Provide Timely Employee Feedback

Reward High Performers and Coach Low Performers

Identify Processing Problems and Bottlenecks

Implement Methods and System Improvements


Components of a Labor Management Program will be detailed

later, however, this graphic gives some hints as to the techniques

used to …

Reach the Effective Operating Level by Doing The Best with What You Have.

Now remember, once you get to the Effective Operating Level,

you have to be sure to maintain that level. But that’s not the

end. As methods and conditions change, this same learning

process must be repeated under the revised operating

environment to continue to do the best with what you now

have ...

And your Program must be flexible enough to again provide the right tools.

Another way of looking at this—how often have major capital

expenditures not achieved the projected return on investment?

Is it possible that you lack the right tools to manage the new process effectively ?

2

Although benchmarking is a popular consultant’s approach to

determine how your organization compares with your peers, its

use is limited. If the data is favorable, everyone is happy. If it’s

not, managers spend a lot of time justifying their ranking. They

normally fall back on the reasons their operation is different

such as: types of merchandise, value-added services, processing

systems, and the merchandising & logistics philosophy. Very

often they’re right – the low ranking is due to the operating

differences, not their operating effectiveness!

Operating Differences Make Benchmarking Difficult.

It turns out you can get a better idea about whether a company

is having trouble reaching an Effective Operating Level by

listening to the managers’ problems.

Courtesy of Solution Selling® Blog

ARE YOU DOING THE BEST WITH WHAT YOU HAVE?

Cook & Associates | Management Consultants 3


Many of these telltale conversations go something like this:

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Often we are asked to visit a facility to see whether the right

labor management tools are in place. We start by asking some

questions such as: 1

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If the answers to these types of questions are not satisfactory,

the right tools are probably not in place. Of course, good

consultants should check on some of the answers. A quick story

shows what might happen:

How many employees are in each area and does it

include temps and loaned & borrowed hours?

What techniques are used to flex staff to balance

labor with work volumes?

Are high & low performers identified and how are

they rewarded or coached?

What key tasks comprise most of the workload and

are there any bottlenecks or problem areas?

I don’t really know what my people are doing, or

what they should be doing

We use a lot of temp staff and overtime, but I’m

not sure they are cost-effective

Some employees ask me why they’re paid the same

as others who do half the work

Stores say merchandise isn’t ticketed properly and

it doesn’t arrive on time

4

We were told by a company in the U.K. that they go into their computer screens to see what an employee did for the previous day and their productivity index. One of the managers went through the process. It took the manager about 8 minutes to obtain the data for one employee, whose unrealistic productivity index was 10%. Let’s not spend too much time on how to calculate that productivity index now since we will provide more details later on. Simply, the employee earned 45 standard minutes of work or ¾ of an hour for the day, and was paid for 7½ hours. Therefore, dividing .75 by 7.5 resulted in a productivity index of 10%. Obviously something was wrong with the data – or at least, we hope there was. The manager’s embarrassed response was: “Well, I knew this data was available, but to tell the truth nobody ever uses it.”

The Simple Moral of the Story:

If you’re evaluating whether effective labor

management tools are in place, be sure

to check in the real world to see if the

management process actually works

the way you’ve been told.



Companies sometimes think that stories of productivity gains

are over-rated. But, there are a lot of what appear to be

documented stories that show productivity gains in the 30-40%

range. Honestly, it’s not easy to measure the gains with a high

degree of accuracy since companies don’t operate in a

laboratory environment where labor management is the only

productivity improvement effort. It’s normally incorporated with

various system and facility improvements.

However, we did take pains a few years ago to survey some

clients and tried to strip out productivity gains by means other

than our PEP (Productivity Evaluation Program). We also

intentionally selected clients where the operating environment

was more stable.

WHAT IS THE LABOR MANAGEMENT PAYBACK?

Program Results

6


The results for clients using PEP showed significantly higher

productivity, improved work quality, and reduced service times.

The initial productivity increase was in the range of 16%, with an

additional gain of 12% for clients moving on to incentives. 50%

of incentive gains were shared with employees. Also, work

quality improved 8% and merchandise turn times were actually

reduced by about 12%.

Remember, most productivity gains are achieved

by using efficient methods and reducing idle time - not by putting employees on a treadmill !

