Keeping Surprises Out Of The Warehouse
Warehousing risks can spring out at any moment. Some are meant to be shared, others avoided. Successful warehousing operations strike a balance.
Warehouses and third-party logistics providers (3PLs) continually evolve their service offerings to differentiate themselves in the market and meet rigorous customer demands. As they take on more responsibility, however, they also assume more risk. But the same is true for the organization that contracted for those services.
When it comes to the facility itself, and the technology and systems employed on behalf of a customer, 3PLs often look for some shared risk. "It comes down to the value proposition and the business case," says Gary Allen, vice president of innovation and product development for global contract logistics provider Exel. "Risks change with the service offering."
Unexpected surprises can pop up for both warehouse service providers and the companies using those services. But with a little planning and forethought you can mitigate their impact.
SURPRISE! LABOR MANAGEMENT ISSUES
With 100 million square feet of warehouse space around the world, Exel employs labor management systems in each facility it operates. Those systems, with their goal of continuous improvement, are crucial to Exel and its customers, says Allen. Because they manage down to the task and person, they provide metrics that not only measure performance on a specific customer contract, but also allow Exel to benchmark against its other operations.
Warehouse labor management is an area where 3PLs are often ahead of their customers on the technology curve, Allen says. But then, warehouse labor management is an opportunity for a warehouse operator the size of Exel to significantly boost efficiencies.
PAY FOR PLAY
3PLs need to ensure they get paid for everything they do for a customer—whether it’s a transaction-based task, time spent, or even storage, notes Roger Falkenstein, senior sales representative for HighJump Software, an Eden Prairie, Minn.-based global provider of supply chain management solutions. 3PLs need to accurately capture every activity as it occurs, and ensure that information remains intact through the billing and auditing cycles.
Those key billing and audit trail systems not only provide opportunities to improve efficiency, they also ensure a 3PL doesn’t lose track of all the activities and transactions it performs for a customer. Any outsourcing business posting thin or non-existent profit margins indicates a 3PL has won a contract and brought on a new customer without fully understanding the cost of the service it is providing, Falkenstein says.
Supply chains change continuously, giving rise to the term "scope creep." Nearly every 3PL has a story about how the scope of work it performed for a customer changed over time without being documented or billed. Sometimes the shift is not the 3PL customer’s fault; it can be the result of requirements the customer’s customer places on the 3PL.
SURPRISE! WHO PAYS FOR THE TECHNOLOGY?
3PL contracts covering conventional distribution facilities are often straightforward. But, if specialized materials handling and automation systems are part of the facility, a common approach is for the customer to pay a portion of the automation cost as part of its regular fees, or amortize the cost over the life of the service contract, explains Jim Handoush, co-chief operating officer for Landstar, a supply chain solutions provider based in Jacksonville, Fla.
Another way to ensure specialized materials handling systems don’t become a cost burden is to install scalable systems, according to Tony Barr, vice president of marketing and business development for Beumer Corp., which specializes in high-capacity conveying applications. Scaling can be as simple as adding more trays to a core conveying system to increase throughput.
Systems are often specified to solve an immediate problem and provide some short-term gains, says Barr, but they should not impede the ability for future expansion or they could, in fact, constrain growth. Scalable systems drive volume growth and margins.
For the 3PL, scalable service may mean keeping pace with a customer’s growth or adding customers to a multi-use facility. But scalability may also be a condition of the contract or an unspoken value that can tip the decision.
SURPRISE! WHO’S LIABLE FOR THE INVENTORY?
Exel has expanded its services into areas such as demand planning, which includes actually setting inventory levels for customers. Exel handles some procurement tasks, but doesn’t acquire or take title to the goods.
The issue of inventory ownership occasionally comes up, admits Allen, but usually in a supply chain where the customer is seeking to replace a distributor or part of a distributor network. In those cases, the distributor sells goods on behalf of the supplier, which is not a standard role for a 3PL.
Trade situations also occur when a 3PL handling international transportation and warehousing may provide customs brokerage and other services that include assistance with letters of credit or temporary financing on inventory, but these services do not typically include a transfer of title.
When you store goods with an outside entity, such as a warehouse, the agreement falls under bailment law, explains Ann Christopher, vice president and general counsel for third-party logistics provider Kenco Logistic Services, Chattanooga, Tenn. The customer, who owns the goods, surrenders them to the 3PL for a period of time, after which the goods are to be returned to the customer.
Legal liability is one of the most important issues warehouse customers should understand, says Christopher. Under Article 7 of the Uniform Commercial Code (UCC), the warehouse operator is held to a reasonable care standard. "It’s often called the negligence standard because warehouse liability is tied to the negligence of the warehouse operator," she explains.
