Warehouse Labor Performance: And the Winner is…Everyone

Looking for award-winning performance incentives for your warehouse workforce? The nominees are: Measuring Productivity Setting Labor Standards Implementing Gainsharing Programs Training Workers for Results Promoting Safe Practices

Warehouse labor deserves red carpet treatment; in fact, the cost of labor constitutes about 65 percent of most warehouse facilities’ operating budgets.

But while labor is a critical resource, almost 20 percent of warehouse workers responding to a recent Gallup poll describe themselves as “actively disengaged” from their work. As many as half of those surveyed were doing just enough work to get by.

“Market or customer demand notwithstanding, warehouse quality and efficiency cannot be at their peak when so valuable a resource is so poorly applied to the task at hand,” says Pat Kelley, CEO of consulting firm Labor Development Group, Evanston, Ill.

The key to drawing out the best performance possible is to align warehouse worker motivation with management objectives.

“You have to make it worthwhile for hourly employees to want to make the same decisions as a manager,” Kelley observes. “In short, you have to engage individual workers in the process in such a way that everyone benefits.”

Leading private and third-party warehouse operators have developed many strategies and tactics for maximizing labor productivity while ensuring greater job satisfaction.

The following five approaches are the lead performers, nominated for their ability to generate direct bottom-line benefits.

1. Measuring Productivity. When it comes to warehouse productivity, what you measure improves. But measuring and improving warehouse productivity does not have to involve exhaustive time and motion studies.

“Warehouse and transportation management systems already capture productivity information,” notes Mark Cleveland, senior operations manager, supply chain execution, Allstate Insurance Co., Northbrook, Ill. “The IT department can mine these systems for good intelligence on warehouse throughput and supply chain performance.

“Achieving Six Sigma levels of perfect order and inventory accuracy starts with key performance indicators,” he adds. “Understand what drives warehouse performance and identify bottlenecks and failures. Then involve employees in identifying alternatives and solutions. Their participation helps ensure successful buy-in and implementation.”

To benchmark productivity at its facilities, Weber Distribution, a third-party logistics provider based in Santa Fe Springs, Calif., runs profit-and-loss statements for each customer. Its labor productivity management software compares actual productivity to the benchmark at the customer level.

“The system displays the actual time workers spend on the radio frequency (RF) gun—unloading and loading, receiving, picking, and putaway,” explains Carl Neverman, Weber’s vice president of client solutions.

Each Weber facility publishes a daily report tracking labor productivity against the benchmark.

“At the start of their shift, warehouse workers see a report on the previous day’s performance,” Neverman says. “If everyone falls into the report’s ‘green zone,’ we had a great day. If workers fall into the ‘red zone,’ we look into why they didn’t meet the benchmark. We peel back the onion, figure out what they were doing to cause the non-RF time, and work with them to improve.”

2. Setting Labor Standards. Third-party logistics provider Saddle Creek Corp., Lakeland, Fla., traveled the time and motion study route when it rolled out a new labor management system (LMS) in a client-dedicated 900,000-square-foot food and beverage distribution center in Atlanta.

“Engineers measured every function and step along the process flow,” recalls Robert Pericht, senior vice president of operations for Saddle Creek. “They measured actual performance of both seasoned veterans and new employees.”

After the data was collected, a Saddle Creek project team—which included hourly warehouse workers—agreed on specific steps or processes they could improve. Based on the updated processes, they set new work standards. But the 3PL went much further than just updating work tasks.

As part of the overall labor standards effort, Saddle Creek critiqued the Atlanta facility layout and process flows in every activity area. The project team also reviewed the facility’s quality management program, safety record, and equipment.

“We changed everything,” Pericht observes. “We improved work shifts, invested in new equipment, changed the way we unload trucks and put stock away, and reconfigured the warehouse to operate more efficiently. We conducted a complete tear down and holistic rebuild of the way the warehouse functions.”

In concert with the new work processes, Saddle Creek established an incentive pay program based on how workers perform against standards. The pay-for-performance program is tightly coupled with and dependent on quality and safety performance.

Since going live with the LMS in December, productivity at the Atlanta DC has increased more than 20 percent. Additionally, the facility’s need to draw on temporary labor services to handle spike volume periods has dwindled significantly, as has employee turnover.