In addition, our experience shows that project breakeven, based

on Cash Flow analysis, is somewhere between 10 and 14

months. You have to admit that’s pretty impressive. Can other

capital expenditures match that return?

Bottom line: There are significant gains that can be achieved by implementing an effective

Labor Management Program.

Normal Average Payback: 10 to 14 months

Project Breakeven

$0

$200

$400

$600

$800

$1,000

$1,200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

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As with any new initiative, there will be some challenges.

However, if you start by creating a sense of pride, it will increase

the chance of success. In other words ...

You have to be good to work in This Company!

The cultural challenges will vary based on current conditions and

the overall labor environment.

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No matter what the challenge, management must always reserve the right to manage.

About 40% of our clients are unionized. If management has

maintained a good working relationship with the union, and has

preserved their right to manage, there normally is no problem

with implementing an equitable program.

ARE THERE CULTURAL CHALLENGES?

Current Conditions: The number and difficulty of the

problems will vary based on the type of relationship

management has already created with the employees,

and if applicable, the union.

Labor Environment: Naturally, acceptance of the

Program will be much easier if the productivity

improvements are going to be used to absorb higher

work volumes rather than to reduce staff.

8


Employees get credit for the work they perform and know they will be objectively evaluated

Managers get data to monitor their employees and a true picture of their operating effectiveness

Both Employees and Managers can get incentive rewards that will further strengthen their support

However, if an organization has forfeited the right to manage its

employees, it could well be that the cultural challenges become

a major issue. In some countries in Europe with very aggressive

unions, individual employee work measurement is almost

impossible.

So, how is the challenge met? Use the Program to establish a

strong employee and manager team for productivity

improvement.

This means there must be total transparency with all involved

parties and everyone must understand what they will get out of

the Program. As an example…

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Acceptance and morale can actually go up with the proper implementation of a


PROGRAM

LABOR MANAGEMENT


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5

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WHAT ARE THE 6 MOST IMPORTANT CONCEPTS?

Work Measurement

Employee Feedback

Performance Quality

Employee Incentives

Staff Scheduling

Data Summarization

Work Measurement Philosophy

Approach to Setting Time Standards

Narrowing the selection to just the six most important concepts

is somewhat difficult since a good Labor Management Program

integrates many important management techniques. But, let’s

give it a try…

These six concepts provide the basic framework for effective

labor management. The discussion emphasizes how to design a

practical program that will be accepted by the employees and

useful to all management levels.

In other words, the Program must really work !

WORK MEASUREMENT

Since work measurement is the nucleus that everything revolves

around in a Labor Management Program, more time will be

spent discussing this concept than the others. The concept can

really be divided into two topics:

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Work Measurement Philosophy: Ideally, measurement is by

individual employee, or if not practical, by team or group. The

type of measurement is based on how the work is performed

and the availability of production data. In most PEP installations,

70 to 90% of measurement is individual.

THE NUCLEUS

The goal is to provide equitable measurement of all employees

and work centers. A key to having a program that works well is

to avoid micro-managing. Although labor management software

has the capability to monitor employees hour-by-hour, is this

really a good long-term approach? It might work for a short

period, but over a longer period, it can become a labor relations

concern, and the maintenance burden is too high for the

program to survive. Even during implementation, the micro-

management approach significantly increases employee

acceptance problems.

Balance the Level of Detail - More is Not Necessarily Better, and Less is Often Not Useful !


In PEP, we get excellent results by using a more people-oriented

approach that measures an employee’s work for an entire day

and compares that to the hours paid. Good consultants know

how to balance the level of detail.

Approach to Setting Time Standards: The complexity of the

time standards, and the methods used to set them, can be a very

lengthy discussion. This booklet only covers the overall

approach and hits some selected points. Let’s start by showing

why time standards are even needed. The illustration below

uses a tailor’s job to show how time standards are used to

convert production data into a Productivity Index.

As can be seen in the example, the tailor performs three

different tasks: Cuff Pants, Shorten Jackets, and Line Sleeves.

By using time standards, the tailor’s production is converted into

6 Standard Hours of work. Dividing this number by 8 Paid Hours

results in a Productivity Index of 75%. Now you can see why

time standards are needed to account for the wide work

variations in the calculation of the Productivity Index.