That is an important point because a customer storing $1 million worth of inventory with a 3PL warehouse may be subject to some limitations in the event of a loss. The warehouseman’s liability is tied to negligence, notes Christopher, and the contract can specify a limit on the amount per occurrence, per pallet, or per unit.
In the event of a catastrophic loss, the warehouseman’s policy typically covers building and equipment losses, not the contents that are stored on behalf of a customer, unless the warehouse can be shown to be negligent.
An example of negligence is a warehouse that is not maintained to building and safety codes, or is located in an area subject to weather extremes and does not take appropriate actions to avoid damage to the property and its contents. The language of the warehouseman’s insurance policy will be important in examining which risks are covered.
Additional areas of loss include crime and a category called "mysterious disappearance." Under a crime policy, explains Christopher, it is important to verify whether the loss of goods stored on behalf of a customer is covered, or if the policy only covers the property of the warehouse.
It is also important to note whether the standard set in the policy is "conviction" or "reasonable evidence of a crime." An inventory shortage is not likely to be considered reasonable evidence of a crime unless documents, photos, or video can link the shortage to a criminal act—even in the absence of a conviction.
Inventory management systems can be helpful in going back and tracing who had access to the system and who could manipulate the inventory data.
But about 80 percent of loss claims in a warehouse environment are mysterious disappearance, says Christopher. Mysterious disappearance is separate from crime coverage and may also have sub-limits.
Warehouse operators don’t insure the goods they store; they insure their negligent acts, says Christopher. The warehouse has no insurable interest in the goods.
Another gray area is when goods are cross-docked—only handled in the facility and not stored. Are losses subject to cargo liability or the warehouse policy? Warehouse legal liability typically covers the goods within a specified distance from the facility, says Christopher. Again, it is important to examine the policy language.
The proximity issue raises questions about drop trailers. Are the goods considered to be in storage in the facility? Is the drop trailer waiting to be unloaded or picked up, or is it being used for overflow storage? Many warehouse policies cover overflow facilities for a specified period, but some require that the facility have a fixed address. Such nuances in language can make the difference in the event of a loss.
SURPRISE! YOUR 3PL CLOSES ITS DOORS…OR YOU DO
In the current economy, another area of risk has garnered attention: What happens when a company is unable to pay its warehouse bill or files for bankruptcy? A warehouse lien is a powerful tool that allows the warehouse to hold or dispose of the goods to satisfy what it is owed. But in some cases, the customer may have used the goods as collateral with a lender. The 3PL should ensure those collateral agreements are contingent on paying the warehouse’s fees.
If the warehouse files for bankruptcy, the owner of the goods should be able to claim them because the warehouse has no ownership interest. The owner of the goods may still be subject to a warehouseman’s lien, however, and will be required to pay all fees owed to the warehouse before being allowed to claim the goods.
It’s important to note, explains Christopher, that a warehouseman’s lien is much broader than a carrier’s lien. A carrier can hold goods for payment subject to a limit on payment of charges and fees for that load.
A warehouse working as an intermediary needs to exercise reasonable custody, care, and control to ensure the entity actually storing the goods is doing an adequate job. This brings up another area of increasing interest as multiple logistics service providers may be involved under a lead logistics provider arrangement or through subcontracting for overflow storage.
The list of real and potential risks for a 3PL warehouse or its customer is nearly endless. With some due diligence, many major areas can be addressed at the beginning of the relationship and during frequent reviews and renewals.
Ensuring everyone understands the risks is only one part of the process. There should also be agreement on how all parties will share or mitigate those risks. That can help eliminate unwelcome surprises in the warehouse.
Promoting An Injury-Free Environment: Success Stories From Two Safe DCs
It might be an understatement to say APL Logistics cares about safety. The Scottsdale, Ariz., third-party logistics provider holds one of the best safety records in the industry, with an injury rate that’s about 62 percent below the national average.
In July 2009, the company’s Tracy, Calif., distribution center, which serves a major food customer, marked one-million man hours worked with no injuries and no other OSHA-recordable incidents. In September 2009, its Coloma, Mich., facility achieved three years of service without a single injury or other OSHA-recordable incident.
Inbound Logistics spoke with Bill Hayes, manager of the Tracy facility, Steve Mullins, manager of the Coloma facility, and Dixie Brock, APL’s national warehouse safety manager, about the company’s safety initiatives—and what you can learn from its example.
Q: How does APL communicate and support safety goals?
