The Power of Your People: Agile, Aligned and Adaptable

I recently purchased and read a great book published by the Harvard Business Review called “Managing Supply Chains”. The book is a collection of articles they’ve published over the last few years on the topic and one in particular caught my interest – “The Triple-A Supply Chain”. In the article, Hau L. Lee poses an interesting question – if the holy grails of Supply Chain Management are high-speed and low-cost— why isn’t that sufficient to give companies a sustainable competitive advantage over their rivals? Their research found that the “most successful supply chains were also:

• Agile: They respond quickly to sudden changes in supply or demand, collaborating with their customers and suppliers
• Adaptable: They evolve over time based on economic and market trends demonstrating flexibility to meet different product needs or production processes
• Aligned: Establish incentives for supply chain partners to improve performance of the entire chain.[1]”

In my daily life, I am focused on helping logistics organizations optimize their largest controllable cost – labor – so Mr. Lee’s article got me thinking about how supply chains execute against those principles and the people who power that supply chain. At the end of the day, its your people who build relationships with suppliers or make decisions to adapt to changing conditions. And, it’s your people that are producing, picking, packing or delivering goods throughout the supply chain.

With that in mind, to truly optimize efficiencies,  labor management solutions can be key to helping  you ensure that your people are also agile, adaptable and aligned.

In a typical logistics organization, two-thirds of workers are drivers or material handlers.[1]. These are front line people who can have a direct impact on your ability to meet service levels, quality goals or control operating costs. A good strategy for an effective supply chain looks beyond warehouse technology or design as silver bullets and also focuses on hiring, deploying, developing and retaining great people. Technology is an enabler to make people more effective. According to a study by Gartner, logistics organizations who are just utilizing warehouse management system (WMS) software are operating at only 50 to 70% of optimal performance. With the additional of Workforce Management software to benchmark and measure worker performance against labor standards, performance levels are increased to 90% or 100%. Establishing incentive pay programs can elevate operations to “110% to 120% of optimal performance and foster employee retention” as well. [2]

For example, you can have the best engineered standards in place, but you need to account for variables that people bring to understand actual task times. People have different walking speeds or pick or pack at different rates of speed. Workforce Management solutions account for these variables and provide reports so managers can coach or incent performance based on achieving those standards.

How would “The triple-A” philosophy (borrowing from Mr. Lee’s article) apply to the workforce? Well, in my mind it looks something like this:

Agile Workforce – Your supply chain is designed to be able to respond to short term changes in demand or supply quickly but are your people flexible and agile to respond in real-time to changing conditions?

As one example, a distributor I work with has a 99.9% same day ship rate. They were growing rapidly and trying to figure out how they could get more capacity out of their existing resources and be better equiped to react to changing conditions in real-time to meet their service levels. The problem is, they lacked real-time visibility into how labor was performing against orders. By integrating workforce (or labor) management and  integrating it with their WMS solution they now have real-time view of order status from the WMS linked with the actual performance of employees against those orders. They can be more agile because they schedule based on forecasted demand and can quickly see which orders are understaffed and falling behind so they can reallocate workers with the proper skills from orders that are overstaffed in another area in the DC to those orders. These tools have allowed them to use their workforce to their advantage. They have become agile and flexible to conditions throughout the day and as an added bonus,  they were able to uncover capacity equivalent to 50 additional people. Adopting tools to make their workforce agile has helped them meet their service levels and deliver significant profits to their business.

Adaptable Workforce – Adapting the workforce to deal with changes in the market and economy is a significant challenge but organizations that can adapt will be most successful in controlling costs. Carriers are seeing this challenge right now as a confluence of issues are significantly impacting capacity – the new hours of service ruling which reduced weekly drive time by 15%, driver turnover, and driver loss due to CSA are some examples.

Not having drivers in place can be costly and being able to adapt to the challenges will be critical. Because drivers can directly impact an operator’s safety ranking, carriers must improve the sophistication of their hiring processes. Moreover, each day that there is no driver in the cab driving is costly in terms of lost capacity.

Kronos recently conducted a survey with Logistics Management Magazine that showed that the average expenditure for replacing a driver is $7,000, which means that hiring 100 drivers could cost $700,000. Further increasing costs is the industry’s hiring-to-retention ratio of 3-to-1, which means companies must screen, hire, and train three drivers before they get one that will stay.

Labor management streamlines the complex process of identifying, hiring, and on boarding best-fit drivers so companies can adapt to changes in the economy or market quickly. These solutions eliminate disjointed processes by giving you all the information you need to assess a candidate, including background checks and certifications, all in one place. By decreasing time-to-hire, an advanced labor management system’s improved efficiency impacts profitability and your ability to adapt to changing conditions.

Aligned Workforce - Capacity and throughput are maximized and rework is minimized by ensuring each person is aligned against a common set of performance standards or incentives. One great example of an aligned workforce is Lipari Foods.

Lipari Foods is a family run wholesale distributor based in Warren, Michigan, and serving 13 Midwestern states. Because wholesale food distribution is a lean-margin business, Lipari employs a lean business philosophy to compete effectively. Its number one tactic is to eliminate rework. Because any inaccuracy creates rework, Lipari has instituted a rewards program for the most accurate and effective selectors and has a penalty program for anyone who is inaccurate beyond a certain threshold.

To implement this program, the company combines information from its warehouse management system about each route’s ID, the driver’s start and finish time, and the in and out times at each account with information from the payroll system. This combined information allows Lipari to determine the actual cost per delivery, which it was unable to do before. As a result of the incentive program, outbound case volume has increased from 65 cases per hour to 135 cases per hour in the dry area and as high as 180 in the freezer area on average. Read more about Lipari’s Story

It got me thinking so I pose the question to you – how agile, adaptable and aligned are your people?

[1] The Department of Labor

1] Harvard Business Review: Managing Supply Chains: Expert advice on building supply chains that pull their weight. “The Triple A Supply Chain”. 2011 Harvard Business School Publishing

[2] Gartner Research: Improve Workforce Performance in the Warehouse with WFM: September 22, 2010