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Reducing Warehouse Labor Costs With Engineered Labor Standards (ELS)

Your workforce is your most valuable warehouse asset. These valuable workers push your business forward every minute of the day. In fact, labor typically represents about 50–60 percent of the total cost for warehouse operations. With warehouses already running on thin margins, it’s critical to the financial health of the organization to carefully evaluate your workforce’s productivity and your technology used to maintain safe, efficient, and cost-effective operations. Pairing a Labor Management System (LMS) with Engineered Labor Standards (ELS) is an excellent way to strengthen labor productivity on a daily basis. 

Defining Engineered Labor Standards
Industrial engineers create Engineered Labor Standards to represent the time it should take a properly trained employee working at a sustainable steady pace to complete a particular task at any point in the day.  These standards can be created using time studies or predetermined time systems, such as MOST, MTM or MSD. Engineered Labor Standards are developed and considered accurate when the standard goal time is +/- 5 percent of the evaluated time.  For operations managers in the industry who only use their warehouse management system (WMS), to track productivity by a single variable, such as cases or lines per hour, there is a common misconception that standards are only accurate to +/- 15 percent. However, 85 to 115 percent is just a reasonable expectation. This increase in variability makes it harder to hold individuals accountable.  Therefore, the opportunity for improved productivity is often lost.  A proper multi-variable engineered standard allows management to regain the lost opportunity and hold individuals accountable.   

The Benefits of Developing Engineered Labor Standards
Engineered Labor Standards are critical to achieving improvements in labor productivity—and therefore cost control—in warehouses, distribution environments, and production processes. These guides help organizations:  

  1. Compare actual employee performance against the standard to define opportunities for productivity improvements and cost savings.
  2. Estimate the potential impact of process changes and enhanced facility design, as well as accurately track improvements from new equipment investments.
  3. Improve labor planning and scheduling, as well as lowering the associated costs. With established Engineered Labor Standards in place, managers can convert work units such as cases and pallets into hours and minutes. This helps companies assess their needs for daily and weekly staffing, as well as expected overtime.
  4. Identify employees whose performance falls above or below the standard. For poor performers, this can highlight training needs —or possibly disciplinary action if the employee doesn’t improve over time. Workers with above-average performance can be rewarded financially and/or with public recognition among peers.  

Achieve 15–25 Percent Improvement in Productivity
Ultimately, strengthening worker productivity and reducing costs is the goal. Below you’ll find how these improvements break down by specific task:

1. Engineers are on the floor collecting frequencies during the observation phase of an Engineered Labor Standard project. Expected performance improvement: 5–10 percent

2. Evaluate existing travel paths and slotting opportunities throughout the facility to identify new paths that can reduce the time it takes to move product from one location to the next. Expected performance improvement: 10–15 percent

Aside from collecting data to develop Engineered Labor Standards at your facility, an engineer will also determine and recommend any operational or layout changes that will improve productivity and cost management. For example, we were able to help a client save over $300,000 annually just by relocating the assignment desk to reduce the travel time for order pickers. The bottom line is that if your workers spend 20 to 25 percent of their time traveling and 70 to 75 percent of their time handling units, you’ll have strong productivity levels. 

Ongoing Evaluation of Engineered Labor Standards
Once your Labor Management System has been installed and the Engineered Labor Standards are in place, it’s important to re-evaluate how everything is working after a set period of time. Ideally the standards will be audited every year to accommodate changes in your operations. Standards may need to be revalidated as changes happen in the type, weight, or size of products handled, or when slotting practices shift. Standards can also be impacted as employees begin to work smarter and perform better with the new system in place. 

Moving Your Project Forward
4SIGHT Engineers are trained in Time Study, MOST, and MSD. These experts can work with you to evaluate your operations and determine the most efficient, cost-effective solution for your long-term success. We can also audit your existing standards and evaluate your existing flow charts for possible adjustment if your current standards are out of tolerance.

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