August 29, 2023

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.

Here’s How It Works

Simply put, a Tier 1 LMS is a software system that tracks labor according to multiple variables, in real-time, for the purpose of improving warehouse productivity. These multiple variables are fed into the LMS by a Tier 1 WMS capable of tracking a wide range of factors, such as travel distances, slotting arrangements, case versus single unit picking, value-added packaging and handling services, and more.

Conversely, less than Tier 1 LMSs only track one variable, usually the number of units an employee can process per hour – making a Tier 1 LMS dramatically more valuable when it comes to scheduling, placing, and measuring your workforce output.

With a Tier 1 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.

Putting a Pencil to It

Provided you already have a Tier 1 WMS in place, and your labor force is tipping the 25-employee threshold, a Tier 1 LMS will involve two significant costs. Your initial implementation cost can be anywhere between $40–$200K, depending on the size of your warehouse, number of employees, number of job codes, integrations, and other factors.

Considering the average implementation runs a about $100K, and the average fulltime warehouse employee costs around $50K per year, your cost to implement will be roughly the same as paying two fulltime warehouse employees. You’ll see payback on the investment in about six months.

The second, ongoing cost will involve your software license. You can ballpark around $1K per user per year, but that’s strictly a ballpark. Actual costs will vary widely based on number of users per warehouse, hosting arrangements, and other variables, scaled to term (usually an annual agreement).

Once you get over 25 warehouse employees and start tracking their daily activities, you’ll soon discover that a number of them are not working to peak capacity. Some may be putting in seven hours of productive work in an eight-hour day, while others only four. Without a Tier 1 LMS, you probably wouldn’t even notice. But with multivariable metrics in place, you’ll start to see that travel times can be shortened, slotting can be rearranged, picking processes could be standardized, or training may be needed in several areas of the warehouse to enhance output. For this reason, an ideal supervisor to employee ratio of 1:10-15 is advised, to ensure that employees are getting the coaching they need, and your supervisors don’t burn out.

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.

Why Wait?

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.

To learn more about our LMS capabilities, or to schedule a free consultation, please Contact us today.