labor management system Archives

Guest Commentary: 5 Things That Can Sink Your Incentive Program

Guest Commentary | By Jeffrey Boudreau • 11/01/2012

Motivating employees to embrace different corporate programs can be complicated. And on top of that, the atmosphere around labor has changed due to new technologies and software, such as modern labor management systems (LMS), which claim to solve all workforce challenges. Running employee incentive programs can be hit or miss. According to ARC Advisory Group, 63% of firms using incentives programs reported gains of 10-30% in productivity, while others reported no change. In either case, the intrinsic factors underlying human motivation stay the same.

Operating executives cannot rely on these systems, automation or the diligence of a few outstanding employees to deliver all of the results their companies need to remain competitive and profitable. Executives need to become more involved and create a culture where employees feel motivated consistently, boosting productivity. Nothing happens in a company without people to drive it forward, so making sure that a good incentive program is in place so employees are motivated is extremely important.

Five Things Every Supervisor Should Avoid When Rolling Out Incentive Programs:

1. “We don’t feel the commitment from management”
Supervisors work hard to attract and retain talented and dedicated staff. In order for this to happen, employees need to feel appreciated and know that they add value. There are many factors that contribute to this “perceived value” for employees: your company brand, operating conditions, wages and benefits, interpersonal relationships with supervisors, as well as the work itself. Supervisors should go out of their way to thank employees for good work and smart suggestions. When employees work hard, and they see the appreciation over time, they feel more committed to an organization. Supervisors also need to make sure their teams understand how their work contributes to the company’s success. Unfortunately, not all incentive programs are embraced. Too many times we see incentive programs haphazardly thrown together with policies, rules and concepts that frustrate employees and create conflict within work groups.

2. “We know how the system works—and we work it”
Employees are constantly evaluating their investment and effort against their reward, as well as comparing it with that of their coworkers. One big influencer of employee productivity is the notion of fairness. Take this example from a large direct-to-consumer operation. This operation had just rolled out a team incentive program. While the rewards were lucrative (some groups overachieved and banked incentive pay into the future), the overall perception was dismal. A company survey found that due to several structural issues and poor supervisor accountability, this team incentive program was highly disliked across employees. The ultimate goal of an organization is to increase value for the customer, so it’s only natural for an employee to ask, “What’s in it for me?” Celebrating success is the way to motivate members of a team to keep doing their best. Some ways to celebrate success include:

Thanking an employee for a great suggestion, especially in front of others.
Visible tokens of success, such as a pin that goes on his or her safety vest.
Hold a monthly drawing to reward employees for their participation in programs.

Through a rewards program, your employees feel more appreciated because you show them the value they add. This boosts their morale, which ultimately improves their performance.

3. You try to lead from your office
There is this idea that letting an LMS automatically sense and respond to real-time conditions in your workforce will make for a successful incentive program. For example, say a truck driver is taking longer than the LMS predicts he or she should be taking to complete a delivery. When this happens, an alert is sent, usually to the supervisor, alerting of the infraction. Does this mean that appointments or volume projections for the day are going to be missed? Not necessarily, and this is where the problem lies. While this idea works in theory, there are several problems with this type of system. First, real-time reporting gives managers the false sense of empowerment to run operations remotely. Secondly, the LMS does not take into account different factors that may be affecting the time it is taking employees to complete a task. Third, an LMS does not provide instant and valuable feedback to employees that only supervisors can give. Lastly, real-time reporting consumes system processing capacity – a precious resource in high-transaction environments.

4. Employees are faced with constant roadblocks
Many times in an operation, there are roadblocks that prevent employees from being productive and adding true value. This makes them feel frustrated and uninspired. It is important that supervisors create work conditions that are conducive to getting maximum results. For example, if one employee’s work interferes with the work of another employee and they are just standing idle waiting for the first to finish, this delays that employee’s work, which causes a ripple effect down the supply chain. A work environment should be designed so that an employee can be productive without someone else’s work interfering. An organization should provide employees with the tools and encouragement they need to be effective in their jobs. Employees should also be motivated to find efficiencies in their everyday work. This will improve the employee’s attitude because they will be rewarded and it will reduce costs for the organization as well.

5. Is this just another ‘flavor of the month’?
When implementing a new labor management and incentive program, it is important that this commitment be long-standing. This should not be an ad hoc initiative that withers away once management’s attention gets pulled in another direction. This needs to be a cultural change. Management needs to be engaged and committed to this change. A few things that show commitment are:

Having a quick meeting every morning to start off the day where management shares with employees the status of an operation and the goals they are expected to meet that day.
Having visual displays that keep track of daily performance.
Management coaching.
Monthly team meetings.

