labor management for the 21st century

LABOR LABOR MANAGEMENT for MANAGEMENT for the 21the 21stst Century Century

Elevating Human CapitalElevating Human Capital

Realizing Human PotentialRealizing Human Potential

Presented by Steve Johnson, PrincipalPresented by Steve Johnson, Principal Winter 2007 MeetingChicago, Illinois

AGENDAAGENDA What is Labor Management?What is Labor Management?

Why does Labor Management matter?Why does Labor Management matter?

2121stst Century : “Gen X” and “Gen Y” Century : “Gen X” and “Gen Y”

Measure to ManageMeasure to Manage

2121stst Century: The Systems Component Century: The Systems Component

Bonus Reward$Bonus Reward$

Benefits, Payback, & Recent Case StudiesBenefits, Payback, & Recent Case Studies

• The ability to provide an accurate and fair The ability to provide an accurate and fair assessment of direct labor performance.assessment of direct labor performance.

• Improvement of processes, work measurement, Improvement of processes, work measurement, workload planning, productivity reporting, workload planning, productivity reporting, incentives.incentives.

• The ability to plan, measure, view and simulate The ability to plan, measure, view and simulate labor activities within an organization.labor activities within an organization.

• Labor Management has been around “forever”, Labor Management has been around “forever”, but it has now become “sexy” : Why?but it has now become “sexy” : Why?

Labor Management?Labor Management?

Labor Management Matters Labor Management Matters because….because….

$ 1.2 Billion National "Junior Department Store" Retailer

22%

24%4%12%

38%

Inbound FreightLabor PayrollManagement PayrollNon-Payroll, Occupancy & DepreciationOutbound Transportation

Breakdown of Recent JSC ClientDistribution Cost Structures - Retail



$ 1 Billion Regional Off-Price Stores Retailer

24%

48%3%

8%

17%




$ 400 Million SuperRegional Sporting Goods Stores Retailer

21%

25%3%21%

30%




$ 2.5 Billion National Luxury Merchandise Stores Retailer

22%

32%7%12%

27%




$ 500 Million National Luxury Merchandise E-Commerce & Catalog Retailer

22%

41%4%

27%

6%


Why does Labor Management Why does Labor Management matter?matter?

60%65%

70%80%

90%

110%

0%

20%

40%

60%

80%

100%

120%

Perc

ent

of Engin

eere

d

Sta

ndard

Unmeasured Peer Comparison ContinuousImprovement

Benchmark Standards

Engineered Standards

REWARD$Compensation

Method of Measurement

LABOR MANAGEMENT

How does the company benefit?How does the company benefit?

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

20% 40% 60% 80% 100% 120% 140%

% Performance

Wag

e C

ost

Per

Ho

ur When your

employees give you half the

effort, you pay twice as much!

At 100% performance, you pay your

employee their actual hourly

rate!

Wage Rate = $10.00 per Hour

Generally, the following are the three most Generally, the following are the three most common reasons companies decide to common reasons companies decide to implement some form of performance implement some form of performance improvement initiative.improvement initiative.

Reduce labor costs (For most Reduce labor costs (For most companies, labor is one of the largest companies, labor is one of the largest components of overall supply chain components of overall supply chain costs).costs).

Pinpoint areas needing improvement.Pinpoint areas needing improvement.

Improve associate retention in a tight Improve associate retention in a tight labor marketlabor market

Why Labor Why Labor Management?Management?

2121stst Century – Gen “X” & Gen Century – Gen “X” & Gen “Y”“Y” Gen “X” & Gen “Y” are generations fostered and reared by the Gen “X” & Gen “Y” are generations fostered and reared by the

Baby Boomer generation – an affluent generation!Baby Boomer generation – an affluent generation! Mildred Ramsey: Recognition, Praise, and Appreciation – In Mildred Ramsey: Recognition, Praise, and Appreciation – In

addition to Money!addition to Money! Boomers, like it or not, have rewarded Gen “X” & Gen “Y” with Boomers, like it or not, have rewarded Gen “X” & Gen “Y” with

significant, tangible rewards for good report cards, soccer goals, significant, tangible rewards for good report cards, soccer goals, and baseball strikeoutsand baseball strikeouts

