White Paper Enhancing “the Perfect Order” in ... · Enhancing “the Perfect Order” in Distribution and Logistics 3 How can you better manage your most costly expense? The answer

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Enhancing “the Perfect Order” in Distribution and Logistics

Using Workforce Management to ImproveLabor Productivity, Control Labor Costs, and Sustain Profitable Revenue


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Improving Both Customer Satisfaction and Profitable Revenue — the Perfect Order in Action

If you’re like most logistics organizations, maximizing customer satisfaction and loyalty is at the top of your mission statement. And to accomplish this goal, your organization is dedicated to the pursuit of “the perfect order.” The perfect order is a proven objective that measures the error-free rate of each stage of a purchase order. It embodies the endless pursuit of perfection measured by 100 percent customer satisfaction and retention.

But what about the distributor’s side of the equation? While the customer-centric focus of the perfect order is vital to an organization’s competitive success, the perfect order must reflect the distributor’s cost and profitability goals as well. Consider the playing field you face today — a competitive landscape loaded with significant pressures that impact your ability to generate not just revenue, but profitable revenue:

• Lower pricing due to global competitive marketplace

• Higher labor, transport, and other infrastructure costs

• Rising customer expectations, faster turnaround, and shorter lead times

• Integrated web/catalog and other new fulfillment channels in the digital age

• Costly and complex value-added services required for competitive differentiation, such as accelerated delivery, kitting, or custom packaging

• Eroding profit margins

• Capacity constraints due to a shortage of qualified talent throughout the supply chain

In this fiercely competitive environment, the logistics organizations that win will be those that can optimize both the customer and distributor sides of the perfect order. This focus on the perfect order will drive the profitability necessary to face the intense competitive pressures of the 21st century without sacrificing the service necessary for customer retention.

New Focus on the Workforce

How can your organization optimize both customer satisfaction and profit-able revenue? By increasing productivity while containing costs. Traditionally, cost-cutting measures are target on overhead, fuel, equipment, or other often uncontrollable expenses that “nip at the corners.” But to go to the heart of cost control, you need to target your largest controllable expense — labor.

“Better, faster, and cheaper just isn’t good enough anymore. Customers today are demanding perfect orders, shipped and deliv-ered on time to the minute, at a cost that barely leaves any margin for error — or profit.”1

IndustryWeek

Labor is now typically

more than 50% of the

operating expense on the

warehouse floor.

1 Dave Blanchard, “The Perfect Order,” IndustryWeek, accessed on January 24, 2013 http://www.industryweek.com/articles/the_perfect_order_13211.aspx.


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How can you better manage your most costly expense? The answer is workforce management. A new generation of workforce management strategies and solu-tions is available to help organizations:

• Increase labor productivity — get more throughput out of your workforce

• Control labor costs — contain the expense itself

With such a significant impact on profitability, these workforce management approaches can create a path to the perfect order — an order that offers a true win-win for both you and your customers.

The Power of Information: Who’s Flying Blind? Who Isn’t?

Consider …

You’re renegotiating a contract with a retailer that’s also evaluating one of your competitors. You need a competitive price to keep the business, yet you want the contract to be profitable — you can’t lose money trying to meet service-level commitments or providing additional services. Do you have the labor cost insight and performance visibility you need?

Without real-time visibility into — or control over — labor expense on the ware-house floor, targeting a competitive price is hard, and keeping it profitable is even harder. If you’re flying blind, this negotiation will play out in one of two ways:

1. You lose the contract to your competitor

2. You win the contract but it’s not a profitable one (your labor expense is too high or your throughput is too low) and you have trouble servicing the customer

What about a third option? You win the contract, and it’s both profitable and serviceable. How can you ensure this third outcome? More often than not, by improving workforce performance.

The PeRFeCT ORdeR

For the Customer: For the Organization:

Right product, right quantity, right place, right time, right cost, per the customer’s expectations

Right employees, right resources, right utilization, minimal nonproductive time

“The perfect order” reflects the goals of both the customer and the distributor. The customer wants to receive the order with 100 percent satisfaction. The organization needs to deliver the order with maximum labor efficiency and cost control to increase its profitable revenue. New workforce management approaches are available that can help meet both objectives.