Running a Program Employees Will Love

In order to avoid these five things you will need three equally important weapons: credibility, objectivity and expertise. Companies that journey down the incentive program path alone are challenged internally in both the perception and reality of the program. Working with a partner that can implement an effective labor management solution with a proven rewards program can help solve that problem.

Overall, it is important that employees know that the organization has their best interests in mind; otherwise, the ramifications of implementing a poorly perceived program are far greater than the potential benefits. Your incentive program should foster a creative and collaborative environment, that all employees from the top down can experience a sense of pride and ownership.

Jeffrey F. Boudreau is Vice President Business Development, Global Retail Supply Chain Solutions for Ryder System, Inc. He is responsible for customer acquisition and marketing Ryder’s services to the specific needs of retailers and suppliers worldwide. Prior to Ryder, Mr. Boudreau was Managing Partner at XCD Performance Consulting LLC where he grew the firm to be a thought leader and innovator of workforce motivation and supply chain strategies for retail, pharmaceutical and other labor-intensive industries. Prior to XCD, Mr. Boudreau was a Principal and Director of Marketing for Supply Chain Services at Kurt Salmon Associates. A long-time contributor, writer and speaker on supply chain topics, he has been recognized as “100 Great Supply Chain Partners” by Supply Chain Brain and his work is nominated for the Chairman’s Award at Pfizer, Inc. Mr. Boudreau earned a Bachelor of Science in Industrial Engineering and Operations Research from Virginia Tech.

An “Undercover Boss” Works in a Warehouse

Labor | By Steve Banker • 03/19/2012

I had never watched an episode of the popular television show “Undercover Boss,” but when I saw in a commercial that they were taking their cameras inside a warehouse, I decided to tune in. Sam Taylor, the CEO of Oriental Trading Company (OTC), posed as a new warehouse employee. OTC is the nation’s largest direct-to-consumer retailer of party supplies. Direct-to-consumer distribution centers (DCs) require a high volume of unit picks, unlike most other DCs that specialize in case and pallet picking.

I watched the show as a logistician. Initially, I was impressed. This was a highly-automated warehouse with miles of conveyors, advanced sortation systems, and pack stations.

The first task Sam is given is to pick oversize items that are too large for their conveyors. Sam is directed by a voice recognition system, Lucas Systems’ Jennifer solution, to the correct slot where he picks the item, confirms the pick verbally to the Jennifer system, and puts the item on the cart. Voice recognition is a proven hands-free technology that can speed picking.

But the Jennifer system was giving commands at such a high rate that it sounded like gibberish to me. I had no idea these systems could be cranked up to such a ridiculous pace. Sam was overwhelmed by the system, as any new employee would be.

The pace violates a key axiom of fair labor practices. The goal of a fair labor management system is to get employees to work at a steady pace consistently throughout the course of the day. Engineered labor standards are developed to ensure that if a picker works efficiently and steadily, they can hit their goal for the day. Often companies will give bonuses to workers if they can work faster than the standard pace. OTC has a bonus structure. However, it appeared to me that the standard pace developed by OTC was not based on engineered labor standards.

Sam next gets to work as a truck loader. The trucks were floor loaded to ensure the trailer space was fully utilized. This is hot, physical work. It can also be dangerous. People that work this job are particularly apt to get back injuries because they are constantly stooping to put items on the floor and stretching to stack items near the ceiling. Sam actually had to jump to put items on top of the stack he was building.

The other thing that contributes to injuries is that a truck loader does not know the weight of the package he is about to lift. One package might weigh 5 pounds, the next 50 pounds. If the loader knew a package was heavy, he could prepare his muscles for that movement and the task would be safer.

The ergonomics involved in loading these trucks was terrible, but so is the ergonomics of every floor loading environment I have ever seen. The CEO spent some time talking to Andrew, his mentor for this task. Andrew had worked in this department for years and was a middle-aged man. I was amazed; Andrew is clearly a force of nature.

When their shift is over, Andrew invites Sam to shoot pool. On the way out they pass through the break room. Sam sees coolers full of sports drinks, but they’re locked. Providing these drinks to workers used to be standard practice, but the company stopped because of financial difficulties. The warehouse is based in Omaha. It is summer and most warehouses, including this one, do not have air conditioning. At his next stop, a pack station, an employee named Kim tells Sam that she fainted once. She brings her own water bottle since the company cut back on drinks.

