June 25, 2024
Is It Really Worth the Time and Effort and, If So, What’s the ROI?
There comes a point in the lifespan of a warehouse operation where implementing a Tier 1 labor management system (LMS) starts to make sense. It usually occurs when the workforce cracks the 25-employee threshold. That’s when the enterprise starts experiencing growth pangs.
Scheduling begins to get trickier. Supervisors begin to see areas on the floor where bottlenecks occur. Some employees are clearly underperforming, while other employees perform at superstar levels. This turns training into an issue. Processes begin to evolve that may or may not contribute to the output. And, as the equipment fleet grows alongside the workforce, the placement and upkeep of pallet riders, forklifts, and other necessary equipment begin to weigh in on overall labor decisions. At this point, a Tier 1 LMS starts to make a lot of sense. Especially if you are running a Tier 1 WMS.
Why Upgrade to a Tier 1 LMS?
Simply put, a Tier 1 labor management system (LMS) is a software system that tracks labor according to multiple variables, in real-time, to optimize warehouse productivity. The numerous variables are fed into the LMS by a Tier 1 WMS capable of tracking various factors, such as travel distances, slotting arrangements, case versus single unit picking, value-added packaging and handling services, and more.
Unlike lesser systems that focus solely on one variable, usually units processed per hour, a Tier 1 labor management system (LMS) is dramatically more valuable when it comes to scheduling, placing, and measuring your workforce output.
With implementing a Tier 1 labor management system (LMS), you can objectively evaluate employee performance, set and monitor operational goals, spot areas where further training may be required, and debottleneck the floor based on real-time information. In effect, you can start to manage your warehouse to a higher level of competitiveness.
Crunching the Numbers
Initial Investment: Provided you already have a Tier 1 WMS in place, and your labor force is tipping the 25-employee threshold, implementing a Tier 1 labor management system (LMS) will involve two significant costs. Implementation typically costs between $40K–$200K, depending on warehouse size and complexity. With an average implementation cost of $100K, comparable to hiring two full-time employees, the initial investment pays for itself within approximately six months.
Ongoing Costs: Software licensing fees vary but you can ballpark around $1.2K per user annually, but that’s strictly a ballpark. Actual costs will vary widely based on the number of users per warehouse, hosting arrangements, and other variables, scaled to term (usually an annual agreement).
Benefits in Action: Once you exceed 25 warehouse employees and begin monitoring their daily tasks, you’ll likely find that some are not performing at peak capacity. While some may complete seven hours of productive work in an eight-hour day, others may only manage four. Without a Tier 1 LMS, these discrepancies might go unnoticed. However, with multivariable metrics in place, you’ll notice reduced travel times, optimized slotting arrangements, and standardized picking processes, and be able to identify areas where additional training may enhance warehouse output. To support this effort effectively, it’s recommended to maintain an ideal supervisor-to-employee ratio of 1:10-15. This ensures employees receive the necessary guidance and prevents supervisor burnout.
As your workforce improves, your ROI on your Tier 1 LMS investment will accelerate. Getting more work accomplished with fewer people translates into labor savings. And with labor being the highest cost in any warehouse, a Tier 1 LMS can save 10-30% in a relatively short amount of time.
Looking Ahead: As your workforce and operational demands grow, so does the importance of efficient labor management. A Tier 1 LMS not only mitigates inefficiencies but also positions your warehouse for sustained growth and profitability.
Why Choose Open Sky Group?
Open Sky Group has helped many growing supply chain companies over the years reach new plateaus of performance using Tier 1 LMS strategies and tactics. Our consultants understand complex multivariable metrics and can help you put a solution in place that will lower costs, improve throughput, and help your business grow at a rapid pace.
Ready to elevate your warehouse operations? Contact us today for a free consultation and discover how a Tier 1 LMS can transform your business.
