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How to choose a labor management system

Choosing a labor management system (LMS) with just the right amount of precision and integration can help manufacturers take a huge chunk out of their warehouse operating costs.

Once a business case is made for a labor management system (LMS), you will face two primary tradeoffs in the selection...

process. The first is choosing between integrated LMS software that works as part of a warehouse management system (WMS) and a best-of-breed, standalone solution. The second is determining which labor standards are critical to the implementation: they have a major impact on the cost and complexity of LMS deployments.

Worker-related expenses are the largest chunk of the cost of running a warehouse or distribution center -- industry estimates range from 60% to 75% -- so an LMS has huge potential for ushering in productivity improvements that can benefit a company's bottom line. While LMS systems and methodologies have been around for some time, manufacturers are starting to make LMS deployments a priority as they look for ways to cut costs in a tough economy, according to vendors and analysts.

LMS systems and services are available from a number of sources. Leading WMS software vendors offer LMS modules as part of a broader warehouse management or supply chain execution suite, touting the integration between the modules as a key differentiator. There are also dozens of small best-of-breed players that provide non-integrated LMSes that they say can be connected to any WMS or manufacturing system. These companies claim that specialized domain expertise and consulting services provide their competitive edge. The third major category of LMS provider includes enterprise resource planning (ERP) vendors, many of which have been warehouse and labor management functions to round out their core manufacturing suites.

LMS integration with WMS cuts costs, boost efficiency

Although there is no one-size-fits-all method for selecting an LMS, many industry experts recommend buying an LMS that integrates with an existing WMS whenever possible. Most often, the WMS implementation comes first, and the LMS capabilities are added later as part of a long-term, strategic plan to find additional cost savings and productivity boosts in the warehouse or distribution center.

"Unless there's some particular component of a non-integrated product that delivers outside of a complete package, you're likely to get a better deal from the standpoint of total cost of ownership and pricing [with an integrated approach]," said Kevin Hume, principal at Tompkins Associates, a consultancy that specializes in supply chain technologies and applications. "There's also less overhead from an architecture perspective because it's integrated in a single package."

Having such close integration between WMS and LMS packages can also deliver efficiencies that aren't possible with non-integrated solutions, said Steve Banker, service director for supply chain management at ARC Advisory Group. Consider, for example, the slotting function offered by most WMSes for determining where to place merchandise in a warehouse based on the velocity at which it moves. Given the costs associated with reslotting, a combined WMS/LMS can account for the labor expenses associated with the practice and help decide whether it is likely to deliver measurable efficiencies. "There are screens and analytics you can put together if you have both capabilities from the same company," Banker said. He and other experts leave the door open, however, for a non-integrated solution in some situations, including when a company already owns a WMS or manufacturing execution system (MES) and no LMS capability is available from the vendor.

LMS software measures engineered labor standards

The job of an LMS is to track, measure and report on the productivity of workers, but to best deliver actionable performance metrics, the software must compare each worker's ability to accomplish tasks against a defined standard or goal. Engineered standards take other factors into account -- travel distances and types of machines, for example -- to provide a more fair and accurate comparison of employee performance against the expected standard.

Not all labor management systems are equally good at creating and maintaining standards. Products that support fully engineered standards and methods provide significant granularity for breaking a task into specific steps, but they are typically more complex and time-consuming to implement. Industrial engineering consultants are often needed to gather, define and populate the standards. While some manufacturers will require such detailed tracking and analysis to derive productivity gains from an LMS, others can realize gains with less-precise standards based on historical averages.

Manufacturers should have a clear sense of whether engineered standards are essential. They should also be sure that whatever LMS they select is flexible enough to accommodate additional labor standard methodologies as warehouse productivity needs evolve. "There are absolutely tools out there on the market to support the level of accuracy you need -- you just need to be clear about the level of those efforts," Hume said.

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