At the end of the show, the CEO does the big reveal to the employees he worked with. He is not really a warehouse temp, he is the CEO of the company. The policy on sports drinks will change. He will put in more ceiling fans to cool the warehouse. He also increases the base pay for truck loaders because he realizes the job is especially demanding. He lavishes tens of thousands of dollars on the workers he interacted with so that viewers will feel good about him and his company.

But perhaps the most significant policy change he announces is requiring every corporate manager to spend a week a year working in the warehouse to get an idea about the work environment. I can’t help but think that if this policy had been in place all along, some of the glaring weaknesses he was exposed to would have been corrected long ago.

Retaining Warehouse Workers Without Sacrificing Performance

Labor | By Steve Banker • 11/23/2010

How can you have a satisfied warehouse workforce, and what does it take to retain them?

That was the focus of a research project conducted by Bryan Edwards, an Assistant Professor in the Department of Management at Oklahoma State University, together with Kevin Gue, an Associate Professor at the Department of Engineering at Auburn University, with funding from the Material Handling Industry of America (MHIA). I spoke to Bryan recently and he sent me an initial draft of their findings.

They conducted focus groups and surveyed 531 warehouse workers across six different distribution centers. The goal was to find statistically significant links between job satisfaction and job retention. Here are the factors that were statistically significant:

Supervisors/managers provide frequent developmental feedback.
Supervisors/managers provide opportunities for employees to voice opinions.
The organization rewards good performance.

Bryan was quick to point out that these findings do not indicate causality. In other words, just because warehouses with managers that provide frequent developmental feedback have less turnover does not mean that giving frequent feedback increases retention. But that is just statistical gobbledygook. In statistics, proving one thing causes another thing is always very difficult.

Here is what struck me: If I was running a warehouse, I would care more about performance than turnover. In other words, if higher satisfaction led to lower performance, I’d live with the turnover. However, implementing discrete labor standards in an optimal manner improves performance while also relying on the behaviors listed above.

For example, back in July I wrote about how DSC Logistics implemented a Labor Management System (see “Labor Management at DSC Logistics”). Here are some excerpts from that article:

Reward good behavior: “Once the great majority of their staff was regularly achieving their daily goals, DSC put in place an incentive program. They pay ten cents an hour above the base pay for every percentage point above 100 percent in direct labor that a worker achieves. This made the program self funding – both workers and DSC profited from higher productivity.”

Supervisors provide frequent feedback: “Managers do daily coaching observations.”

Supervisors provide opportunities for employees to voice opinions: “In addition to making sure best practices are being followed (in the daily coaching sessions), part of their job is to keep their eyes open for barriers to worker productivity. Are there empty pallets in aisles? Do workers need to make extra key strokes to complete a task? At the end of the coaching session, the manager gets feedback from employees concerning the barriers they perceive and their ideas for making the job easier and more efficient.”

What was DSC’s experience? “DSC did lose some workers because of this program. However, they felt the workers that left were the ones with the worst attendance and safety records, and so they were left with a lean and efficient work force. Today, turnover is as low as it has ever been, and most of that they attribute to this program.”

And in relationship to the daily coaching and employee feedback: “[Jim Chamberlain, the Director of Engineering at DSC Logistics] believes this has helped improve employee and management relations, while the data from the LMS has been critical in creating a culture of accountability.”

In conclusion, it is possible to achieve high performance, a more satisfied workforce, and low turnover simultaneously.

Brooks Sports Hits a Home Run with a SaaS Labor Management System

Cloud/Software-as-a-Service | By Steve Banker • 08/12/2010

I recently spoke with Jeff Kastning, Senior Manager of Logistics and Distribution at Brooks Sports, about the company’s recent implementation of a software-as-a-service (SaaS) labor management system (LMS). Brooks Sports, headquartered near Seattle, Washington, designs and markets high-performance men’s and women’s running shoes, apparel and accessories.

The company operates a 140,000 square foot distribution center (DC) that carries 12,000 SKUs and ships more than 6 million units per year. The facility uses a pick-to-carton methodology, where workers place the cartons on carts which they wheel through the warehouse.

Over the years, Brooks’ volumes grew and the company had to grow its staff. Five years ago, Brooks had 35 fulltime employees and used three or four temps per day. By 2008, Brooks was still employing 35 fulltime workers, but the number of temps it used daily had grown to 15 to 20 people.

In that same time period, Brooks realized that it had outgrown its IT infrastructure. In 2008 the company implemented a new Enterprise Resource Planning solution that also included a built-in warehouse management system (WMS). The WMS allowed Brooks to move from paper-based processes to real-time processes supported by RF scanners.