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Workforce Performance: It’s All About Visibility

New workforce management approaches can give you unique visibility into two critical areas of your workforce — performance and costs. This improved work-force visibility can help maximize labor efficiency, improve cost control, and sustain profitable revenue.

What’s the risk of flying blind? If you can’t control labor expense on the ware-house floor — or improve labor productivity and throughput — you can’t expect to maintain profit margin on output. You can’t fulfill the true potential of your side of the perfect order.

Organizations like yours face two key visibility challenges that can severely erode your ability to sustain profitable revenue — labor performance and labor cost.

Do you have the visibility you need into these two vital areas?

Or, like so many other logistics organizations, are you behind the eight ball, relying on after-the-fact labor management approaches? Struggling with clip-boards and notebooks to manually collect labor data on the warehouse floor? Or depending on blended cost averages and estimated overhead to take a “best guess” at actual labor costs?

Challenge No. 1: Labor Performance Visibility The key to increasing productivity and throughput is to have real-time visibility into what’s happening on the warehouse floor — the tasks and subtasks that are conducted by both people and equipment — so that (1) unproductive time can be identified and then transformed into productive time or (2) underutilized labor can be put to good use. Imagine what impact filling excess capacity might mean for increasing your throughput.

Each task has its own output, resulting in hundreds — possibly thousands — of individual status transactions. The problem is that not all these tasks are captured. You can’t see the true status of the task — how much is complete or how much time remains. In many cases, true task-level status reaches the operations manager after the fact. How helpful is it to know at 2:37 p.m. what five employees were doing at 10:17 that morning — when you might have needed them to help unload a late-arriving truck? Labor performance visibility that’s truly useful means right now, in real time.

The COSTS OF FLYING BLINd

• Labor is now more than 50 percent of a typical operating budget, so unseen and uncontrollable labor costs can have a catastrophic impact on profit margins.2

• On average, 15 percent of all paid time is nonproductive, which creates labor expense without adding value. When applied to a warehouse with a $10 million payroll, just 5 percent in nonproductive time wastes $500,000 annually.3

• Competitive differentiation requires value-added services that increase labor costs. Without real-time information to keep labor expense within expectations, margins erode.

2 “Salaries as a Percentage of Operating Expense,” Society for Human Resource Management, accessed on February 4, 2013, http://www.shrm.org/Research/Articles/Articles/Pages/MetricoftheMonthSalariesasPercentageofOperatingExpense.aspx.

3 Warehousing Education and Research Council, “DC Measures 2012,” Watch, Spring 2012, 6.


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Challenge No. 2: Labor Cost Visibility Does your paid time equal the time taken for each fulfillment task and activity in the warehouse? What happens to the labor expense of paid time that’s never assigned to any pick-ticket, work order, or load? How many “lost minutes” do you have? What were those minutes for, and how much did they cost? How much did they account for inconsistent profit margins?

Your organization needs to identify and allocate every labor activity to every payroll dollar. Identifying “lost time” might help you increase throughput by putting that time to more effective use, correctly drive more accurate labor costing for more profitable bids, or reduce overall labor expense by eliminating that time altogether.

But if you can’t understand how paid time is spent — for which tasks, when, and by whom — then you have poor visibility into true labor costs and the causes behind margin variances. Ultimately, you are left with a “best guess” at what corrective actions might be needed.

Real-Time Visibility: Improving Throughput and Controlling expense

Consider …

A typical employee earning $20 an hour attends a team meeting that runs long and returns a little late from a break, creating maybe just 12 minutes of “lost time” that day. At just 3 percent of an eight-hour shift, those 12 minutes may not seem like a lot. But multiply those 12 minutes a day by 1,000 workers and they add up to more than $1.1 million a year. More than $1 million in extra wages that return zero value to your organization.

The good news? With workforce management, you now have the tools to capture that lost time — and do something about it.

Logistics organizations have complete knowledge of their labor costs — all they have to do is look at their payroll. But knowing the total expenditure only goes so far. With deeper workforce performance visibility, you and your executive team can gain insight into:

• How those paid work hours are being allocated (reconciling paid labor to output)

• How those dollars can work harder for the organization (increasing produc-tivity while containing costs)


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Finding just 2 or 5 percent of additional productivity per employee per day can generate huge value to the organization. The opportunities to increase throughput — and profitable revenue — can be dramatic:

• Seventy-seven percent of logistics operations using workforce management have realized a 10 percent-plus boost in productivity and more than one-third have gained a 25 percent-plus increase in labor output.4 Would greater capacity and higher efficiency let you provide more value-added services?