““What are you gonna give me if I do?” What are you gonna give me if I do?” Chores are often paid tasks now, Electronics and Cellphones are Chores are often paid tasks now, Electronics and Cellphones are

rewards and status symbolsrewards and status symbols INSTANT GRATIFICATION – A WAY OF AMERICAN LIFEINSTANT GRATIFICATION – A WAY OF AMERICAN LIFE SPECIFIC RECOGNITION, FEEDBACK, and MONEY ARE WHAT SPECIFIC RECOGNITION, FEEDBACK, and MONEY ARE WHAT

THESE WORKERS ARE THESE WORKERS ARE EXPECTINGEXPECTING AS A MINIMUM! AS A MINIMUM! LABOR MANAGEMENT AND BONUS REWARD$/INCENTIVES PLAY LABOR MANAGEMENT AND BONUS REWARD$/INCENTIVES PLAY

A STRONGER ROLE IN OUR SOCIETY – “GIVE ME THE SCORE”A STRONGER ROLE IN OUR SOCIETY – “GIVE ME THE SCORE”

MEASURE TO MANAGEMEASURE TO MANAGEThree Stage Approach – Continuous CycleThree Stage Approach – Continuous Cycle

1. PrepareOPERATIONS IMPROVEMENTLean Distribution ProcessesEducateChange ManagementStaff PlanningStandard Procedures

2. Develop ENGINEERED PRODUCTIVITY STANDARDS

3. SUCCEEDsm

FeedbackCoachingRecognition

MEASURE TO MANAGEMEASURE TO MANAGE

TYPES OF MEASURES

1. Historical

2. Goal – “Reasonable Expectancies”

3. Engineered Standard

Time Study or

Pre-Determined Methods (MSD, MTM, etc.)

This is more than engineering. Red denotes Change This is more than engineering. Red denotes Change Management which requires active Employee & Management which requires active Employee & Management participationManagement participation

1.1. Determine Key Volume Indicators (KVIs)Determine Key Volume Indicators (KVIs)

2.2. Establish & utilize the preferred method – Lean DistributionEstablish & utilize the preferred method – Lean Distribution

3.3. List the steps required to complete the KVIsList the steps required to complete the KVIs

4.4. Gain approval of step descriptions – Employees & ManagersGain approval of step descriptions – Employees & Managers

5.5. Observe and repeatedly time each stepObserve and repeatedly time each step

6.6. Rate the productivity of each performance sampleRate the productivity of each performance sample

7.7. Review the required sample size for each stepReview the required sample size for each step

8.8. Determine the rate of occurrence of each stepDetermine the rate of occurrence of each step9.9. Calculate time required for each stepCalculate time required for each step10.10. Summarize the time value of each KVISummarize the time value of each KVI11.11. Apply the appropriate engineered allowancesApply the appropriate engineered allowances12.12. Review result with employees and managers; gain Review result with employees and managers; gain

consensusconsensus

Engineered Standards - The 12 Step Engineered Standards - The 12 Step ProcessProcess

Example StandardExample Standard

0.500.120.150.050.10Standard Allowable Minutes (SAMs)

0.050.05Scan carton and push off

0.150.15Place units in carton

0.300.30Walk to carton

0.120.12Scan and pick pallet flow units

0.150.15Walk to Pallet flow location

0.050.05Scan and pick case flow units

0.100.10Walk to case flow location

Shipping Cartons

Pallet Flow Units

Pallet Flow Locations

Case Flow Units

Case Flow Locations

Pay Variables

100% Time (min)Elements

0.500.120.150.050.10Standard Allowable Minutes (SAMs)

