In a recent DCVelocity article titled “5 ways to cut DC costs”, five options for reducing costs in a distribution operation were discussed. While all were great options for any decision maker to consider, there is a sixth option that I believe stands out from the rest.
The cost of labor in most distribution centers today constitutes 65% or more of the total operating costs associated with running the operation. Yet many distribution management teams are using outdated or antiquated methods for measuring the productivity of their distribution associates. If the system or method used to measure the associates is antiquated or inaccurate, how do you know if you are getting the optimal productivity level from your current operation? Some operations managers would argue that they can compare their current results to historical values to give them a true picture of how productive their operation is in the current state. However, past performance is typically not indicative of “what’s possible.” Until you introduce a properly engineered and truly discrete labor standard, there is likely money that you are leaving on the table. How much money is there? In our experience with operations that are using “expectations” based on past performance, they are typically only achieving 60% of what they would attain with an engineered labor standard and a discrete labor management system. Even for those operations utilizing an average based or “KVI” system, their performance is typically about 80% of what they would see on a discrete system.
Why such a large difference? Discrete standards like those calculated by best-of-breed FLEXdls™ are a dynamic platform that allows you to use all your existing data to model the specific processes in your operation. Instead of being locked into a static average or average based calculation, FLEXdls™ is completely configurable giving you the ability to model your specific task with as much detail and variable input as you would like. With this in mind, an engineered labor standards creation project utilizing FLEXdls™ looks at every aspect of your operation. Once processes have been documented and updated, the studies and methods used to collect the data are designed to optimize the results and minimize the risks.
As distribution operations continue to look for ways to reduce costs, it may be time to return to the adage of “doing more with less.” Labor cost is the best place to start since it constitutes the majority of cost associated with operating a distribution center. Properly measuring associates through discrete standards not only improves associate performance, but it also helps the management team make more informed decisions regarding planning and capital investments. Depending on the current state of the operation, the initial investment to implement discrete standards can be well worth the cost.