Units

Completed

Per Day

1. Cuff Pants 20 cuffs 80

2. Shorten Jackets 6 jackets 180

3. Line Sleeves 2 sleeves 100

360

6

8

75%

50 min. per sleeve

A. Total Standard Minutes Per Day ……………………….……………

B. Total Standard Hours Per Day (360/60)…………….……………

C. Total Hours Paid ……………………………………………………………

D. Productivity Index (6/8)…………………………………………………

30 min. per jacket

PRODUCTIVITY CALCULATION

Task Standard

Minutes

Per Unit

Total

Standard

Minutes

4 min. per cuff

12


These time standards can be set using a variety of techniques,

such as: stop-watch studies, standard data, time logs, work

sampling, video analysis, etc. Properly applied, any one of these

techniques can normally be used to obtain acceptable time

standards. The key is to make sure the standards are as simple

as possible and that standards maintenance will not outweigh

the benefits gained through the work measurement program.

Another problem with the short-interval measurement,

previously mentioned, is that it requires more complex time

standards. The rule of thumb is the shorter the measurement

period, the more detailed the standards. A realistic approach to

setting and maintaining standards is more important than an

engineering masterpiece.

That’s what we mean about being practical !

EMPLOYEE FEEDBACK

The Labor Management Program must promote Employee

Feedback between managers and their employees. In PEP, daily

reports point out high and low performers. This allows

immediate action to be taken to show appreciation to the high

performers, and to help low performers improve. In addition,

there are two features that facilitate the required feedback:

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Employee On-Screen Review: Viewing this daily network screen

shows employees and managers how well they are performing

and how the Productivity Index (%) is calculated. The current

and previous week’s data is available by day and the total week.

Employee On-Screen Review

Employee Performance Review

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The screen clearly shows how work in multiple tasks is

summarized by using engineered time standards. The resulting

Total Standard Hours credited to the employee, divided by the

employee’s Total Available Hours to perform the work, produces

an accurate Productivity Index.

Employee On-Screen Review

As you can see, Mary Jones had a very good week. Her

Productivity Average was 99% for the week compared to her last

100 hours of work at 95%, and the work center average of 92%.

Incidentally, the colored fields will be used later to show how

Incentives are calculated.

Employee Performance Review: PEP also reviews all employees

weekly and prints a graph for any employee whose last 100

hours of measured work falls below a minimum acceptable level.

An integrated three-stage review system is included to track

retraining efforts and monitor probation periods.

No Task Name Measure Time Std Units Mins

01 Start Picking Cycle Cycle 2.00 49 98 Total Payroll Hours

02 Full Cases Picked Case 0.31 424 Minus Special Projects

03 Partial Cases Picked Piece 0.16 522 Training (120 Min.)

04 Loose Pieces Picked Piece 0.10 500 Minus Paid Relief

05 Distance Traveled Feet/100 0.48 302 Minus Hours Loaned Out

06 Locations Visited Location 0.05 263 Plus Hours Borrowed In

Standard Minutes

Total Standard Hours (Standard Min. ÷ 60) Total Available Hours

=

EMPLOYEE DETAILS

Employee: MARY JONES 95Current Productivity % Last 100 Hr Productivity %99

92

COMPLETED WORK HOURLY DETAILSCategory Hours

Data Period: ENTIRE WEEK PEP Center: PICKING PEP Center Productivity %

35.16 35.50

40.00

1369 2.00

3264

4998 2.50

630 0.00

5253 0.00

2109

PRODUCTIVITY INDEX CALCULATION

STANDARD HOURS: 35.16 ÷ AVAILABLE HOURS: CURRENT PI %: 99 35.50

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Employee Performance Review

As you can see, Tom Jones was an above average employee until

Week 45. At that point this graph was generated. Now he

would be put in the initial training stage—Status 01. The

effectiveness of his training would automatically be monitored

and, based on his results, he would either be put in the second

training Status (02), or in a probationary period.

PERFORMANCE QUALITY

Employee Performance Quality is an important part of the

overall Program. It must be carefully monitored to establish and

maintain high service standards. It’s even more important if

you’re paying incentives. Obviously, you don’t want to pay for

poor quality work.