“The facility’s safety rating increased from an also-ran level to one of the best in the company,” Pericht adds.

3. Implementing Gainsharing Programs. Many companies reward warehouse employees for good performance by sharing the fruit.

Gainsharing programs compare actual performance of work at the individual level against a pre-determined expectation, explains Ronald Hounsell, COO of the Labor Development Group. These may be historical averages, engineered standards, or something in between.

When workers perform above those expectations, they are compensated the following month by an increase in their hourly pay rate for the whole month. This pay improvement is funded by productivity gains.

If a gainsharing program is well structured, the majority of workers can and do earn some level of bonus. A small improvement, as little as five percent above the acceptable minimum performance—what equates to about three minutes per hour saved, sustained for one month—earns the employee a 25-cent hourly raise the following month.

“Twenty-five cents is a big deal when all warehouses compete for the same labor pool, and workers change jobs for as little as a 10-cent hourly raise,” Hounsell points out.

Three different distribution systems comprising 16 DCs in the True Value Hardware network tested simplified gainsharing over a five-year period.

At a single True Value network facility, the one-year gainshare payout totaled $361,000.

“Productivity improvements saved more than 66,000 hours over the year, equivalent to 32 full-time employees,” Hounsell says. “The company’s share of savings for that facility totaled nearly $1.07 million.”

Weber Distribution also reaps huge dividends from gainsharing. The 3PL instituted a “Triple S” program that pays bonuses to employees for safety, sanitation, and security performance. As a result of this program, one facility has operated for 15 years without lost time due to an accident; other facilities have gone 13, 10, and eight years, respectively, without incident.

“We pay workers an incentive if they abide by our safety rules, take thoughtful care and custody of client products and company assets, maintain good housekeeping, and keep the facility and customer product secure,” Neverman notes.

“We put up to 35 cents an hour into a kitty and pay out bonuses two weeks before Christmas. If a facility performs well, employees can earn up to an $800 holiday bonus. This program has reduced insurance rates significantly, and is a big hit with employees.”

Some gainsharing programs take an “open book” approach. Boston-based Barrett Distribution Centers Inc., for example, gives employees complete access to company financials. Workers receive weekly updates on how the company is doing, and what the bottom line looks like. They participate in a bonus plan keyed off Barrett’s financial performance.

Six months prior to starting the open book program, Barrett began training employees so they would understand how it works.

“We started by teaching workers how to read a financial statement,” recalls Tim Barrett, the company’s COO. “Then we discussed our goals for the coming year. Our priority in 2008, for example, is to improve productivity six percent, measured by units and lines per hour.”

Barrett motivated employees by describing how meeting the improvement goal affected different budget scenarios.

“We showed them the current budget,” says Barrett. “Then we showed them a budget with six-percent productivity baked in, the resulting bottom line, and how much their bonuses would increase. The difference means hundreds of dollars more in each employee’s paycheck every year. That got their attention.”

Feedback to employees about their performance is immediate under Saddle Creek’s gainsharing program. The company posts individual worker performance daily at each facility.

“Posting performance information eliminates guessing or misunderstanding how every individual is performing compared to the goal,” Pericht says. “If workers are not reaching their goal, the management team uses their individual performance data as the basis for coaching them to achieve improvement.”

One Saddle Creek employee responsible for unloading trailers, for example, could not reach a 90-percent productivity goal, no matter how hard he tried.

“Understandably, he was growing frustrated,” Pericht says. “So the supervisor shadowed the worker and discovered he had added a step to the unloading process. Once we identified the problem, the employee achieved the 90-percent goal, and has remained there ever since.”

Barrett’s incentive plan delivers benefits not just to the company, but also to its customers.

“Barrett’s approach to managing its workers trickles down to us,” says Brad White, president of Midnight Pass, a Boston-based specialty pet products online retailer. “Barrett employees share a sense of profit participation with us.

“For example, we recently sold seven million units of one product line, but had a return rate nine to 12 percent higher than normal. Barrett initiated a recovery program to handle the returns, and we got back 90 percent of the revenue that we would have lost.

“We took in 14,000 returns and discarded only 700,” White continues. “That represented about $200,000 in recaptured revenue for us. Barrett’s employees knew these returns were important to us. Their help kept us from suffering a loss.”

