A RedPrairie White Paper

Creating the Demand-Driven WorkforceSM

JANUARY 13, 2006

EXECUTIVE SUMMARY

As the 21st century is beginning to hit its stride,

a tectonic shift has occurred in supply chain man-

agement. The factory-based push economy of

the 20th century that made the U.S. a world pow-

erhouse has given way to a retailer-focused pull

economy where customer demand is the dominant

force in shaping supply chain operations.

Fueling this shift have been significant improve-

ments in communications and transportation, most

notably the internet and containerized shipping,

as well as the opening of China as both a supply

base and huge potential market. The resulting glo-

balization of supply and demand has substantially

increased the complexity and variability of supply

chain operations. To support this shift, traditional

supply chain practices must be supplanted by

a new approach where responding quickly and

profitably to customer demand is the guiding prin-

ciple. Enter the Demand-Driven Supply Network

(DDSN).

DDSN is a term coined by AMR Research to define

the practice of designing supply chains, or net-

works, around the imperatives of sensing, shaping

and responding to customer demand. (Other ana-

lyst firms describe this process with slightly differ-

ent terminology, but the same basic framework.)

According to AMR, companies fully deploying

DDSN “have 15% less inventory, a 17% better per-

fect order performance, and a 35% shorter cash-to-

cash cycle time.” More importantly, “DDSN lead-

ers have 10% higher revenue and 5% to 7% better

profit margins than their competitors.”1

Despite these impressive results, however, there is

a missing link in the DDSN framework that could

significantly increase savings and profit margins.

When analysts discuss the supply side of the

equation, they focus on manufacturing and inven-

tory, perhaps a vestige of the factory-based push

mentality. Their theory is that basing manufactur-

ing and inventory planning on customer demand

through disciplines like sales and operations plan-

ning (S&OP) will better tailor supply to demand,

producing higher revenues at lower cost.

What is missing is the connection between cus-

tomer demand and the supply of human resources

needed to execute distribution functions. Since

labor represents 50 to 70 percent of the cost of

distribution operations for most companies, bet-

ter aligning supply and demand for this variable

resource through demand-based planning and

scheduling can significantly impact bottom line

results.

This white paper will explain how tying workforce

planning and allocation into DDSN programs will

create a Demand-Driven WorkforceSM for improved

efficiency, customer service, quality and safety.

THE CUSTOMER DEMAND IMPERATIVE

You can hardly pick up a paper or business jour-

nal today without reading about Wal*Mart, the

world’s largest company. By its sheer size and buy-

ing power, Wal*Mart can dictate purchase terms

with manufacturing behemoths such as Procter &

Gamble, Unilever and Kimberly Clark, as exempli-

fied by their recent mandate for EPC/RFID compli-

ance.

Gone are the days when large manufacturers could

develop new products, create demand for them

through sophisticated marketing programs, and

1 Lora Cecere, Debra Hofman, Roddy Martin, and Laura Preslan, “The handbook for Becoming Demand Driven,” AMR Research, July 1 Lora Cecere, Debra Hofman, Roddy Martin, and Laura Preslan, “The handbook for Becoming Demand Driven,” AMR Research, July 1

19, 2005

then set price points and delivery schedules to

maximize the value of manufacturing and distribu-

tion operations. Now mega-retailers like Wal*Mart,

Target, Tesco, Albertson’s and Home Depot create

demand and dictate price through massive retail

operations, as well as requiring additional services

such as store-ready pallets, special packaging and

labeling, and other value-added services. Thus,

“pull” has replaced “push” as the dominant sup-

ply chain dynamic, shrinking the latitude suppliers

have to manage production and distribution, and

putting a premium on efficiency and agility.

Another key market force impacting suppliers is

consumerism. To satisfy varying and changeable

consumer tastes, products have greatly prolifer-

ated. This product explosion has commoditized

products, shortening product lifecycles and elevat-

ing the importance of successful new product

development initiatives (NPDI). More products with

shorter lifecycles and the uncertainty of NPDI suc-

cess greatly complicate distribution planning and

operations for both suppliers and retailers.

Adding fuel to the fire and giving operations man-

agement even more headaches is the globaliza-

tion and personalization of supply and demand.