While Brooks did not notice a significant improvement in productivity from the WMS, the WMS did provide it with the data it needed to put in a labor management system (LMS). In particular, the WMS provided data on how much time elapsed between scans. Brooks planned to use the LMS to drive productivity improvements.

Brooks implemented an LMS – Labor Performance – from Integrated Management Systems (IMS), the company that handles its contingent staffing needs. IMS also, for some clients, has fixed bid contracts where it supplies all the labor at a customer’s site while agreeing to hit certain output levels. In order to make money in these types of contracts, IMS had developed a proprietary LMS, which the company decided to productize and develop into a SaaS solution.

Historically, it has been difficult for traditional, license-based LMS solutions to provide a payback of less than a year for warehouses that employed less than 70 people. However, the risks and costs associated with the IMS solution were far less than they would have been with a best-of-breed solution. Brooks felt it had little to lose in implementing the IMS solution. Further, following the ERP implementation, Brooks had little appetite for another large software expense.

Brooks began working with IMS in April of 2009 and the solution went live that November. IMS took a multivariable approach to setting standards. The six months was spent largely examining the WMS data to develop accurate labor standards formulas. These formulas are not based on tracking travel times or the use of time and motion studies. Instead, IMS used the WMS data and averages to set the standards.

For example, the data might say that it takes two minutes to pick a particular stock keeping unit (SKU). These are multivariable standards because the labor standards formulas use more than one parameter. For many picking tasks, in addition to the SKU as a factor in the equation, the number of items to be picked, the number of lines on the order (which tells you how many locations the worker needed to travel to), and the number of cartons on the cart that need to be filled are also used.

Developing the standards was an iterative process. The initial goal was to get workers to a baseline of roughly 80% of standard. While developing the standards, Brooks would occasionally see some employees hit a score of 30% or 180% for the day. That was an indication that there were additional metrics that needed to be included in the labor standard in order to make it accurate.

Brooks got their productivity improvements in two stages. First, once workers knew they were being tracked individually, warehouse productivity improved 10-15 percent to 83% of a fair, but efficient, daily goal.

After the solution went live in November, Brooks instituted daily productivity report cards and a three tier bonus structure:

Tier 1, workers who work at 100-120% of standard during a day get a $1.50 per hour bonus.
Tier 2, workers who work at 121-139% of standard during a day get a $3.00 per hour bonus.
Tier 3, workers who work at over 140% of standard during a day get a $4.50 per hour bonus.

Bonuses are paid only to workers with good accuracy and who follow the safety rules. Further, bonuses are paid only for direct labor –i.e., when workers are actively working and using their scanners—rather than on break, getting training, in group meetings, etc. Productivity increased another 10-15 percent following the implementation of the bonuses.

Bonuses are calculated and shown to workers the next day. Following the day’s work, a supervisor downloads the data from the WMS, checks it, and sends it by email to IMS. IMS uses the data to create the daily report card and bonuses and sends this data back to Brooks, which then posts the results for every worker on whether they got their bonus and what tier they were in. This public posting creates peer pressure. If a particular worker sees that 70 percent of his colleagues got a bonus and he didn’t, he can’t help but take notice.

Prior to going live, Brooks educated the staff on what they were trying to do. The goal was not to burn workers out, but rather to develop fair standards and standard operating processes (SOPs) based on working smarter that would support a bonus program. The bonuses were designed to be self funding. In other words, both Brooks and the workers would win if they earned their bonus.

Jeff tells me this has been a “fabulous” solution for them:

They improved productivity by 25-30 percent.
The amount of time their staff spends on direct labor activities has increased from about 80 percent to over 90 percent.
Increases in productivity allowed them to cut the number of temps they employ from 10-15 per day down to 1-2.
The data has helped them improve their standard operating procedures. If Bob is the fastest worker at a particular task, they watch how Bob does the task and create the standard operating procedure (SOP). Bob becomes the lead and trains new employees on that process.
The data provides an executive dashboard that summarizes metrics at a higher level and allows Jeff to quickly understand how the warehouse is performing. Jeff looks at the following performance indicators daily: percentage of direct labor, labor productivity percentage for the warehouse, and bonuses in dollars (remember, bonuses are good because both Brooks and the workers win!).
They received payback only two months after they began working with IMS!

What Brooks and IMS accomplished with LMS is interesting to me for several reasons. I’ve rarely come across warehouses using a multivariable approach to setting standards or implemented an LMS in such a small warehouse. Also, I’ve never seen such a quick payback period for LMS. And I’d never heard of a SaaS LMS solution before—but I suspect it won’t be the last time.