0.050.05Scan carton and push off

0.150.15Place units in carton

0.300.30Walk to carton

0.120.12Scan and pick pallet flow units

0.150.15Walk to Pallet flow location

0.050.05Scan and pick case flow units

0.100.10Walk to case flow location

Shipping Cartons

Pallet Flow Units

Pallet Flow Locations

Case Flow Units

Case Flow Locations

Pay Variables

100% Time (min)Elements

Example Standard Example Standard CalculationCalculation

400UPH

%100Performance

minutes60On-Standard

minutes60SAMs Earned

20=40x0.50Shipping Cartons

0=0x0.12Pallet Flow Units

0=0x0.15Pallet Flow Locations

20=400x0.05Case Flow Units

20=200x0.10Case Flow Locations

Earned TimeQtySAM ValuesPay Variables

400UPH

%100Performance


minutes60SAMs Earned



0=0x0.15Pallet Flow Locations




Brian is a picker in case flow. He works on-standard for 60 minutes and produces the following pay variables: 200 Case Flow Locations, 400 Case Flow Units, 40 Shipping Cartons. Calculate Brian’s performance:

Example Standard Example Standard CalculationCalculation

200UPH

%111Performance


minutes66.5SAMs Earned



22.5=150x0.15Pallet Flow Locations




200UPH

%111Performance


minutes66.5SAMs Earned



22.5=150x0.15Pallet Flow Locations




Jim is a picker in pallet flow. He works on-standard for 60 minutes and produces the following pay variables: 150 Pallet Flow Locations, 200 Pallet Flow Units, 40 Shipping Cartons. Calculate Jim’s performance:

Performance vs. UPHPerformance vs. UPH In Example 1, Brian had a UPH of 400. In Example 2, Jim had a UPH of 200. In Example 1, Brian had a UPH of 400. In Example 2, Jim had a UPH of 200.

If only piece rate was considered, Brian would have performed twice as well If only piece rate was considered, Brian would have performed twice as well as Jim.as Jim.

HoweverHowever, when we consider performance as a measurement of level of , when we consider performance as a measurement of level of effort using multiple variables like units, locations and type of pick, a much effort using multiple variables like units, locations and type of pick, a much more accurate and fair representation of performance is generated:more accurate and fair representation of performance is generated:

100%400Eric

111%200Jim

PerformanceUPHEmployee

100%400Eric

111%200Jim

PerformanceUPHEmployee

JIM

BRIAN

The Systems ComponentThe Systems Component Importance – Consistent, Timely FeedbackImportance – Consistent, Timely Feedback

Not Real Time – Posted Results the day afterNot Real Time – Posted Results the day after ““Near” Real Time – Opportunity to feedback instantaneously & Near” Real Time – Opportunity to feedback instantaneously &

day after reportsday after reports Options and DifferencesOptions and Differences

PC Based Productivity Systems – lower cost, not real timePC Based Productivity Systems – lower cost, not real time WMS Provider LM Systems (High Jump, RedPrairie, Manhattan WMS Provider LM Systems (High Jump, RedPrairie, Manhattan

Associates) –higher cost, “near” real time, provides staff Associates) –higher cost, “near” real time, provides staff planning tool “on the fly” throughout the dayplanning tool “on the fly” throughout the day

Cost vs. Real benefits – The PC system provides all but real time Cost vs. Real benefits – The PC system provides all but real time benefitsbenefits

Data InputData Input Data Collection Feed from the WMS has become standardData Collection Feed from the WMS has become standard Manual Production Sheets used to be the “rule” just 5 to 7 years Manual Production Sheets used to be the “rule” just 5 to 7 years

ago; now only used for standards that cannot be fed from the ago; now only used for standards that cannot be fed from the WMSWMS

Pitfalls – This is not an I. T. project!!, Standards Pitfalls – This is not an I. T. project!!, Standards Maintenance, LM Program Administration Consistency “over Maintenance, LM Program Administration Consistency “over the years”the years”

Real Time FeedbackReal Time Feedback RF Screen or Gun – “Instant Score” – This is RF Screen or Gun – “Instant Score” – This is

powerful!powerful!