Today a buyer sitting at their PC in Frankfurt or

Johannesburg or Sydney can order a product

made in China online from a supplier in Cleveland.

This globalization of both supply and demand,

facilitated by technologies such as the internet,

satellite communications and containerized ship-

ping, has substantially increased the complexity

and variability of supply chain operations.

Faced with many and varied demands from retail-

ers and consumers, together with shorter product

lifecycles teamed with longer, more complex sup-

ply chains, what are suppliers and distributors to

do? The only viable option is to build more agile,

adaptable supply networks tuned to ever-chang-

ing customer demand. This approach has been

dubbed the demand-driven supply network, or

DDSN.

Leading supply chain analyst firms have written

extensively on this topic and it is not the intention

of this paper to duplicate that work. Rather, this

paper will fill a gap in the research pertaining to

the human resources, that is, distribution workers,

who are so critical to executing DDSN strategies.

In order for an agile, adaptive DDSN to function

effectively in meeting customer demand, the distri-

bution workforce that executes the plan must also

be agile and adaptive. This has several implications

for operations management which will be dis-

cussed in this paper. Most notably it will be shown

how two currently separate disciplines, workforce

management and labor management, must come

together through the auspices of sales and opera-

tions planning (S&OP) to create a single, demand-

sensing execution capability called the Demand-

Driven WorkforceSM (DDW).

NEVER THE TWO SHALL MEET…UNTIL NOW

Two separate workforce systems have developed

over time to meet the differing needs of manu-

facturing and distribution operations. To serve the

needs of the factory-based push model of the 20th

century, workforce management systems were cre-

ated to take input from manufacturing execution

systems (MES) and order management systems to

produce workforce plans and schedules. These are

sometimes augmented with time and attendance

(T&A) systems to ensure workers are available to

fulfill the schedules. More recently, these systems

have been adapted to meet the scheduling needs

of highly variable retail operations.

2

During the same timeframe a parallel set of work-

force systems have been developed for distribution

labor management. These solutions employ indus-

trial engineering principles to design the optimal

way to perform distribution tasks and to develop

engineered standards on which to measure perfor-

mance. They then use performance monitoring and

reporting software to evaluate results. The engi-

neered standards also form the basis for modeling

near-term workforce staffing requirements.

Unfortunately, these to two types of systems, com-

ing from different disciplines and having different

objectives, have never been integrated to leverage

their respective strengths to form a single view

of workforce performance management. Further,

neither system has previously been tied into the

S&OP process to match supply and demand for

this variable and expensive resource.

A significant benefit of labor management is

attributable to the development of engineered

standards for specific distribution operations.

These standards are developed by evaluating sub-

processes or tasks with industrial engineering dis-

cipline, such as precisely where to place a tote or

position a fork-lift to minimize pick time. The engi-

neering model provides the discrete baseline data

for estimating everything from schedules and work

plans to assessing the impact of changes in ware-

house layout, process or slotting configuration.

This detailed baseline data could be immensely

useful in predicting future resource needs. But the

lack of integration prevents the schedule optimiza-

tion capabilities of workforce management from

leveraging the deep engineering model of labor

management. Combined they could provide a

more detailed and accurate plan for resource

scheduling and allocation across the operation.

The advantages of an integrated approach

become more important in light of recent research

by AMR that indicates “a high demand for work-

force planning and scheduling in the distribution

center” and also that this capability is where the

gap between perceived value and current perfor-

mance is the greatest. Furthermore, as “business

processes in the supply chain gain in complexity,

there is likewise a greater need to manage the

effect they have on labor resources.”2

As will be discussed later in this paper, workforce

planning and scheduling is now coming together

with labor management through a new generation

of workforce performance management solutions.

Furthermore, these disciplines are being attuned

to demand signals through their inclusion in the

S&OP process.

THE IMPORTANCE OF PLANNING

Meeting customer demand has never been

more complex and variable than it is today. With

global supply and demand networks fueled by 3

2 Greg Aimi and Mark Atwood, “Looking Ahead in Distribution Labor Management,” AMR Research, August 2005

mega-retailers, product proliferation with shorter

lifecycles, and the increased emphasis on new

product initiatives, correctly sensing and profitably

responding to customer demand has never been

more important.

