In my last article (Human Labor Calculation for an ROI), I focused on the “direct labor” component of a ROI (return on investment) assessment for the acquisition of new technologies in warehouses and distribution centers.
In this article we focus on “indirect labor” component of an ROI assessment.
Surprisingly, this component is often not used, mostly because the use of people to set up the work for direct labor and process the results is not properly understood but it can uncover a large labor cost that the proposed technology acquisition can reduce or eliminate.
The starting point is to determine all the work elements and processes that are done to produce the assignments for direct labor’s use, and to process the work after the assignments have been completed. In the example above, some typical “before and after” processes in warehouses and distribution centers are listed. The first process precedes direct labor’s involvement. Consider the person sitting in an office or the Control Center of the warehouse who uses the WMS (warehouse management system)—or other work management system such as an ERP (enterprise-resource planning) to select, release, print, package and assign daily work assignments to the direct laborers, specifically, order selectors. Then, on the flip side, enter the information from the order selection tickets back into the WMS to generate appropriate documents such as invoices and loading sheets. From personal experience, I have seen as many as five people (in large warehouses) do these daily chores, and interestingly, the pay rate (fully burdened rate) of some of these folks is higher than the direct laborer’s pay rate, due to the need for them to have an operative understanding of how to use the WMS.
Checkers are the people involved in post order selection audits and are usually not the people who have selected the product. Some companies do 100% audits because their customers charge them for any errors discovered after delivery. Whatever the percentage of audits that are done, this is an indirect labor cost that should be considered.
Order selection traditionally has not included packing for shipment to the customer. It was considered something that would slow down the selector and could be best handled by people at pack stations near the loading areas. Depending on the industry, the number of items to pack can be considerable (such as in retail) which will require many packers, especially if the orders are for direct shipment to consumers. Newer technology is available to direct placement of items into a shipping carton during order selection, eliminating post-selection packing altogether.
The final category, other process-related positions, is a placeholder for such, and rarely used.
Over the years, technologies such as RF (radio frequency) scanners, where assignments can be sent directly to order selectors without paper tickets, have helped reduce indirect labor requirements and costs, but there’s still some human involvement in the selection of daily work, not yet fully automated.
More recent human-augmentation technologies, such as voice coupled with RF scanning (multimodal), have further increased productivity and accuracy, offering labor reduction opportunities. For example, with the increase in order selection accuracy to 99.9%, many companies have eliminated the audit process. That is a significant cost savings.
If indirect people are part of your current process, then it is essential to calculate the cost of their involvement. With this cost in hand, the next critical step in an ROI assessment is to determine whether the proposed technology can reduce or eliminate these administrative and downstream process people.
The impact on the savings could be considerable, as well as significantly accelerating the payback time from many to few months.
My next article will focus on the costs of “mis-picks” during the order selection process. This is also a significant component of ROI assessment.
About the Author
Tim Lindner develops multimodal technology solutions (voice / augmented reality / RF scanning) that focus on meeting or exceeding logistics and supply chain customers’ productivity improvement objectives. He can be reached at linkedin.com/in/timlindner.