The “Ins and Outs”
of Distribution Center
Staffing
3 Strategies for
Improving
Workforce
Productivity
Strategies for Improving Workforce Productivity
The demand for additional distribution labor is increasing as companies react to increased activity levels resulting from the recovering economy, which is likely to increase exponentially in the next five years, The short supply of semi-skilled labor and a steady growth in US labor rates has caused significant concern for senior executives in the logistics industry. The recent recession forced companies to scale back and now that the economy is improving, the decision to add labor back into the distribution center is a tricky one.
In an effort to control labor costs and react to fluctuating market conditions, many firms are employing staffing agencies or “temporary labor” as a means to increase their workforce. Other companies have followed the advice of management consultant Peter Drucker, “Do what you do best, outsource the rest.”
Assessing Your Workforce Staffing Strategy
So what alternative is best for your company? Should you do your own recruiting, use a staffing firm, or outsource all or part of your distribution business to a third party logistics firm? Should you invest in workforce optimization programs as a way to improve productivity and utilization? Is there a way to get a tangible return from that investment and can it be measured?
To answer these questions, you must first assess your own workforce staffing strategy. Over the past 27 years of implementing performance solutions, TZA has observed and worked with hundreds of companies that face this staffing dilemma. The table in Figure 1 summarizes various strategies or levels of maturity with regard to staffing and workforce productivity strategies.
The short supply
of semi-skilled
labor and a
steady growth in
US labor rates
has caused
significant
concern for
senior executives
in the logistics
industry.
1Workforce Productivity Maturity Matrix
Basic Performance
No defined process for managing labor
No labor planning
Few, if any, metrics or performance reporting
Generally rely upon short-term staffingManaged Performance
Some processes for forecasting labor requirements have been defined and documented
Some throughput reporting at a facility or work cell level – typically ad hoc spreadsheets not integrated to other systems
Some historical metrics for measuring productivity (units per hour) by work functionEngineered Performance
Engineered and documented process and information flows for work functions
Common measurement across work functions for labor resource allocation and planning
Historical performance standards at an individual level
Service levels defined, documented and tracked using units per hour improvements and total delivered cost.
Some defined training programs
Well defined, continuous improvement programs
Dynamic, engineered work standards
Labor management technology and executivedash-You must first
assess your
workforce
productivity
maturity level
to decide the
best staffing
strategy.
The reality is that only a small percentage of companies have reached the pinnacle of a High Performance Workforce, even though there are significant cost and performance advantages for those companies that advance along this maturity matrix. The chart in Figure 2 shows the relative distribution of companies in terms of their workforce strategy maturity levels.
Moving Up on the Workforce Maturity Matrix
Typically, moving up each level along the workforce maturity matrix results in significant gains in productivity and utilization as well as cost reductions. Companies moving from a basic level of maturity to a high performance level have experienced productivity and utilization gains of 10% to 20%. Some have realized even greater savings in specific functional areas of their distribution operations. In addition to these productivity gains, cost reductions in cost/unit can be significant as well.
How do companies progress along the workforce maturity model to capture savings in what is becoming a challenging labor market? How can they get there quickly in order to realize these kinds of benefits?
Company Distribution by Workforce Productivity
There are
significant cost
and performance
advantages for
those companies
that advance
along this
maturity matrix.
3 High Performance Engineered Performance Managed Performance Basic Performance Maturity Level 60% 10% 25% 5% Figure 2Distribution Center Staffing Strategies
Determining what is best for your company boils down to three components: Risk, Cost, and Benefit.
On one end of the spectrum, the use of staffing firms is a popular approach in which certain components of distribution operations are staffed. Companies can save money by utilizing the recruiting, administration and benefit costs of a staffing firm. Depending on the size of a distribution center, the benefits that staffing provides include reducing the need for a significant HR staff to deal with personnel issues and a cost savings resulting from a potentially less robust benefit structure.
The risks of this approach include the likelihood of creating an under-performing workforce in a fully part time environment or creating a co-employment situation that would negate any benefits savings originally realized. Training effort and costs, quality and productivity are often cited as being difficult issues to deal with in short-term staffing solutions. It is often very difficult to create and maintain a high
performance work environment with the constant workforce churn typically associated with short term staffing.
On the other extreme, many companies choose to use third party logistics companies to handle their entire distribution operations for them. This is a significant decision and much has been written about the success and failure of many 3PL arrangements over the years. Some major 3PL organizations have
achieved high performance status for their clients. As such, they can bring tremendous value to companies.
One way to jump to the high performance end of the workforce maturity
Determining
what is best for
your company
boils down
to three
components:
Risk, Cost, and
Benefit.
With regard to these possible workforce strategies, there is a significant difference in the range of services available, from simple staffing solutions to full blown outsourcing agreements. As such, service providers at both ends of the spectrum are attempting to scale their offerings into contract labor solutions in an effort to expand their market presence. Some staffing firms are attempting to take on some operational responsibility by providing on-site supervision or providing a staff engineer to time study a specific work function to offer a piece rate commercial structure.