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Employee: TOM JONES

GOAL: PI %:

PEP Center: PACKING Status: (00) CURRENTLY NOT ON REVIEW

Reason for Report: POOR PERFORMANCE

EMPLOYEE DETAILS

PEP Week NumberPEP Week NumberPEP Week NumberPEP Week Number

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31 32 33 34 35 36 37 38 39 40 41 42 43 44 45


Productivity Cannot be Increased at the Expense of Quality

A potential quality problem was brought to our attention in the early stages of our software development. One of our clients, a Canadian retailer, was concerned that since they started paying incentives, work quality might have gone down. Whether our client had a real or perceived difference in quality was immaterial. We realized they did not have the right tools in place to know the answer, and quickly remedied the situation by including a comprehensive Quality module in the Program.

Performance Quality can be based on a 100% inspection process,

or on quality sampling procedures. Just as in work measurement,

based on the availability of the data, quality statistics are by indi-

vidual employee; if not, by team or group. The Quality results

can also be automatically factored into incentive awards.

EMPLOYEE INCENTIVES

For many clients significant productivity and quality improve-

ments can be achieved without employee wage incentives.

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However, if an organization chooses to pay for performance,

even higher levels of productivity and quality can be reached and

the benefits shared with the employees. If monetary incentives

are not part of the program, some type of incentive should be

developed to let your high performing employees know they are

appreciated. Approximately 60% of our clients use wage

incentives, which are calculated weekly.

Individual or Group – Monetary or Other

Share Productivity & Quality Gains with Employees

The biggest bang for the buck is individual employee incentives.

Where individual incentives are not practical, team or group

incentives can be used to be sure everyone participates in the

Program.

But make no mistake, incentives must be carefully controlled and your Labor Management Program

must provide the data to do this.

PRODUCTIVITY MEASUREMENT

QU

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ME

AS

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Incentives are based on sharing the labor hours that employees

save the organization when they perform at a higher level than

the pre-set goal. The Hours Saved calculation not only includes

measured work, but also includes Special Projects (non-

measured work) such as helping to train other employees.

This graphic shows how an incentive award is calculated in PEP.

The colored fields relate back to the Employee On-Screen

Review illustration:

Using the productivity data for Mary Jones, the above details

how she saved the company 8.8 Labor Hours. This was shared

50% with Mary and resulted in a weekly Bonus Award of $44.

STAFF SCHEDULING

Naturally, if the number of employees is not matched to the

processing volume, either productivity or timeliness will suffer.

5

1. Productivity for the Current Week 99% 5.

2. Productivity for the last 100 Hours 95% 6.

3. Total Available Hours 35.50 7.

4. Special Project Hours 2.00

8. Percent Improvement from Goal ( 99% - 80% ) ÷ 80% 23.8%

9. Hours Saved by exceeding Goal 35.50 x 8.4

10. Percent Improvement from Goal ( 95% - 80% ) ÷ 80% 18.8%

11. Hours Saved by exceeding Goal 2.00 x 0.4

12. Total Labor Hours Saved 8.4 + 0.4 8.8

13. Hourly Savings Shared 8.8 x 4.4

14. Employee Bonus 4.4 x

50%

Hours Saved on Available Time

Hours Saved on Special Projects

Employee Weekly Bonus

Productivity Incentive Goal

Percent Savings Shared

Bonus Hourly Rate

18.8%

=

=

=

=

FROM THE PRODUCTIVITY CALCULATION VALUES SET BY THE CLIENT

80%

50%

$10.00 $44.00

$10.00

CALCULATION DESCRIPTION CALCULATION RESULT

23.8%

=

=

=

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If a Labor Management Program is to achieve the desired results,

Staff Scheduling and the ability to flex staffs are an absolute

necessity. There are several techniques to accomplish this

balancing. They are too numerous to describe here, but they

center around the use of some of these techniques:

cross-training & the sharing of employees among departments,

part-time workers & agency employees, overtime & multi-shifts,

reduced hours or layoffs, voluntary time off, and the assignment

of special projects.

The number of variables in scheduling makes the process

somewhat difficult. Thanks to computers, the complexity

problem can now be solved. As an example, PEP uses simulation

and feedback technology to perform the numerous calculations

needed to generate accurate schedules. The Program handles

the variations in daily and weekly workloads, and creates the

complicated internal network of inter-relationships among

operating areas. Once schedules have been generated, it is

equally important to monitor their accuracy and the actual

performance against the schedule.

What good is a neatly prepared schedule if it is not accurate, or managers do not

respond to the information ?