Labor Management at DSC Logistics

Labor | By Steve Banker • 07/28/2010

I recently spoke with Jim Chamberlain, the Director of Engineering at DSC Logistics about their rollout of RedPrairie’s Labor Management System (LMS) solution.

Jim began his career at Kraft where he worked to develop labor standards. Based on that experience, he knew this was a big opportunity for DSC when he joined them. In 2005, DSC evaluated the major suppliers of LMS solutions. They selected RedPrairie’s solution because they viewed it as the most comprehensive product available in terms of its ability to capture and measure all of their employee’s time-related activities. DSC wanted to track 100 percent of their warehouse staff’s direct and indirect labor from clock-in to clock-out. Even if all they could achieve was a more efficient clock-in at the beginning of the day and clock-out at the end of the day, along with better shift changes, DSC felt that alone would justify the project.

In the fall of 2005, DSC piloted the program at their McDonough, Georgia facility, which was their best run facility. DSC uses a proprietary WMS, so a big part of the project involved developing interfaces between the WMS and LMS. From a training perspective, they used the “train the trainer” methodology. They began one function at a time, starting with the areas where labor productivity improvements would provide the best ROI. At McDonough, that was their case pickers.

A LMS sets standards for workers. These standards can be set in different ways. DSC used a predetermined time system, Master Standard Data, as their methodology because they felt it was the most objective and consistent. The goal in setting standards is not to make workers work fast, but rather to have them work efficiently and steadily all day long.

A worker who achieves a 100 percent rating for a day’s work has done everything expected of them. At their McDonough facility, before the LMS productivity gains were achieved, it was pretty typical to see floor personnel working at a 75 percent level. Some were as low as 50 percent. DSC’s expectation for their workers was that they would improve 5 percent a week until they were up to 100 percent. No disciplinary action was taken initially if a worker failed to improve. Instead, managers would work with their warehouse staff to make sure that best practices—those that would make them maximally efficient—were being employed. Jim stressed how important change management efforts were. There needs to be extensive training, coaching, and counseling in order to make a smooth transition to the new way of doing business. To be able to do the necessary coaching and counseling on an ongoing basis, DSC’s goal is to have one frontline manager for every 15-20 workers.

Once the great majority of their staff was regularly achieving their daily goals, DSC put in place an incentive program. They pay ten cents an hour above the base pay for every percentage point above 100 percent in direct labor that a worker achieves. This made the program self funding – both workers and DSC profited from higher productivity.

DSC caps the bonus at 125 percent for safety reasons. Also, they pay close attention to workers that consistently work at very high productivity levels to make sure they are not taking any shortcuts. The incentive program is gated. Workers don’t get bonuses if productivity is achieved at the expense of safety or quality. For example, if a worker had a safety incident in the last month, they are not eligible for incentives.

DSC did lose some workers because of this program. However, they felt the workers that left were the ones with the worst attendance and safety records, and so they were left with a lean and efficient work force. Today, turnover is as low as it has ever been, and most of that they attribute to this program.

Based on these results, it is not surprising that DSC decided to move forward with a network wide rollout. Before they would move to the next facility, the engineering team would stay until the warehouse was up to 100 percent on direct labor productivity and the percentage of indirect labor was down to an acceptable level. The engineering team is corporate based.

Because the implementation team worked side by side with the implementation folks from RedPrairie, they became comfortable with the solution. By the fourth site, the DSC folks were ready to move forward without RedPrairie’s help. The next 18 sites were done solely by DSC.

If I was selecting a third party logistics (3PL) partner, I would never select a 3PL that did not have a rigorous continuous improvement culture. LMS can be a key part of that culture. When the LMS was implemented at a new site, DSC made sure the site was using best practices and that travel paths were efficient. The system also generates data for understanding their business better. If labor is unproductive at a particular facility, they can do a root cause analysis to see what is causing it.

However, those kinds of improvements are what I would expect from any LMS project. One of the most interesting parts of the discussion for me was Jim’s description of how their coaching program helped improve their lean program. Managers do daily coaching observations. In addition to making sure best practices are being followed, part of their job is to keep their eyes open for barriers to worker productivity. Are there empty pallets in aisles? Do workers need to make extra key strokes to complete a task? At the end of the coaching session, the manager gets feedback from employees concerning the barriers they perceive and their ideas for making the job easier and more efficient. Jim believes this has helped improve employee and management relations, while the data from the LMS has been critical in creating a culture of accountability.

(Note: RedPrairie is an ARC client)

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