At the same time, some 3PLs are trying to scale back their service levels to field a labor-only solution. At the same time, larger 3PLs who have achieved the high performance maturity level are looking for opportunities to bring a full, comprehensive warehousing solution to their customers. This would include not only the labor and operational management, but also systems, material handling equipment and a real estate solution.
Utilizing the Managed Services Model
Within this wide spectrum of possible solutions, many companies are seeking a performance solution that is “lighter” and more flexible than the expensive, full outsourcing of a 3PL, but carries significantly more sophistication than a staffing firm model. Companies are searching for a way to gain the process knowledge and execution expertise that the major 3PLs have to offer, but want to do this in a more cost-effective manner.
This is where managed services offerings, often called “in-sourcing”, from software and consulting companies, bring a different approach. Managed services providers can offer a high performance workforce solution and implementation methodology built on top of their experience in engineering and process improvement, performance management consulting, productivity software as well as training and organizational development programs. These offerings are designed to provide most of the value of a sophisticated 3PL at the cost and risk profile of a staffing firm.
Many companies
seek a staffing
solution that is
“lighter” and
more flexible than
the expensive,
full outsourcing
of a 3PL.
The managed service approach provides the workforce in much the same manner as a staffing firm, but the workforce is “pre-enabled” with the core process and technology experience of the managed services solution provider. In most cases, managed services, or “in-sourcing” solutions include:
Engineering expertise for process improvement and best practices
Cost-based performance improvement plans
Employees trained in best practices and methods
On-site performance managers and supervisors
Dynamic engineered labor standards
Operational accountability to productivity, quality and safety
Sophisticated Labor Management software
Well-designed training and organizational development programs designed to develop managers and supervisors into more effective leaders
Guaranteed cost performance through fixed piece rates and/or gain share-based management feesThe managed service approach is also scalable from a single work cell to an entire facility. The implementation methodology can call for taking over an existing workforce and/or management team. This eliminates the large, risky and expensive hurdle of successful knowledge transfer in larger
implementations. The result is the managed service will out-perform a staffing firm by 30% or more. Essentially, the market demands have created a way to deliver the value of hiring a 3PL to run your operation at the expense of a staffing-only solution.
Comparing Staffing Alternatives
The chart in Figure 3 compares the difference in capabilities and value brought by the different approaches.
Managed
Services can
provide most of
the value of a
sophisticated 3PL
at the cost and
risk profile
of a staffing firm.
A Comparison of Workforce Strategies
Figure 3
Staffing 3PL Managed
Services Human Resources
Recruiting Yes Yes Yes
Benefits Administration Yes Yes Yes
Safety Programs No Yes Yes
On-site Management No Yes Yes
Organizational Development No Limited Yes
Performance Operations
Best Practices No Yes Yes
Engineered Processes No Limited Yes
Dynamic Performance Standards No Limited Yes
Labor Management System Software No No Yes
Performance Dashboard No No Yes
Incentive and Discipline Programs No Limited Yes
Operational Accountability No Yes Yes
Guaranteed Piece Rates No Limited Yes
Guaranteed Service Levels No Yes Yes
Continuous Improvement
Workforce Training No Yes Yes
Strategic Planning No Yes Yes
Network Design No Yes Yes
Facility Design and Layout No Yes Yes
Slotting No Limited Yes
Asset Management
Warehouse Own / Lease No Yes No
Equipment Purchase No Yes No
Savings Potential vs. DIY -25% -15% to 10% 15% to 30%
Timeline to Savings N/A 18+ months 2 to 4
months Value 7
Every company
needs to compare
the difference
in capabilities
and value of
the different
approaches.
The Changing Face of Staffing
When faced with increased labor demands in a changing, competitive business environment, being able to intelligently deploy your workforce to maximize productivity is imperative to success. Knowing the “ins and outs” of staffing can help you determine the right strategy for your distribution center.
Managed service offerings can provide a compelling financial and operational alternative to short-term staffing and full 3PL outsourcing choices. Although you must assess your company’s position on the performance matrix and determine the specific capabilities required by your operations, for many companies managed services can bring significant intellectual capital and experience in developing a high performance workforce.
Managed service
offerings can
provide a
compelling
financial and
operational
alternative.
3880 Salem Lake Drive, Long Grove, IL 60047 847.540.6543 | www.tza.com
©2011 TZA. All rights reserved. D1062011
TZA, founded in 1984, is a leading supply chain consulting firm delivering management consulting, engineering, technology, managed services and human capital solutions to assist companies to achieve world-class customer service and a least-cost operating position. TZA’s expertise helps develop a high performance culture across supply chains. It has served the supply chain performance improvement goals of some of the world’s leading companies.
