The Growing Urgency of Labor Management (And What to Do About It)

Throughput is the name of the game when it comes to meeting surging market demand. Today, distribution networks face substantial operational headwinds, even in core activities like pushing product out of the dock doors and delivering it to stores and e-commerce customers on time. Much of this challenge stems from labor shortages. While there are several factors driving the shortages, distribution centers today find themselves in an acutely tough spot. Compensation competition from COVID-19 relief packages now exceeds the typical wage competition between a distribution center and another facility up the road. After the initial stimulus in April 2020, nearly 40 percent of workers made less on their jobs than they would on unemployment benefits. Since then, distribution leaders have found labor recruitment and retention very difficult due to the rise in new unemployment filings in the U.S.

In addition, unit labor costs and hourly compensation have been up 4.2 percent and 6.7 percent, respectively, over the last four quarters. Labor recruitment and retention challenges, paired with rising labor costs, have created a perfect storm. In this climate, effective labor planning and resource allocation have never been more important. Only then will organizations unlock the operational efficiency needed to sustain the headwinds.

Distribution Center

The answer starts with dynamic labor management. While it’s typically a nascent capability for many organizations today, new tools, processes, and routines can enable labor optimization and improve operating margins.

The formula for labor optimization comes down to right-sizing labor for workload. While that may sound simple, the required capabilities—accurate labor planning, efficient labor allocation, and effective performance management—are often deficient, even in companies that lead their industries.

All three of these capabilities require maturity across three interdependent factors: visibility, competency, and accountability. In this blog, we'll show you how to address these factors and optimize labor in today's challenging operational environment.

Visibility powered by accurate, accessible workload and performance data

The old adage that “you can’t manage what you can’t measure” is too mild for modern distribution operations. The lack of a clear and comprehensive understanding of the current and near-term operational environment poses blind-spot risks and leads to missed opportunities for labor productivity. That’s the best-case scenario. For example, the impact of multi-factor engineered standards can be limited if it’s not paired with a means for front-line leaders to view real-time productivity data that enables proactive planning routines and behaviors.

Too often this scenario causes counterproductive labor decisions and wasteful resource allocation.

Instead, you can achieve consistent and sustainable labor optimization with a comprehensive performance program. Focus on building and evolving capabilities in:

  • Labor planning: Ensure accurate and accessible near- and medium-term demand forecasts, with thorough communication between business and operations leaders.
  • Labor allocation: Implement dynamic labor planning tools and processes that enable operational leaders to proactively “right-size” labor needs.
  • Performance management: Dedicate resources to the daily planning of labor and production across shifts. Ensure a reliable and consistent “single source of truth” to support near- and medium-term staffing decisions.

Competency in new tools and technology

Constantly evolving technology enables new and enhanced operational capabilities. Yet, new technology often outpaces users’ ability to incorporate it into daily routines, ways of working, and decision-making. After all, these changes will require them to embrace new data sources, use new interfaces, discern new outputs, and make connections between new systems and processes across the operational ecosystem. This common dynamic diminishes IT investment returns, inhibits planned operational improvements, and puts undue strain on users and other stakeholders.

To overcome these challenges, develop capabilities in:

  • Labor planning: Develop dashboards and reporting for front-line leaders to view real-time labor performance and enable timely labor shifts to meet production needs.
  • Labor allocation: Implement intelligent labor allocation tools and establish consistent routines between planning and operational leaders to make intra-shift labor adjustments.
  • Performance management: Train and empower floor leaders to make real-time decisions and work with their peers, informing timely labor adjustments within and across departments.

Accountability, team performance, and continuous improvement

Evolving systems, processes, and product mixes make it difficult to consistently measure and manage labor performance across individuals, teams, and departments. Without fair and accurate standards to provide clear expectations, it’s impossible to credibly hold employees accountable for their performance. Further, while processes and policies—such as variable compensation programs—can enhance performance management, sustainable high-performance is only possible when continuous improvement is a cultural cornerstone throughout the organization.

Fostering accountability and an organizational appetite for continuous improvement requires the following capabilities:

  • Labor planning: Integrate and leverage accurate productivity and performance metrics established by engineered standards for labor planning and performance management.
  • Labor allocation: Establish a culture of continuous improvement by implementing performance management processes, such as goal-setting, associate performance observations, and effective coaching and feedback trainings for front-line leaders.
  • Performance management: Establish and facilitate regular shift-performance reviews. Mature organizations can further enhance performance and reduce turnover by implementing leader incentive plans and variable compensation programs. These programs reward consistent, outstanding individual performance.

Labor optimization’s benefits are greater—and more urgently needed—than ever. As a result, it’s a vital capability that should be built and enhanced through comprehensive, focused, performance-driving programs. By starting with iterative pilot phases and building towards longer-term continuous improvement efforts, you will instill a performance culture for sustained benefits. Regardless of where your company stands today, there are opportunities to make the most of labor management.