Brock: Safety has to start from the top. If local facility managers and their supervisors make safety a primary goal, then avoiding accidents and injuries at that facility is more likely to happen. When managers and supervisors educate employees about safety, and involve them in creating and maintaining safe processes, a major shift occurs and every employee at every level accepts responsibility and accountability.
Mullins: Safety certainly starts with attitude, but it has to be followed up with action. Our focus has been finding ways to keep safety top-of-mind, which has meant coming up with incentives and other initiatives—and using a mix of communications techniques.
Q: What safety strategies helped the Tracy facility achieve one million man hours with no injuries?
Hayes: It’s all about training, retraining, and accountability. It only takes one injury to mar an otherwise perfect safety record, so all employees have to be held responsible for any unsafe behavior they engage in that could lead to an accident. But we also give every employee the chance to be recognized and rewarded for engaging in safe practices, because a positive safety mindset is a huge part of the equation.
Q: How have your employess managed to avoid incidents involving forklifts and no other industrial equipment?
Hayes: Many visitors to our facility comment on the bicycle flags that are attached to each of our forklifts. They help make forklifts more visible. Now when drivers are backing out of deep bays, other drivers and workers on the floor can see the flags coming long before they see the actual forklifts.
We’ve also helped drivers reduce collisions with our facility’s uprights by selecting a color scheme a lot of people might find surprising—pink. The eye picks up that color a lot more easily in peripheral vision than it does red or yellow.
We also posted stop signs in congested areas with foot traffic, painted red lines at the end of cross aisles, and strategically positioned overhead mirrors at low-visibility areas throughout the facility.
Q: What behavioral measures are in place at your facility?
Hayes: We’ve adopted a zero-tolerance policy regarding driving forklifts without seat belts. Our full-time employees know that the first offense is automatic cause for suspension; the second violation results in immediate termination.
We also have a no-excuses approach to many other unsafe behaviors, such as improper lifting. The policies are strict, but they need to be. Forklifts and other industrial equipment cause about 20,000 injuries and 100 fatalities in the United States each year, and many could be avoided or minimized if drivers wore their seat belts consistently.
Not all behavioral measures are negative ones. It’s important for employees to view safety in a positive light and to see the strong connection between safety and productivity. For example, our weekly gainsharing program has a safety component built in. Payouts are available only to employees with no near-misses or safety violations during the previous seven days.
Q: What safety programs has the Coloma facility developed?
Mullins: We created a game called “Are You Smarter Than Your Safety Committee?” It pitted several employees against members of our facility safety committee to answer 10 safety-related questions. Everyone enjoyed it, and the employees won.
We play a safety bingo game based solely on staying injury-free. Each month, we put a certain amount of money into a pot, which can reach as high as $575. At the end of each accident-free month, we hold employee drawings to give away the money. It’s good incentive because the drawing is only held for accident-free months. In addition, if there’s an injury, the pot goes down to zero, and the amount in the pot for the next month is only $125.
We also throw a popular annual safety picnic that features a variety of safety exhibits and activities, many of which involve local safety officials and organizations.
And, the facility safety committee developed a safety police program, which issues citations for especially safe behavior.
These programs are fun, and can help get tough messages across in a more palatable fashion.
Brock: All Coloma employees attend a mandatory monthly safety training session. In addition, this location takes true ownership of its safety program. Last year, it challenged employees to put together a PowerPoint training presentation on forklift safety. The results were so impressive I shared the presentation with other facilities.
Safety On The Loading Dock: Proper Forklift Procedures Are No Accident
Nearly 100 workers are killed and another 20,000 are seriously injured in forklift-related incidents each year in the United States—about one every three days, according to a 2001 report from the National Institute for Occupational Safety and Health. One of the most common causes of forklift-related fatalities is when a forklift strikes a worker on foot.
Good communication at the loading dock can help prevent many of these accidents. Forklift drivers need to be aware of what’s happening at all times as they move around the dock area, and in and out of trailers. But pedestrians also need to be cautious because they are often out of the forklift driver’s view.
FOCUSING ON THE DOCK
The shipping/receiving/staging area is one of the most difficult places to operate a forklift. It typically only occupies around 20 percent of the facility, but that is where approximately 80 percent of the activity takes place. The job of servicing trailers is even more challenging when restricted vision is considered.
The vision issue is a twofold problem. First, a driver’s ability to watch for pedestrians is impaired when the forklift moves into the trailer, where it is essentially operating inside a tunnel. The result is a dangerous blind spot that is only diminished when the forklift is fully backed out of the trailer. The problem is compounded with multiple dock positions because a pedestrian would then potentially be in the blind spot of multiple forklift drivers.
