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Building the Business Case for a Tier 1 Labor Management System

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Tier 1 LMS

Building the Business Case for a Tier 1 Labor Management System

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.

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Jeremy Hudson

Vice President of Client Services

Jeremy’s focus is on the products and services clients need to stay competitive. Open Sky Group’s mission is to deliver technology-enabled solutions that allow our customers to achieve more while having the flexibility to adapt to change. Jeremy lives the core values and mission by bringing the best experience possible to our clients. He is an essential member of implementation teams, working alongside clients, and encouraging them to use innovation and best practices instead of customizations for success.

Jason Yantiss

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Jason provides leadership to a variety of teams focused on implementation and integration. With 27+ years of experience holding operational and technical management roles in transportation, billing, and warehousing across a vast array of industry verticals, Jason is adept at driving multiple complex projects, understanding customer needs at all levels of the operation and providing viable solutions. Jason’s resume of 150+ implementation projects include Warehouse, Labor, Transportation, Yard Management and multiple AR/AP Freight Pay and Customer Billing systems. 

Eric McPherson

Vice President of Client Services

Mac works to oversee implementation and integration projects. A former Marine officer and military police officer, he brings over 27 years of supply chain experience, including 11 years at Blue Yonder in both delivery and service sales. Mac is a dedicated, team-oriented professional with a background in business management, professional services, customer service, and supply chain technology. His specialties include sales support, supply chain execution systems, project management, fulfillment operations, distribution operations, and GSA contracts.

Shannon Caflisch

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Shannon is responsible for the strategy and management of all sales, business development, and marketing programs. With over 25 years of sales experience and 15 years focused in the supply chain space, Shannon focuses on building strong relationships with clients and partners and strives to deliver the right software solutions to help conquer supply chain challenges. Shannon believes in learning by listening to understand clients’ goals, struggles, and what is important to their business to build lasting, successful relationships.

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As Senior VP of Client Services, Alan oversees all consulting services and account management at Open Sky Group. Possessing over 30 years of combined industry and consulting experience, Alan leverages his unique background in IT, logistics, quality management systems, manufacturing and distribution operations, and facility and strategic account management to provide clients with creative resolutions to complex challenges. His core philosophy and passion are to deliver tangible value for and establish long-term trusted partnerships with our clients.

Mike Noble

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As Senior Vice President of Technology, Mike leads Open Sky Group’s Managed Services, Software Services, Infrastructure Services, and Information Technology teams bringing 35+ years of experience in Supply Chain Execution and Information Technology. Mike and his teams ensure we maintain the highest levels of customer service in a secure and reliable environment, constantly reviewing and evaluating new technologies, their appropriateness and applicability so we can safely and securely transact our own business – and help our clients accomplish the same.

Chad Kramlich

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Joining Open Sky Group in 2015, Chad, served as Chief Revenue Officer for three years prior to his appointment to CEO in 2022. With over 25 years of experience delivering results for high-growth software and consulting organizations, Chad is leveraging his background in building efficient and effective implementation teams, establishing high-impact services operations, achieving revenue growth, and deepening executive-level client relations to help propel Open Sky Group into a very successful future.

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