By Sid Holian, Managing Director at Bis Henderson Consulting
Last April, the National Living Wage came into effect, hiking up labour rates for those over 25 years old to a minimum of £7.20 per hour. For labour intensive industries, such as hospitality & catering, retailing, and warehousing & logistics, the extra operating costs are a significant burden to bear, weighing heavily on top of mounting concerns over Brexit and the future impact of the Apprenticeship Levy which comes into effect in April 2017.
Further worrying factors are the weak pound making imports expensive, a tight labour market – with a UK jobless rate at an 11-year low – and the likely prospect of a dwindling supply of labour from Europe post Brexit.
How are businesses to offset these big costs coming down the line? And how will they deal with a shrinking labour pool? The choices available to companies are stark, but not all are bleak – far from it.
The first option is to put up prices. However, in the highly competitive landscape within which most businesses operate there is little scope to do so. This said, a survey conducted by the Resolution Foundation in June found that a third of businesses affected by the National Living Wage had raised prices. But then will they retain market share over time?
The second option available is to absorb the extra cost. This may help preserve market share but it obviously impacts profits. According to the same survey some 29% of businesses chose this option. Still, company shareholders are unlikely to remain sanguine about trimmed profits for long.
However, there is a third, more sustainable, way and that is to improve productivity. And it need not involve draconian practices of simply telling staff to work faster. There are far more sophisticated and effective solutions that look holistically at processes and systems, facilitating the individual to become more productive.
Productivity within distribution centres, for instance, can be significantly improved by simply assigning operators to the right tasks, for the right period of time, with a minimum of delay between tasks. Developing information flows that are at a tactical level within logistics operations can ensure resource is directed to the right area at the right time. Such techniques should take into account variations by the hour or even by every quarter of an hour within a cycle. Huge efficiency gains can be made in this way.
Then there is the potential to maximise operational performance within the warehouse by deploying physical assets, such as handling equipment, containers and conveyors, in a more flexible way that benefits the operator and enables them to do their job more efficiently. Warehouse equipment and layouts have a tendency to remain static and unchanged for years – often through the entire depreciation period of the asset. However, much can be achieved by looking closely at the total estate of equipment, deploying it flexibly so that the right equipment is made available for the right operations at the right time. Analysing equipment usage and exercising flexible deployment to cater for changing requirements throughout the year – such as for peak periods – may sound obvious, but it is often overlooked.
Applying higher levels of mechanisation and using intelligent picking systems can also bring productivity gains at a reasonable ROI. Many solutions are now available that allow picking to be done more randomly, reducing walking time for operators, and some technologies enable a highly efficient means of consolidating and buffering products for a single order assembly close to dispatch.
But some of the biggest gains for the future will be made through thinking holistically about the logistics needs of the business, and in retail that means looking across operations both within the warehouse and in-store. The National Living Wage will impact retailers hard, costs for staff in high street stores will increase dramatically, but much of store-staff time is absorbed by non-customer facing activities such as unpacking stock, disposing of packaging and finding the right product to display in the correct place. These are activities that could well be performed far more efficiently if products were prepared in advance – and arranged in sequence for shop layouts – within the well-ordered domain of the warehouse.
Store friendly sequencing will become increasingly important to high street retailers looking to trim costs and improve sales performance.
Importantly, those companies that wish to stay ahead of the game on raising productivity will need to keep a constant eye on measuring performance and making tactical decisions on matching resources to tasks in the most efficient manner. Expertise and know-how will be critical. Operations that are not regularly exposed to expert analysis are liable to be run sub-optimally.
However, with the help of specialist consultants using the right tools to bring about process improvement and productivity gains, line managers can better manage staff and deploy resources more flexibly, helping to keep operating costs to a minimum and enabling the business to remain fit and competitive in a time of restricted labour availability and increased wage costs. The question open to all businesses is: Is your distribution centre fit for the task?
Sid Holian is Managing Director of Bis Henderson Consulting
www.bis-hendersonconsulting.com
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