For example, General Motors’ popular employee-

pricing program increased sales 47 percent in June

2005. More recently, the introduction of Microsoft’s

XBOX 360 game console raised far more demand

than their supply chain could immediately support.

As a consequence, operations managers now

more than ever need accurate demand data that is

understood, up to date, and available in real time

to support their operational planning needs. The

good news is that companies are beginning to

take a new and more realistic approach to planning

as defined within the discipline of S&OP. Supply

Chain Planning (SCP) applications are emerging

from several years of disillusionment and are now

more scalable and functional.

The major gap in these systems, however, contin-

ues to be the failure to translate customer demand

into workforce demand. This inability to translate

inventory requirements into labor requirements

creates a barrier to fully optimizing overall opera-

tions, thus leaving readily available money on the

table.

EMERGENCE OF WORKFORCE PLANNING

As companies focus on becoming demand-driven,

the S&OP process becomes central to sensing,

shaping and profitably responding to customer

demand. AMR Research defines S&OP as “the

translation of upstream demand data into an

actionable operational plan” and that “rapid prod-

uct commoditization, shorter product lifecycles,

higher product mix, and higher product volatility

are all putting pressure on margins and accelerat-

ing the importance of S&OP processes.”3

Yet, the key workforce ingredient in profitably

responding to demand is seldom included in the

S&OP process. Thus, operational plans created

under this process are not as efficient as they could

be. This is partly a systems problem, since supply

chain planning, workforce management, and labor

management systems are not integrated, and part-

ly a process problem, because management has

not generally perceived the connection between

workforce demand response and profitability in

distribution.

Clearly, the answer is to integrate the planning

and scheduling of workforce management with the

engineering model of labor management, and tie

the resulting capability into the S&OP process as

shown below for both manufacturing and distribu-

tion environment. This integrated process can add

significant additional value to DDSN initiatives.

WORKFORCE PERFORMANCE MANAGEMENT

The first step is to marry workforce planning and

scheduling with labor management. This is being

accomplished through the emergence of a new

class of labor management technology called

Workforce Performance Management (WPM) that

mirrors and supports the integrated workforce per-

formance management process.

Under this definition, the workforce performance

management process consists of:

• First, applying industrial engineering principles to

create an environment under which the workforce

can be most productive

4

3 Lora Cecere, Debra Hofman and Guy Dunkerley, “Sales and Operations Planning: A Cornerstone to DDSN Leadership,” AMR Re-search, July 18, 2005

• Using the engineering model plus demand sig-

nals to plan and allocate human resources across

distribution operations

• Tracking time & attendance information to pro-

vide a total picture of on-site performance from

the time they clock in until they clock out

• Employing real-time performance measurement

technology to monitor and evaluate performance

against standards

• Providing rewards, incentives or discipline based

on the above results

The fact that workforce performance management

has evolved into a single integrated business pro-

cess provides a sound foundation for integrating

the two types of business applications, workforce

and labor management, to create an integrated

WPM solution. Not only does an integrated solu-

tion better support the integrated WPM process, it

allows the deep engineering model and standards

data of labor management to be leveraged for

more accurate workforce planning and scheduling.

However, to fully fulfill the promise of the demand-

driven workforce, the integrated workforce perfor-

mance management process and solution must

also be directly linked to S&OP. This is where

DDSN and the demand-driven workforce come

together to produce the most optimal results.

THE DEMAND-DRIVEN WORKFORCE

At the heart of most S&OP processes are planning

systems that focus primarily on balancing esti-

mated demand with the appropriate supply. This

involves translating estimated sales into a manu-

facturing plan that subsequently feeds manufactur-

ing execution systems.

The problem is that supply chain execution sys-

tems, such as warehouse management, transporta-

tion management and labor management, don’t

receive this forecast and have little to no visibility

to the planned flow of inventory into the ware-

house from either outside suppliers or manufac-

turing, or to plans for new product introductions,

special promotions or other forecasted changes in

demand. Without this information, there is no way

for operations management to efficiently plan for

and allocate the human resources necessary to ful-

fill this fluctuating demand.

With no clear visibility into what is coming into

the warehouse or DC, operations managers must

be reactive and plan for the worst case scenario.

In other words, how many people do I need

to ensure that I can get all orders out on time?

Without adequate upstream visibility and discrete

standards data, operations managers can only

use gross historical benchmarks to estimate what

resources may be required.