• Eighty percent of organizations have reduced labor costs by an average of 17 percent.5 Would 17 percent lower labor costs lead to more competitive bids? Help you capture more business?

• Distributors have seen a 31 percent lower average backlog and an order turnaround that’s one day quicker.6 Would quicker turnaround drive up customer satisfaction?

An Automated, Systematic Approach

Are you or your workers really going to sift through millions of tasks, activi-ties, and timekeeping transactions to find which transactions cost more than expected? Which were unproductive? Which could lead to higher throughput or greater profitability? Of course not — the sheer mass of information makes a manual approach nearly impossible.

What your organization needs is an automated, systematic workforce manage-ment approach that establishes and enforces the highest standards of performance. An approach that:

1. Establishes uniform performance standards for tasks and subtasks — productivity and throughput

2. Establishes cost expectations — labor budget and profit margins

3. Identifies which transactions are failing or are about to fail your perfor-mance standards and/or cost expectations

4. Monitors those transactions and guides your managers to necessary correc-tive actions

This type of workforce management approach can provide more than real-time visibility. It can help you identify trends and patterns on the warehouse floor, determine likely root causes, and even guide your managers to the corrective steps necessary to improve labor performance enterprisewide while controlling payroll expense.

SCeNARIO: WORkFORCe MANAGeMeNT ON The WARehOuSe FLOOR

4:13 p.m. A major customer has an order scheduled for the 5:00 p.m. shipment, the last one of the day. Using a workforce man-agement approach that identifies the labor status to the minute, with easy access through a tablet or browser, the logistics manager quickly determines that existing staff is working at peak productivity but the order is fall-ing behind schedule. He identi-fies another order that is nearing completion well ahead of its delivery time. He pulls workers from that order and reassigns them to the one in jeopardy.

4:15 p.m. The reassigned work-ers arrive at the dock moments later and help complete the packaging. 4:55 p.m. The trucks roll away from the loading docks on schedule with the completed order. Customer expectations have been met. Profit margins are maintained, as there are no unexpected labor expenses. The perfect order — a win-win for customer and workforce — has been achieved.

4 Uncover the Secrets to Gaining a Competitive Edge: How Workforce Management Drives Productivity and Quality Service. Conducted by RBInteractive Research Group on behalf of Logistics Management and Supply Chain Management Review magazines, March 2010. Sponsored by Kronos.

5 Aberdeen Group, On-Time and Under Budget: Maximizing Profits with Efficient Warehouse Management. (Aberdeen Group, 2009).

6 Aberdeen Group, On-Time and Under Budget.


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Rethinking Conventional Approaches with Workforce Management

As you consider the advantages of adding a workforce management capability to your operation, ask these questions:

1. What approaches are you using today? What kinds of problems do those create?

2. What if you could capture labor performance data from your warehouse floor and transform it into actionable, real-time management information?

VISIBILITY INTO LABOR PROduCTIVITY

Conventional Methods A Better Approach

Manual timekeeping approaches such as spreadsheets or clipboards lead to inaccurate or missing data and inefficient or labor-intensive processes.

You want an easy, effective, and efficient way to collect labor data. Consider advanced timekeeping and recording devices that can identify employees, prevent improper clock-ins or clock-outs, prompt for missing information, and even provide audio or video notices. Imagine a safety reminder video message, right there on the device when the employee punches in.

Lack of standards (like OT allocation or absence approvals) introduces variability and inconsistency across locations, leading to morale issues and possible regulatory risk.

Automation excels at bringing regimen and discipline to process. Consider a labor management system that provides a structured workforce management methodology across the organization, yet with flexibility to adapt to location-specific needs or new requirements as the logistics environment changes.

Labor isn’t tracked at the task level, so while at any point it may be possible to know where inventory is, it’s not always easy to know where labor is, let alone if that labor can (and should) be reallocated to other tasks.

Go beyond mere timekeeping to collect labor-focused data for tasks and activities within the workday. Integrate data collection with your existing tools (scanners, etc.) to identify actual worked time as well as nonproductive time — both expected, like scheduled breaks, or unexpected, like material delays. Integrate with the warehouse management system to record quantities picked by employees to truly assess productivity. Gain visibility into the labor force by tracking activity at the employee level — know what people are doing, for which pick-ticket, and even where in the facility those resources are located.