Sometimes, adhering to the schedule is a challenge. Either the

staffing requirements are difficult to achieve in a short period of

time, or there are significant financial constraints. This story

illustrates the problem in the real world:

We attended a scheduling meeting for a fashion distributor in the United States. One of the supervisors presented an interesting situation: “Suppose the budget would be exceeded if I used the labor called for in the schedule. Should I stay within budget constraints, or meet the company’s timeliness goals?” In this case, our client’s management team placed a priority on getting the merchandise out on time, and authorized the labor called for in the schedule. What would you have said - service or budget?

DATA SUMMARIZATION

Up to this point, in discussing the six most important concepts in

labor management, the focus has been on managing people.

Data Summarization now focuses on managing the process. This

is accomplished by compiling meaningful data for all levels of

management. In PEP, this is done by producing two reports:

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Daily Flash: This report automatically summarizes information

for each department and the entire building. The report is

produced daily as work progresses throughout the week, and is

customized to contain key statistics that evaluate operating

effectiveness. The graphic on the next page shows a partial

sample Daily Flash for an actual picking operation:

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The Daily Flash

The Weekly Historical Profile

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Let’s take a look at the above illustration and analyze some of

the results. For our purposes, focus on the data circled in red for

Wednesday. As you can see, the Wednesday Picking

Productivity Index (line 2) and Pieces Picked per Hour (line 5) are

appreciably lower than the other four days in the week. You can

also see (line 3) that Wednesday had the lowest volume.

Has the picking manager taken effective action to balance the

staff with the reduced volume? Line 4 shows that the staff was

reduced from the other four days; however, the low Productivity

Index indicates that it has not been reduced enough. Could the

manager have done more Stock Consolidation (line 13)? Could

the manager have Loaned Hours to some other areas (line 18)?

And why is the manager still using Agency Staff (line 23)?

This is one example of how the Daily Flash can be used to

evaluate manager and process effectiveness.

LineNo Mon Tue Wed Thur Fri Avg Cum Avg Cum

1 PRODUCTION SUMMARY2 Picking Productivity Index 88.9 94.1 80.3 91.0 89.1 90.23 Total Pieces Picked 23328 21685 15480 23966 21115 84459 22788 911514 Staff Used (FTE's) 11.0 12.0 9.0 11.1 10.8 11.85 Pieces Picked per Hour Used 264.5 225.4 215.0 271.1 245.0 242.26 Work Complexity: Std Min./Piece 0.176 0.217 0.193 0.174 0.189 0.1907 VOLUME SUMMARY8 Pct of Pieces - Full Case 66 52 64 54 52 539 Pct of Pieces - Broken Case 15 22 15 21 22 25

10 Pct of Pieces - Loose 19 26 21 26 26 2211 Distance Traveled (Ft)/Location 9 10 11 8 9 912 Pieces Picked per Location 3.8 4.1 4.0 3.9 3.9 4.113 Reserve Cases Consolidated 20 142 64 18 61 244 0 014 PEP SUMMARY15 Productivity Index - Regular 100 97 83 97 94 9816 Productivity Index - Transfers 71 100 0 92 88 9117 Productivity Index - Agency 66 74 57 68 68 6018 Hours Loaned Out 8 0 0 8 4 16 6 2419 Hours Borrowed In 16 16 0 16 12 49 16 6420 Total Hours Used 88.2 96.2 72.0 88.4 86.2 344.8 94.1 376.521 Percent of Staff - Regular 63 67 89 63 70 6622 Percent of Staff - Transfers 18 17 0 19 14 1723 Percent of Staff - Agency 18 17 11 18 16 1724 Percent Time Available 87.2 86.8 86.1 86.3 86.6 85.025 Percent Special Projects 6.5 6.9 7.6 7.4 7.1 8.7

PICKING FLASHKey Index Name

Days in Week This Week Last Week


This Last Last Pct This Last Pct This Last Pct LastWeek Week Year Diff Month Year Diff Year Year Diff 52 Wks

1 PRODUCTION SUMMARY2 Productivity Index 89.8 88.0 87.2 3 89.2 88.0 1 90.7 83.7 8 89.83 Total Pieces Processed 165826 178346 168980 -2 171366 165040 4 167250 163952 2 1684544 Total Hours Used 4757 4460 4103 16 4635 4204 10 4374 4182 5 42725 Total Labor Dollars 72164 68015 60519 19 70545 62345 13 66004 61852 7 644226 Pieces Processed per Hour Used 34.9 40.0 41.2 -15 37.0 39.3 -6 38.2 39.2 -2 39.47 Labor Cost per Piece Processed 0.435 0.381 0.358 22 0.412 0.378 9 0.395 0.377 5 0.3828 Work Complexity: Std Min./Piece 1.377 1.150 1.093 26 1.275 1.154 10 1.229 1.094 12 1.1719 VOLUME SUMMARY