Perf: 105%

Goal: 22 MinActual: 21 Min

Perf: 113%

Goal: 360 MinActual: 320 Min

Real Time FeedbackReal Time Feedback Message Boards – Visual Feedback via LED or LCD ScreensMessage Boards – Visual Feedback via LED or LCD Screens

BONUS REWARD$BONUS REWARD$Value of REWARD$ - Return on Investment

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40%

60%

80%

100%

120%

Perc

ent

of Engin

eere

d

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ndard

Unmeasured Peer Comparison ContinuousImprovement

Benchmark Standards

Engineered Standards

REWARD$Compensation

Method of Measurement

LABOR MANAGEMENT

TYPES OF REWARD$TYPES OF REWARD$

1.1. PraisePraise Verbal recognitionVerbal recognition

2.2. RecognitionRecognition Honor Board / Wall Honor Board / Wall

of Fameof Fame PlaquePlaque Hats or ShirtsHats or Shirts MealsMeals Parking spacesParking spaces

3.3. Items of ValueItems of Value Additional paid Additional paid

vacationvacation Early dismissal with Early dismissal with

paypay Merchandise Merchandise

reward programreward program Travel reward Travel reward

programprogram

4.4. Cash Value Cash Value CompensationCompensation

DEVELOPING DEVELOPING BONUS REWARD$BONUS REWARD$

1.1. MeasuresMeasuresFair, equitable, and accurate – previously Fair, equitable, and accurate – previously

discusseddiscussed

2.2. StructureStructureBased on goals of organizationBased on goals of organization

3.3. ProceduresProceduresBasic administrationBasic administration

4.4. PromotionPromotionPerception creates realityPerception creates reality

2. STRUCTURE2. STRUCTUREThe method by which the bonus is The method by which the bonus is

calculated. calculated. Bonus reward plans can be Bonus reward plans can be

structured to fit the needs, goals, structured to fit the needs, goals, and environment of the employer. and environment of the employer.

GoalsGoals may include: may include: Improve productivityImprove productivity Compete in labor marketCompete in labor market Enhance moraleEnhance morale Increase throughputIncrease throughput Retain workforceRetain workforce

2. STRUCTURE2. STRUCTURETHE TEAM Easily recognized in this discussion is the importance of different

functional areas of management in the bonus reward structure development.

Industrial EngineeringHuman ResourcesPayrollOperations ManagementFinanceTaxLegalCorporate.

The development time for the structure must allow time for a group meeting, individual research, another group meeting, additional follow up, and a final structure design meeting. Members of the team should be decided in advance of the beginning of the process and roles should be clearly defined at the first meeting.

2. STRUCTURE2. STRUCTURESTRUCTURE ADVANTAGES DISADVANTAGES

ONE TO ONE BONUSEarned Performance % is rewarded for

all productivity above 100% (i.e. a worker with 110% productivity is paid a bonus of 10% of weekly earnings while performing measured work).

Easy to understand Simple calculation 30% to 50% payroll expense

savings No ceiling on bonus earnings Largest individual bonus reward

payments

Lowest number of bonus reward earners

Lower rate performers can view bonus reward level as not achievable

INCREMENTAL WAGE BONUSEarned Performance % is rewarded for

all productivity above minimum expectation. The bonus reward is a cents per hour value which increases at prescribed productivity thresholds (i.e. an 85% producer may receive $.10 / hour while a 90% producer receives $.15 / hour.

Highest number of bonus reward earners

20% to 30% payroll expense savings

Enhances employer’s position in labor market

Increases average wage for moderate level (85% to 100% of expectation) performers

Arbitrary bonus calculation Least reward for highest level

performers Bonus begins at minimum

performance expectation Includes ceiling for bonus rewards

GAINSHARE BONUSCalculated as a One to One Bonus, the

worker receives 1/2 of the % above 100%. Normally the measure of productivity is also established at a gainshare level – that is the 100% level is adjusted to be halfway (@90%) between the minimum (@80%) and the engineered 100% expectation.

Can be best designed to increase wages and improve employer’s position in labor market

Best compromise for an inclusive yet meaningful plan

Moderates bonus paid and productivity improvement required to achieve bonus reward level

Lowest productivity improvement (15% to 25%)

Minimum expectation is normally lower

Expectation for 100% is set at lower rate (@90%)

Can be perceived as “cheap” – employer keeps part of the bonus

3. PROCEDURES3. PROCEDURES Following design of the bonus reward structure, Following design of the bonus reward structure,

the procedures for calculating, communicating, the procedures for calculating, communicating, and paying the bonus reward can be defined. and paying the bonus reward can be defined. The team will determine:The team will determine:

1.1. Frequency of reward (weekly is best)Frequency of reward (weekly is best)2.2. Method of payment (separate check?)Method of payment (separate check?)3.3. Frequency of notificationFrequency of notification4.4. Medium of notificationMedium of notification5.5. Impact of training / learning curveImpact of training / learning curve6.6. Inter-department communicationsInter-department communications7.7. Additional measures (attendance, quality, etc.) or Additional measures (attendance, quality, etc.) or

disqualifiersdisqualifiers8.8. Disciplinary policy – Minimum Acceptable % Disciplinary policy – Minimum Acceptable %

Performance – Usually set at 80% to 90% Performance Performance – Usually set at 80% to 90% Performance LevelLevel

4. PROMOTION4. PROMOTION The impact of promotion upon the success of The impact of promotion upon the success of

your Bonus REWARD$ plan should not be your Bonus REWARD$ plan should not be overlooked. overlooked.

Advertise to create anticipationAdvertise to create anticipation Educate the participantsEducate the participants Name the REWARD$ Program ContestName the REWARD$ Program Contest REWARD$ Unveiling PartyREWARD$ Unveiling Party Kick Off CelebrationKick Off Celebration Recognition EventsRecognition Events

The ResultsThe Results

Productivity improvementProductivity improvement Enhanced moraleEnhanced morale Improved employee retentionImproved employee retention Increased average wage rateIncreased average wage rate Improved labor utilizationImproved labor utilization Added capacityAdded capacity Enhanced budgeting toolsEnhanced budgeting tools

Productivity GainsProductivity GainsTypical Performance before Improvement

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120%

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so

cia

te P

erf

orm

an

ce

Typical Performance after Improvement

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20%

40%

60%

80%

100%

120%

140%

160%

As

so

cia

te P

efo

rma

nc

e

Median: 45%

Median: 95%

The majority of The majority of the productivity the productivity gains comes from gains comes from performance performance improvement in improvement in the lower the lower performing performing associates. This associates. This group of group of associates tends associates tends to be the largest.to be the largest.

RETURN ON INVESTMENTRETURN ON INVESTMENT

Workforce Performance Management Program 2005 2006 2007 2008 2009Investment ($386,625)Annual Payroll Savings $148,874 $455,812 $457,454 $456,145 $451,961Annual Software Maintenance Agreement + ($2,194) ($2,194) ($2,194) ($2,194)Annual JSC Standards Maintenance Agreement + ($29,400) ($29,400) ($29,400) ($29,400)Estimated Annual, Internal Program Management + ($35,725) ($74,308) ($77,280) ($80,371) ($83,586)

Gross Annual Savings (Pre-Tax) $113,149 $349,910 $348,580 $344,180 $336,781Memo: Cumulative Savings $113,149 $463,059 $811,639 $1,155,819 $1,492,600

Internal Rate of Return (ROI) 58.5%

Case StudiesCase Studies

Brookstone Brookstone Highly competitive labor marketHighly competitive labor market

Highly seasonal labor requirementsHighly seasonal labor requirements

Engineered standards with recognitionEngineered standards with recognition

NO minimum performance levelNO minimum performance level

30+% productivity improvement in first 30+% productivity improvement in first yearyear


Badcock & More Home FurnishingsBadcock & More Home FurnishingsDifficult manual labor – heavy furnitureDifficult manual labor – heavy furniture

Long hours – work to completionLong hours – work to completion

Engineered standards and minimum Engineered standards and minimum performanceperformance

20+% productivity improvement in first 20+% productivity improvement in first yearyear

50% reduction of turnover50% reduction of turnover


Neiman Marcus DirectNeiman Marcus DirectCatalog and on-line order fulfillmentCatalog and on-line order fulfillmentVery tight labor market with high relative Very tight labor market with high relative

wageswagesRevitalized and enhanced existing programRevitalized and enhanced existing programEngineered standards with minimum Engineered standards with minimum

performanceperformanceBonus REWARD$Bonus REWARD$15% productivity improvement in first year15% productivity improvement in first year35% increase in 24 hour service level35% increase in 24 hour service level

Prepare

Develop

Succeed

Prepare

Develop

Succeed

Labor ManagementLabor ManagementA Cycle of Continuing ImprovementA Cycle of Continuing Improvement

labor management for the 21st century

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