Category: Management

Case study

Production Labor Sourcing for Supply Chain Management
Over 75 percent of U.S. manufacturers have been reported to outsource some of their business functions. A shift in offshore outsourcing has returned some business activities to the United States even as cost reduction pressure still challenges most U.S. businesses. Brook Medical Supplies (BMS), a manufacturer of medical supplies and ambulatory kits, recently ended outsourcing operations overseas as a competitive measure to improve quality and reduce costs. BMS instead selected a cost reduction project that outsourced semiskilled labor locally. The labor-sourcing approach reduced overall costs below the offshore program, while maintaining complete oversight of product quality. The positive results in cost reduction prompted BMS to expand the labor-sourcing initiative beyond its production positions. BMS now uses labor sourcing for semiskilled labor in its material handling (shipping and receiving), staging (tow motor drivers), maintenance, and waste handlers without displacing any existing employees by moving them to other departments in the plant. With the responsibility to hire, train, and supervise this group of semiskilled laborers, BMS has been able to increase efforts in core areas of increased quality, efficiencies, and product improvement.

Stor-Pak Distribution Center handles 90 percent of BMS’ New England distribution, including assembly and kitting for their drug testing kits. In addition to their customer–supplier relationship, Stor-Pak partners with BMS as a Best in Class and benchmarking mentoring through a national association of U.S. manufacturers and distribution centers. As part of BMS’ supply chain management integration efforts, they have recommended to Stor-Pak that they evaluate alternatives to expanding their labor force with permanent employees. Stor-Pak is evaluating three alternatives including hiring permanent warehouse employees, contracting with temporary employment agencies for expanded labor, and contracting with a specialized labor-sourcing company similar to the contract BMS secured for their production and warehousing operation. Stor-Pak has been gathering internal data on labor costs for permanent employees and has a large pool of temporary employment agencies that responded to their RFP. Only one proposal was submitted that was identified as a specialized labor-sourcing company.
Bethel Consulting Services (BCS) is a third-party labor-sourcing company with expertise in screening, selection, training, and supervision of semiskilled warehouse associates. BCS presents a “company within a company” or vendor onsite service with competencies in training for warehouse positions in material handling, pick and pack, assembly and kit making that reduces the learning curve time and improves quality of work. Their proprietary competency-based hiring system and onsite supervision result in lower tardiness, turnover, and safety issues. BCS’ specialized staffing system starts with an assessment of required skills and activities of the warehouse operation and then drafts standard operating procedures (SOPs) for training and performance evaluations. Their data and performance-based system allows performance incentives for BCS employees and gain sharing opportunities for contract partners.
BCS has data necessary for developing a business case that warehouses and distribution centers can use to present contracting with a specialized labor-sourcing company. The business case compares BCS cost and performance measures to hiring permanent employees and contracting through temporary agencies. The business case presents data reporting productivity gains and a reduction of overall labor cost by 20–40 percent. The data reports an increased quality of work (reduced errors in storage and retrieval, assembly, and kit making), improved performance measures (picking and packing efficiencies), and improved safety (reduced liability and claims). The BCS system will allow distribution customers to redirect efforts in supervising semiskilled labor to supervising skilled labor and focusing on core competencies and other lean cost saving priorities.
Answer All Questions
1. How could contracting with Bethel Consulting Services advance Stor-Pak’s position as a world-class supply chain partner for Brook Medical Supplies and other customers?
2. What cost advantage perspective should Stor-Pak use to determine the differences between using a traditional temp agency versus a third-party labor source provider such as Bethel Consulting Services?
3. If the reduced costs projected by Bethel Consulting Services are realized, will there still be any risks for Stor-Pak in bringing in a third-party labor source company such as BCS?