10 Total Pieces Received 176717 66340 122877 44 162121 151367 7 158882 152887 4 15721611 Total Pieces Shipped 153009 184682 140205 9 158812 156792 1 155414 150984 3 15385412 Pct of Pieces - Hanging 24 18 14 76 22 16 38 20 17 17 1913 Pct of Pieces - Marked 31 25 15 98 26 15 74 24 17 42 2314 Average Pieces per Carton 18.9 20.8 21.1 -10 19.3 21.2 -9 19.6 20.9 -6 20.215 PEP SUMMARY16 Productivity Index - Regular 98 95 93 6 97 94 3 99 89 11 9617 Productivity Index - Agency 67 61 66 0 63 61 4 65 62 5 6418 Percent of Staff - Regular 64 70 74 -13 66 73 -10 67 71 -6 7119 Percent of Staff - Agency 22 16 13 66 19 12 53 17 14 23 1320 Percent Special Projects 4.7 6.7 7.7 -39 5.7 7.7 -26 7.7 8.7 -11 7.721 Percent Quality 99 97 95 4 97 93 4 98 94 4 9622 Merchandise Turn (Days) 1.4 1.3 1.7 -17.6 1.5 1.6 -6.3 1.4 1.8 -22 1.523 INCENTIVE SUMMARY24 Total Incentive Dollars 2762 2593 2139 29 2670 2309 16 2389 2096 14 240325 % of Empl's Earning Incentives 72 68 62 16 70 64 9 66 61 8 6526 Average Incentive per Employee 41.25 40.56 38.77 6 40.57 39.22 3 40.22 38.17 5 39.75

TOTAL BUILDING PROFILE (Average Per Week Values)LineNo Key Index Name

Weekly Data Month to Date Year to Date

Weekly Historical Profile: This report automatically summarizes

information for the current week and makes historical

comparisons. As in the Daily Flash, the data includes key

statistics that show the true operating picture of each

department and the building. In addition to the data shown on

the Daily Flash, the Profile normally contains Labor Costs,

Incentive Statistics, Quality Control Results, and Staff

Scheduling Data. The following shows an excerpt from an actual

distribution center Profile report:

The above illustration can be used to analyze some of the

building’s results. Let’s focus on the Year-to-Date data circled in

red. The results show an anomaly. The Productivity Index (line

2) has increased 8% over the previous year, but the Pieces

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Processed per Hour (line 6) has decreased 2%. Lines 8, 12, 13,

and 14 provide a hint as to why this situation occurred. The key

is line 8 which shows Work Complexity increased 12%. In other

words, even though the staff operated more efficiently, the

amount of work required for each piece processed was greater

than the previous year. Line 12 shows that Processing Hanging

Merchandise (normally more time-consuming than Flat

Merchandise) increased 17% over the previous year. In addition,

line 13 shows that the number of pieces that had to be Marked

increased 42%. Also, the Average Pieces per Carton (line 14)

decreased 6%.

Analyzing results like these is a fundamental part of managing

the process. Should the Distribution Center be redesigned to

handle more hanging merchandise? Should marking methods

be made more efficient, or does the merchandise purchasing

program not highlight the need for pre-marked merchandise?

Should the sortation process be re-tuned for fewer pieces per

carton? This example shows one of the ways that the Profile

Report can be used for both short and long-term planning and

improvement.


Obviously, the software should provide the management team

with what they need, and have the flexibility to respond to

ongoing operational changes. (Graphic 29)

As shown in the graphic, the production data must be integrated

with the Time & Attendance System (T&A) for effective labor

management. Without this integration, you can never be sure

that all the paid hours are accounted for. The software must

also be capable of accepting files from various Warehouse

Management Systems (WMS) and Warehouse Control Systems

(WCS). Using these files reduces clerical effort and improves

data accuracy.

HOW ABOUT LABOR MANAGEMENT SOFTWARE?

24


However, the most important feature in the Labor Management

Software is that it contain a wide variety of user-defined options.

