It’s been established for quite some time now that a clear and direct relationship exists between the financial success of a business and the depth and sophistication of its supply chain.
As a result, companies are constantly searching for more opportunities to improve the efficiency of their supply chain. One of the most significant cost elements, which seems to get little attention in this process is labor. Traditionally the largest component of a company’s distribution, labor has an impact on total supply chain expenses that ranges anywhere between 35 to 65%. In fact, the cost of labor is greater than inventory in the case of most fulfillment operations.
Nevertheless, the idea of supply chain management has historically been equated with inventory management, including planning and optimization. With companies facing increasing pressure to cut costs, it is only right to examine the impact of the labor supply chain.
The Labor Supply Chain
The labor supply chain consists of all the manual functions necessary to plan, source, build, and deliver products and support from supplier to customer. Effective management of this labor supply chain entails the following requirements:
- Assigning the right individual to the right place at the right time.
- Tracking the person throughout the day and assessing performance on individual tasks.
- Evaluating the quality and safety record of every individual.
- Providing alerts when the person’s performance drops below expectations.
- Simulating effects on labor as a result of modifications to inventory or process flow.
- Providing transparency into cost and efficiency of individual employees, teams, facilities, and the company.
A Shift in the Paradigm
Conventionally, managing labor has been regarded as a function of Human Resources. Operations took care of inventory while HR took care of labor; these functional silos prevented the integration of more modern labor management concepts into distribution and other fulfilment activities. This is not to say that these operations did not adopt relevant solutions for measuring employee performance. Many companies have implemented best practices such as engineered guidelines to provide an objective measure of individual performance, or incentive programs to reward employees performing at a high level. However, other labor-related capabilities such as attendance, workforce scheduling, inventive management, and payroll calculation were assigned to HR, Finance, or other front office functions that had minimal understanding of what operations required.
An Integrated Approach
A traditional approach has two separate and often overlapping sets of information going into two separate functions within the company. From a practical standpoint, each of these functions can leverage the information of the other to boost the supply chain’s overall performance. A more modern approach to managing labor includes integrated HR and operational functionality that allows both stakeholders access to that information.
Having a single, integrated solution for your company’s related labor management functions allows the business to proactively plan, schedule, track, analyze, and incentivize workers in a coordinated fashion that is fair to both the employees and the company. It makes the right information readily available at the time when it can impact current operations. Apart from the advantages of a single, managed labor solution, each functional area will also benefit from the total approach.
With labor being the major expense of most supply chains, it only makes sense to view it the same way you would any other key asset. Businesses must plan, schedule, monitor, and adjust usage of labor resources to drive the greatest possible value by means of productivity, quality, safety, and customer service. Creating this labor supply chain requires advanced solutions that go beyond traditional HR and operations labor management systems in order to provide a single and complete tool for proactively managing labor across the business.