– Supply Chain Insight –

Workforce management: the disconnect between productivity and cost

Implementing a labor management system can be expensive, tedious, and time-consuming; however, for many operators, an LMS is critical to standardizing direct labor productivity targets.  These systems are effective at tracking real-time productivity and task efficiency but, alone, they do not drive productivity improvement and are not equipped to connect your labor rates to your overall cost.

Is the relationship between productivity and labor cost always linear? More control over labor productivity should always mean more control over labor cost, right?

Not necessarily.

Let’s review three reasons your labor management system is not driving financial improvement the way you think it should.

1. Lack of effective workforce planning functionality

Workforce planning to a lot of operations is using a spreadsheet to schedule employees once a week, with maybe a few tweaks here and there. Ratios are generally used to help determine crewing requirements which, inherently, locks in a fixed productivity level for the entire week.

This would be fine except for the fact that workforce planning is never that simple. Volume changes by shift and so do available crew members. The weekly scheduling approach often results in overstaffing, which encourages a lower productivity rate or understaffing, causing shipment delays and overtime.  The worst part is you don’t know which one until the shift is over and your targets weren’t met. Lack of planning always results in your most important metric – labor cost – being a lagging indicator of performance.

2. Tracking worked hours instead of paid hours

When it comes to real-time productivity tracking, labor management systems are typically quite robust.  Tracking is usually at the task level, providing the operator with how much work is being done and at what productivity rate. Reconciliation of these results can be translated into a worked cost when pay rate is brought into the equation.

This is fine, but this is only giving you the cost of each task being completed, not the total cost of the employee. A 2017 productivity benchmarking study by Syncontext, through the Food Marketing Institute, revealed that the difference between worked hours and paid hours (the true cost of an employee) can differ by up to 25%. This means that an operation can be meeting all its labor standards and still be going over budget. Only advanced financial tracking can bring this difference to light.

Gap between worked and paid hours

3. Lack of advanced financial forecasting

Without the ability to plan and track labor costs, it’s difficult to affect positive change or accurately forecast future requirements, both when it comes to crewing and cost budgeting.

Without the ability to connect productivity to labor cost, whether through shift planning, financial tracking or budget forecasting, you can find yourself in the dark.

As Arthur Nielsen once said, “the price of light is less than the cost of darkness”.


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