(Graphic 3

0)

Users need the ability to customize their Labor Management Program without having to customize the software.

This means, as new software versions are released, they will be

applicable to your current installation and will not require

significant upgrade costs to change previous customization.

(Graphic 31)

Currently, the software is available through labor management

consulting firms such as ours and most WMS providers.

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Specialize in designing and implementing Labor Management Programs

Software accepts a wide variety of legacy and WMS, WCS and T&A files

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The Labor Management module is purchased as part of WMS software

Production files are built-in to avoid any file integration issues


Labor Management Consultants: One of the advantages of

using software from consulting firms is that they specialize in

designing and implementing labor management programs. In

addition, the software can accept various WMS, WCS, T&A and

legacy system files. Data from these multiple sources ensure

that all operations are included in the program.

WMS Providers: The advantage provided by WMS providers is

the ability to purchase the Labor Management module as part of

the WMS software. This means generating the production data

is simple since the production files are built-in to avoid any file

integration issues.

In either case, check that the software not only includes work

measurement, but all the other necessary modules that were

previously discussed. And, above all, make sure that the team

doing the implementation has the qualifications and track record

in all of the disciplines.

Don’t be misled ... as you will see in the next section, the real

implementation effort is not involved with the installation of

software.

The Labor Management Software is very important, but it should be less than 5%

of the Program implementation time and costs.

26


WHAT ARE THE IMPLEMENTATION TIME & COSTS?

As previously mentioned, implementing a Labor Management

Program goes far beyond the installation of software. There are

many facets to a successful program, including significant

training of managers and staff to make the program work. The

software installation actually requires very little in-house IT

assistance and can be accomplished in a short period of time – in

PEP, about 2 hours. Obviously, it’s totally different from

installing a Warehouse Management System.

Implementation Time: The sample Project Workplan shows a

typical implementation with 12 steps over a 30-week period.

1111 2222 3333 4444 5555 6666 7777 8888 9999 10101010 11111111 12121212 13131313 14141414 15151515 16161616 17171717 18181818 19191919 20202020 21212121 22222222 23232323 24242424 25252525 26262626 27272727 28282828 29292929 30303030

I.T. GroupI.T. GroupI.T. GroupI.T. Group

STEPSSTEPSSTEPSSTEPSWEEK NUMBERWEEK NUMBERWEEK NUMBERWEEK NUMBER

1 Flowchart & Key Tasks

2 Task Descriptions & Time Stds.

3 WMS & Time & Attendance Files

4 Forms & Employee Training

5 Daily Flash & Profile Reports

6 Office Set Up & Software Install

7 Start Up & Manager Training

8 Employee Quality Control

Seminar & Management MeetingsSeminar & Management MeetingsSeminar & Management MeetingsSeminar & Management Meetings

9 Staff Scheduling

10 Fine Tuning

11 Performance Review & Coaching

12 Incentive Parameters & Bonuses

Labor Management TeamLabor Management TeamLabor Management TeamLabor Management Team


Although the implementation time can be reduced by assigning

additional consultants, we like to stay on site at least 18-20

weeks to be sure the consultants are available for hands-on

consultation. In summary, here are the steps:

Steps 1 & 2: Flow-charting and time standards. This

part of the project can be expanded to

include methods improvement

recommendations and the standardiza-

tion of the various processing functions.

Steps 3 & 4: Data collection methods.

Step 5: Daily Flash and Weekly Profile reports.

Step 6: Software installation and support

training.

Step 7: Program comes on-line. Extensive

management training.

Steps 8 & 9: Employee Quality Control and Staff

Scheduling modules.

Step 10: Fine-tuning the overall Program.

Steps 11 & 12: Employee Performance Review and, if

desired, incentive parameters and

simulated payments.

Notice that the stars represent Management Meetings and a

Seminar that is held prior to starting the implementation.

28


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Time: 20-30 Calendar Weeks Consulting Costs: $150,000 - $200,000 Software License & Support: $150 - $200/Wk Ongoing Expenses (for every 100 employees):

½ Clerical

¼ Industrial Engineer Hardware: 1 PC & Printer + Network Space

This seminar is important to get everyone on board and to have

them understand their responsibilities. It also includes role-

playing and addresses any potential issues that might arise. The

interim meetings assure that everyone is kept abreast of the pro-

gress and encourage manager and employee feedback.