The other issue is the inability of pedestrians and other forklifts in the dock area to see a forklift operating inside a trailer, which is even more difficult when the trailer is approached from the side.
A wide range of operating conditions is another major factor. One example is when pedestrians and visitors enter the dock area without the forklift operator’s knowledge. It’s also not uncommon for pedestrians and visitors to step outside of zones designated for pedestrian travel. Other challenges range from difficulty hearing audible warning devices to the amount of stopping distance needed for a traveling forklift.
KEEPING COMMUNICATION OPEN
The solution to these loading dock issues can be simple—improved operator training and clear, status-at-a-glance communication to loading dock personnel.
Start with mandatory forklift operator training that includes clear rules of the road—and put some policing and enforcement behind them. There’s also a great deal of value in basic safety devices, such as forklift-mounted mirrors, convex mirrors, and traffic control signs.
Next, take advantage of forklift-pedestrian safety technologies, some of which are designed specifically for loading dock environments. One system, for example, uses lights and an alarm to communicate the status of forklifts inside the trailer. It lets forklift drivers and pedestrians know when a forklift is working inside the trailer so they can exercise proper caution against that forklift backing out.
Lights can also be used to communicate vehicle restraint status to the forklift operator, adding another level of protection against potentially catastrophic trailer-separation accidents.
A variety of other technologies also provide a broad level of safety. An example is proximity laser scanners that create forklift-safe zones throughout the plant or warehouse. Another is the use of motion sensors or infrared systems that alert pedestrians to approaching forklifts.
The bottom line is to ensure everyone working in and around the dock is on the same page—especially when trailers are being serviced. The best advice is to develop and maintain open lines of communication.
—Joe Manone, vice president, Rite-Hite
10 Steps to a Safer Warehouse
Injury prevention starts with leadership, training, communication, risk assessments, and metrics.
1. START AT THE TOP While everyone is responsible for their individual safe behavior, the company’s leadership team must own, lead, and participate in safety management. It’s not enough for leadership to merely support safety; they must exhibit behavior that clearly demonstrates to all associates that safety is critical to the success of the organization.
2. TRAINING IS PARAMOUNT From the first day of an employee’s tenure with a company, training is key to safer warehouse operations. Educate all associates on safety-related practices, requirements, and responsibilities. Once the organization’s vision and safety requirements are explained, the groundwork has been laid for continuous training.
3. OBSERVE ASSOCIATES IN ACTION After associates receive basic safety training, reinforcing workplace safety behavior is ongoing. Managers should observe, for example, how an employee drives a forklift during the first few days following forklift training, and be prepared to offer immediate and meaningful feedback. Good managers point out the positives of safe behavior, and coach areas that need improvement, often on an ongoing basis.
4. GET EMPLOYEES INVOLVED Create cross-functional, in-house safety teams that meet at least monthly to focus on preventing accidents and injuries by identifying hazards and unsafe conditions in the warehouse, and ensuring proper controls are in place to bring all hazards within acceptable levels of risk. Teams should include warehouse workers, forklift drivers, supervisors, vendors, and customer liaisons.
5. WORK SCHEDULES TO MATCH DUTIES It is important for employees to be safe, and for employers to create a reasonable workday and safe workplace to facilitate their duties. To avoid unsafe behaviors caused by fatigue, consider implementing ergonomic improvements; rotating job assignments; supplementing shifts with temporary or part-time employees; adding a shift; and providing adequate rest and beverage breaks, especially in hot and humid conditions.
6. ASSESS RISK Identify individual job activities, the potential hazards associated with each activity, and their existing controls. Then assign a risk rating to each activity by using a numeric formula that considers the probability of loss, the severity of loss, and the frequency of each activity. The risk rating will determine if additional controls are needed
7. PERFORM SITE ASSESSMENTS A group of health and safety professionals should work hand-in-hand with site management to seek out unsafe conditions and hazards, and create action plans to bring risk within acceptable levels before employees are injured or property is damaged.
8. INVESTIGATE ACCIDENTS After an incident, identify immediate and upstream root causes, and implement better controls to prevent a repeat occurrence.
9. COMMUNICATE Frequent and consistent communication between all levels of management and associates regarding safety processes, performance, and expectations is critical to building an effective safety culture and successful safety performance.
10. GATHER MEANINGFUL AND TIMELY METRICS Create metrics that reflect the presence of safety (leading indicators), not just the absence of safety (trailing indicators). Metrics must also be designed based on their intended audience. For example, metrics for safety managers will need to be very detailed and facilitate analysis of correlations and trends. Metrics for operating managers need to be at a higher level and help identify deficiencies the team can address.
—Stanley Stone, vice president, safety, Penske Logistics