Thus, the challenge in planning and allocating

the workforce is getting meaningful upstream

demand data and then translating that data into

an actionable operational plan. This is precisely

what the S&OP process should be providing. The

key to doing this is to understand the impact that

demand data has on the workforce. Translating 5

demand data into a workforce plan requires an

understanding of the relationship between opera-

tional activities and the required labor elements

to support those activities. This is most readily

achieved through an engineering model that exam-

ines discrete activities and applies a standard or

time increment to each.

By establishing new discrete engineering baselines,

operations managers can quickly and accurately

translate demand information into workforce

requirements. Long-term demand can be used for

staffing plans to adjust workforce size to fluctuating

needs. Shorter term demand can be used to iden-

tify required skill sets and create work schedules.

As a result, the proper number of workers and skill

sets are available when needed to ensure timely

customer service without overstaffing or unneces-

sary overtime or temporary employment.

THE DEMAND-DRIVEN WORKFORCE

By leveraging the discrete engineered standards

of labor management in workforce planning and

scheduling driven by a proven demand planning

process, companies can more accurately forecast

and allocate their distribution workforce. This

makes operations more predictable and efficient.

AMR Research states that typical efficiency gains

when deploying labor management systems

“include a rise in productivity of 20% or more

for warehouse operations. At a CP company we

interviewed with seven warehouses and a $22.5M

distribution payroll, the productivity gains in opera-

tions yielded a savings of $13M over three years.

Companies that have as little as a $2M to $3M dis-

tribution payroll can still take advantage of these

benefits.”4

Similarly, a study of RedPrairie Workforce

Performance Management customers conducted

by ARC Advisory Group found “40 percent of

respondents received between 5 and 15 percent

improvement in productivity with another 40 per-

cent receiving greater than 15 percent improvement

in productivity.”5

The good news is these benefits are additive to

the benefits of DDSN. Leveraging the discrete

engineering model of labor management in work-

force planning and scheduling provides the vehicle

through which the demand visibility of the S&OP

process can drive even greater DDSN efficiency. In

other words, the agile, adaptive Demand-Driven

Workforce enables DDSN to be more agile, adap-

tive and profitable in responding to customer

demand.

An additional benefit of the demand-driven work-

force is the best practices approach inherent in the

engineering model creates consistent processes.

This improves quality and safety, and simplifies and

standardizes training. The result is reduced train-

ing and distribution costs, and improved customer

service.

SUMMARY

The transformation to a pull economy and the

emergence of China as a major supplier and mar-

ket, have greatly increased the complexity and vari-

ability of supply chain networks. Companies must

find ways to quickly sense, shape and profitably

respond to fast-changing customer demand. The

Demand-Driven Supply Network has proven to be a

viable approach to accomplish this.

But the current framework for DDSN leaves out an

important and potentially lucrative source of sav-

ings and efficiency – the distribution workforce.

Advances in Workforce Performance Management

solutions that leverage rich engineering models

from labor management in workforce planning and

scheduling, and which respond to demand signals

through S&OP processes, are providing the miss-

ing link to create the Demand-Driven Workforce.

By providing operations managers with visibility 4 Greg Aimi and Mark Atwood, “Looking Ahead in Distribution Labor Management,” AMR Research, August 20055 Steve Banker, “Reducing Distribution Costs: The Value of RedPrairie’s Productivity Management Solution – Customer Survey,” ARC Advisory Group, March 2003

to upstream demand and the tools to convert that

demand into workforce plans and schedules, the

Demand-Driven Workforce enhances DDSN effec-

tiveness and makes all organizations, whether they

adopt DDSN or not, more agile, efficient and com-

petitive.

About RedPrairie Corporation

For over 30 years RedPrairie has enabled leading

global companies to create competitive advantage

through supply chain excellence. RedPrairie’s com-

prehensive technology solutions provide rapid and

sustainable return on investment by optimizing the

performance of people, places and processes.

RedPrairie provides industry-tailored solutions for

diverse markets, including consumer goods, retail,

food and beverage, building products, high tech /

electronics, third party logistics, industrial / whole-

sale, automotive and service parts, and pharmaceu-

ticals.

For additional information, call 1.877.733.7724, or

access www.RedPrairie.com.