Implementation and Operating Costs: Project costs are based

on each specific assignment; however, in an effort to provide

some cost guidelines, the following summarizes the estimated

cost for a sample company implementation. It assumes approxi-

mately 100 employees and six operating areas: (1) Receiving,

(2) Put-away, (3) Picking, (4) Sorting, (5) Packing, and

(6) Shipping.

Hopefully this section gives some idea about the work and the

time & costs to implement a sound Labor Management Program.


If Labor Management has such a good payback, why does it take

some organizations so long to implement a program? Perhaps

they have doubts about achieving the estimated return on

investment, and are also reluctant to tackle some of the

challenges that were discussed earlier. In many cases, however,

Operating Changes and Capital Competition are the reasons

given for delaying implementation.

Graphic 37)

Operating Changes: This normally is not a valid reason—

productivity improvement is an evolving process. Dynamic

companies should be looking towards continuous productivity

improvement and therefore the change process never ends.

Most operational changes should not hold up a project, as long

as the program and the software are designed with the flexibility

to respond to the company’s revised processes. Actually, the

Labor Management Program should provide the information

WHY DO COMPANIES WAIT?

Why Wait?

Operating Changes

Capital Competition

30


needed to identify areas where methods improvements are

required, and then be able to monitor the effectiveness of the

changes.

Capital Competition: Labor Management Projects have to

compete for capital with much more glamorous physical

changes. If management wants to leave a legacy, it’s easier to

see changes in a modernized facility, exciting sortation

equipment, and sophisticated systems. All these physical

improvements, if they are justified with a sound Return on

Investment, certainly should be pursued. But in fairness, maybe

the Rate of Return should be compared to that of an effective


Incidentally, some of the highest interest is now being shown in

developing countries with escalating wage rates. They are

looking at ways to continue their cost competitive advantage. In

many cases, pay for performance incentives have a lot of appeal.

How to Get Started on a Project: Finally, if a company is serious

about Labor Management, here are the initial steps:

Make the Right Decision !

Evaluate the Need

Contact a Labor Management Consultant

Have the Consultant Visit your Facility

Obtain a Detailed Proposal

Check References and Visit A Site

Verify Funds & ROI, and if They Look Good ...

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About Cook & Associates

Cook & Associates was established over 25 years ago to provide

professional industrial engineering consulting services to a wide

variety of clients. The firm specializes in Labor Management in

retail distribution and fulfillment operations. Over the years,

Cook & Associates has successfully provided consulting services

and implemented their proprietary PEP (Productivity Evaluation

Program) for many leading organizations in the United States,

Canada, & Europe including:

© This publication cannot be copied or reproduced without the

written consent of Cook & Associates.

• Abraham & Straus • Macy's

• After Hours Formal Wear • Matalan

• American Consolidation • McGraw-Hill

• AT&T • Merry Go Round

• Barneys • Neiman Marcus

• Bergdorf Goodman • Nordstrom

• Bloomingdales • Nordstrom Direct

• Checkmark • Saks Fifth Avenue

• Chemical Bank • Simpsons of Canada

• D & R Management • State of New York

• Daffy's • Syms

• David's Bridal • The Singer Company

• Duplan Corporation • The Travelers

• Dynamic Distribution • Thomas & Betts

• EPA • Tommy Hilfiger

• Hudson's Bay • Toys 'R Us

• Kaiser Permanente • Transworld Entertainment

• Kids 'R Us • Us Angels

• Kimberly Clark • Villeroy & Boch

• Lacoste • Warner Bros.

• Liz Claiborne • Zellers


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(732) 246-3600 • [email protected]

cookpep.com • thepepblog.com

How Can WeHow Can WeHow Can WeHow Can We Increase Productivity and Service Increase Productivity and Service Increase Productivity and Service Increase Productivity and Service

When We When We When We When We . . .. . .. . .. . .

Can’t EvenCan’t EvenCan’t EvenCan’t Even Measure Them?Measure Them?Measure Them?Measure Them?

Don’t Schedule Don’t Schedule Don’t Schedule Don’t Schedule Staff Correctly?Staff Correctly?Staff Correctly?Staff Correctly?

Won’t Share Gains With Employees?Won’t Share Gains With Employees?Won’t Share Gains With Employees?Won’t Share Gains With Employees?

8 Questions to Ask for Better Labor Management

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