Visibility empowers you to respond effectively to unexpected situations, such as sudden spikes in demand, unanticipated orders, labor fluctuations, or customer requests for additional services such as a rush shipment.


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VISIBILITY INTO LABOR COSTS

Conventional Methods A Better Approach

Logistics service providers seeking labor cost information are often left with a long look in the rearview mirror, typically too late to take meaningful corrective action. They rely on reports — produced through a cumbersome process of combining data from payroll, a warehouse management system, and other systems — that offer too little, too late.

Logistics managers need timely access to the current status of operations: core staffing levels, job assignments, and order status (including in process, quantities remaining, and completed). Look for ways to provide dashboard views of critical information, and tailor the information to the needs of each type of operation in each location. (For example, a transportation operator may have different needs than a floor supervisor.) Consider the best ways to make the information available. Clearly, web-based is a must, providing 24/7 access from anywhere in the world. Even better is migration to mobile devices like smartphones, PDAs, and tablets.

Few logistics operations have labor cost targets. Without such targets, it’s hard to see when labor costs start to exceed expectations — even though labor cost is driven by wage rates (seniority), premium pay (OT), incentives, and temporary labor.

Consider implementing key performance indicators (KPIs) for labor cost. Aggregate the data across the organization and present the data in a relative context. First, at the employee level, so the comparisons are fair. (After all, comparing total labor expense for a 120-employee facility against a 330-employee facility doesn’t make sense.) Second, in ways that resonate with each manager. Seek out labor management solutions that bring you some guidance and a starting point — best-practice performance targets, ideally broken out by type of labor expense, such as planned OT vs. unplanned, OT hours, OT expense, etc.

High-level reports don’t provide the detailed data — or ways to work with it — that can lead logistics managers to true root causes and subsequent corrective actions.

Leverage and dissect your labor information to identify trends, patterns, and cause-and-effect relationships. For example, how the total number of worked hours impacts employee fatigue — and how that ties to accuracy and efficiency on the last hour of the shift.

Visibility gives you control as you align labor cost to tasks and activities in the warehouse. Proactive monitoring, rapid response, and continuous adjustment against root causes is the foundation you need for keeping labor costs consistently under control and profit margins within expectations.


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CuSTOMeR CASe STudY: NFI Industries7

New Jersey-based NFI Industries, founded in 1932, is a $750 million provider of trucking, warehousing, and third-party logistics services. Its clients include retailers and manufacturers such as Colgate-Palmolive, Lowe’s, and Wal-Mart.

With 1,700-plus employees in labor-intensive jobs across a full spectrum of warehousing operations, NFI’s sustained success depends on the productivity of its workforce.

The ChallengeNFI’s management team needed to improve workforce productivity and throughput without increasing workforce expense. The problem? The company was using a semimanual system in an attempt to capture labor activity and cost data on hundreds of warehouse tasks and activities. It was a laborious, time-consuming, error-prone process that fell short on several fronts:

• Data was often inaccurate or unaccounted for if timesheets were lost

• Employees spent too much time filling out activity timesheets instead of working

• Visibility was limited to after the fact (often days late), once the data had been entered into the homegrown warehouse management system

NFI’s paper-based system also required clerical staff to collect, collate, and correct timesheets submitted by workers from the plant floor. NFI ended up with inaccurate and inconsistent labor numbers. The visibility it was looking for remained elusive.

The SolutionNFI replaced its manual activity tracking processes with an automated work-force management system. NFI initially rolled out the system in a single facility, focusing on the goal of allocating every minute of the workday to a given task or activity:

• Data capture was integrated through bar code readers, helping to eliminate the inaccuracy, delays, and inefficiency of the paper-based approach

• Workforce hours were captured with greater accuracy across a wider range of warehouse tasks

• Detailed, granular labor costing reports were provided to a group of 20 managers, who could review actual performance versus expectations, pinpoint productivity issues, and define corrective actions to improve work-force efficiency

7 Nucleus Research, ROI Case Study: Kronos Workforce Activities: NFI Industries (Kronos Incorporated, 2007).


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The ResultsThe company found a number of “quick wins” following just a two-month deployment and proceeded to subsequently deploy the workforce management solution in other warehouses throughout its network. NFI recognized gains in several areas:

• Manual data entry and the requisite double-checking were eliminated

• Clerical staff were redeployed to more strategic, value-added work

• Labor could be tracked at the activity level, not merely for total expense or time

• Paid time was reconciled to actual output, creating unique visibility into actual labor costs

• Twelve-month payback was confirmed based on identified labor cost savings and productivity gains — direct and indirect benefits within that period totaled $200,000 at just the first of NFI’s distribution facilities

What did better labor visibility mean to NFI? Without it, finding that same $200,000 would mean generating an additional $2 million in revenue per facility (at an estimated margin of 10 percent per industry average). In a chal-lenging economy restricting revenue growth, better workforce management provided NFI with a way to drive profits without sacrificing customer service.

Asking the Right Questions

To determine the potential benefits of deploying a workforce management approach that creates better workforce visibility, Kronos invites you to ask a series of questions that go to the heart of your organization’s labor challenges, cost expectations, and profitability goals.

Information: How much do you have?What would it mean to labor efficiency if you could replace manual processes with automated solutions that eliminated human error, saved time, and ensured a consistent approach across facilities?

Evaluate your current labor management approach to see how much informa-tion you have access to.

• Ask operations managers: How uniform are the labor management approaches across multiple warehouses? How variable are work standards and perfor-mance metrics?


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• Ask human resources: How consistently are policies applied across locations? Where is fairness most at risk? What is the impact on employee morale?

• Ask payroll: What is the payroll error rate? Payroll expense? How much manager time is tied up in collecting time, approvals, and corrections?

Accuracy: How reliable is your data?How accurately can you allocate paid time to orders shipped? How much unallocated labor is “lost” in the void?

Evaluate the accuracy of information you’re using today, both in execution and in financial planning.

• Ask operations managers and supervisors: How easy is it to identify who worked on a given pick-ticket, fulfillment order, or load plan? How much did they achieve in that shift? Did they meet performance standards?

• Ask cost accounting: How accurate is the labor costing? How much unallocated paid time is there, and what is the impact on profit margins? Can this be validated?

Visibility: How fast can you get it?What would it mean to overall workforce efficiency if you could identify produc-tivity issues and take corrective action in real time?

Examine how much visibility your organization has into what’s going on in real time on the warehouse floor — the hundreds or thousands of tasks, subtasks, and activities that go into order delivery on a daily basis.

• Ask operations managers and supervisors: How easy is it to modify labor assignments to adjust for unplanned absences, order changes, material delays, tardiness, or other factors? Can labor performance be verified? Within a pay period? A day? At the task or pick-ticket level?

• Ask the IT department: Can accurate labor performance data be supplied to the executives who are asking for it — operations managers, cost accoun-tants, and senior executives? How trustworthy is the data submitted?

Kronos Incorporated 297 Billerica Road Chelmsford, MA 01824 +1 800 225 1561 +1 978 250 9800 www.kronos.com


© 2013, Kronos Incorporated. Kronos and the Kronos logo are registered trademarks and Workforce Innovation That Works is a trademark of Kronos Incorporated or a related company. All other product and company names are used for identification purposes only and may be the trademarks of their respective owners. All specifications are subject to change. All rights reserved. SD0070-USv1

Conclusion: The Time for Workforce Management Is Now

Today’s workforce management strategies can drive you closer than ever to “the perfect order.” While perfection remains an aspirational goal rather than a quantifiable metric, a more effective use of labor can take your organization to a new level of productivity and profitability.

Visibility into labor productivity and labor cost brings you opportunities to improve throughput on the warehouse floor, increase customer satisfaction, and win the price wars while maintaining your margins.

By finding innovative ways to increase throughput while containing costs, you can successfully deliver on the true promise of the perfect order:

• For the customer: 100 percent satisfaction and loyalty

• For the distributor: sustainable profitable revenue

Logistics organizations that leverage the power of workforce management will be best-positioned to compete and win in the 21st-century marketplace. Those organizations that do not may be left behind — perhaps forever.

To learn more about how increased visibility drives sustained profitable revenue, please visit: www.kronos.com/distribution.

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White Paper Enhancing “the Perfect Order” in ... · Enhancing “the Perfect Order” in Distribution and Logistics 3 How can you better manage your most costly expense? The answer