How Labor Management is the Key to Operational Excellence

“Operational Excellence” has been used for decades across the supply chain industry. No matter your organization’s specific definition, Operational Excellence is the ability to serve your customers at the right time and at the right cost. At the 3PL I worked for, operational excellence was defined as a roof supported by five pillars – safety, communication, financials, talent development, and quality. The most common failure point of operational excellence has always been poor labor management.

Today’s cutthroat delivery expectations have led organizations to experience substantial daily volume fluctuations. A typical operation with poor labor management will utilize levers such as last-minute mandatory overtime to address volume surges. When an operation is constantly calling for mandatory overtime, the five pillars of operational excellence begin to crumble. Mandatory overtime often results in disgruntled employees, which in turn leads to increased turnover. Once the vicious turnover cycle begins, employees are brought in quickly with very little training. This leads to safety incidents and quality issues while talent development and communication fall by the wayside. Inevitably, financials land far from budget.

Fortunately, there’s a simple strategy that any organization can implement. The PDCA cycle (Plan-Do-Check-Act), also known as the Deming cycle, is an excellent framework for your internal labor management process. It is practical, adaptable, and, most importantly, quickly adoptable by your leadership team.

Create a Labor Plan (Plan) – Just two numbers are needed: volume and productivity. Many organizations will say, “You don’t understand, our operation is different! Our forecast is terrible, and our productivity numbers are complicated!” The reality is, you can make an estimate no matter how poor the forecast is, and every operation can divide its historical volume by the number of labor hours it used. It may not be perfect, but it’s better than being purely reactive.

Execute your Labor Plan (Do) – The true benefit of any plan is the work put into creating it, which then gives your organization the confidence in pivoting as reality sets in. Every day, reality will bring you additional challenges. How are you adapting? How are you executing your labor plan? Do you have a process in place to calculate and request voluntary overtime when volume exceeds plan? If volume comes in lower, are you able to systematically shed labor from your operation? Having tools and processes in place to execute your labor plan is just as important as creating it.

Compare Actual to Plan (Check) – You must have a daily process to compare the previous day’s results with the plan. Going through this exercise will help you better estimate your volume and tighten your productivity numbers. Giving yourself a daily “plan vs. actual” score will help your operation improve its labor management.    

Adjust your Future Plans (Act) – The results from the check step are pointless unless you integrate your findings into your next labor plan. This is the final step of the PDCA cycle, which, if done consistently, will take your labor management process to the next level.    

The key to Operational Excellence is keeping your workforce stable while flexing up or down to demand. This presents an opportunity, as most associates in the supply chain industry are seeking stable positions with some flexibility. Weaving in a flexible labor management process in which you create a plan, execute your plan, and improve your future labor plans is a simple yet highly effective method to achieve and sustain Operational Excellence.