Open book delivers the best results among all types of incentive programs, according to Tim Barrett.

“Every program we’d tried prior to open book ended up incenting behavior that we didn’t intend,” he acknowledges. “If the incentives focus too heavily on productivity, employees may skimp on quality.”

Consider this example. Barrett implemented a new warehouse management system about four years ago. The team working on it was promised a 50-percent bonus if they got the system up and running within a certain time frame.

“The timeline became the overriding concern,” Barrett recalls. “The team pushed forward to implement the system before the workers were ready, creating conflict.

“If we had the open book incentive program in place, and focused on bottom-line profitability instead of the deadline, we would we have worked together more cohesively,” Barrett notes. “We would have decided whether the deadline was more important than delaying the project to another quarter to ensure a smooth transition.

“To create a true team environment, the goal should be to motivate workers to do what’s best for the company and not push one metric to the detriment of another,” he adds.

4. Training Workers for Results. Thorough employee training is the foundation of any warehouse labor productivity improvement effort. Leading companies that invest heavily in training net high payoffs.

That’s what happened to Kane is Able, Scranton, Pa., when it launched Kane College, retrofitting an old cross-dock building into classrooms.

Since the college’s inception four years ago, the 3PL has sent nearly 4,000 associates through the training program’s various offerings—job orientation; leadership training for first-line supervisors; specific job skills training; and overall skill building.

Kane College works with the University of Scranton to develop and deliver its programs, and receives training grants from the state to offset nearly all operational costs.

Training also takes center stage at retailer Tractor Supply Co., where new team members participate in orientation, safety, equipment, and process training, according to Larry Corrigan, the company’s director of distribution.

Tractor Supply is the largest retail farm and ranch store chain in the United States, operating 764 stores in 43 states. The Tennessee-based company runs five private distribution centers, all located east of the Rocky Mountains.

“Team members are assigned a training coordinator—an experienced warehouse employee to guide them through training,” Corrigan says. “New hires have a single point of contact to answer any question.”

Duration of training depends on the employee. “People catch on at different rates,” Corrigan notes. “In two or three weeks, some workers are well on their way to meeting productivity standards. For other employees, it takes 45 to 60 days. It depends on the individual and on the team.”

Murphy Warehouse Co., Minneapolis, trains its workers in the intangible as well as the tangible.

“We train employees on integrity, responsibility, and accomplishment—to think, not just do,” says Richard Murphy, CEO of the company, which operates about three million square feet across Minnesota.

“We also train workers to require minimal supervision,” he adds. “Our overall ratio of hourly workers to managers is 20:1.We operate 12 facilities and have managers in only three. Lead warehousemen run the other facilities, cutting way down on administrative overhead.

“Our workers love the sense of ownership,” Murphy continues. “If workers have been driving a forklift for 20 years, how do you keep the job from becoming boring as hell? The answer is, give them responsibility.”

5. Promoting Safe Practices. “Unless you give employees quality tools and the right environment in which to do their job, they won’t know how to be safe, and you can forget about efficiency and productivity,” observes Mark Richards, vice president, Associated Warehouses Inc. (AWI), Orange, Calif.

“People want to do a good job but they can’t if you supply them with broken tools or a dangerous work environment.”

Ergonomics considerations are playing an increasingly important role in promoting employee safety. Leading companies are redesigning their workplaces to reflect greater awareness of physical factors.

Murphy Warehouse, for example, redesigned its railcar unloading/loading facilities for safety reasons. The company handles about 10,000 railcars a year at several of its buildings. To reduce the risk of injury, Murphy brought the sidings indoors.

“Minnesota often faces ice and snow conditions,” says the CEO. “Bad weather can make railcar unloading dangerous.” Now, the redesigned facilities can handle up to 18 railcars under the roof at one time.

Murphy also rebuilt its rail sidings to reduce the normal three- to four-foot clearance gap between railcar and dock to 12 inches. With a four-foot gap, the warehouseman has to stand on the tracks, reach up, and haul on the door lever in order to open the railcar door, which is often tough to budge.

“This puts the worker in the worst ergonomic position possible and can easily cause injury,” Murphy notes.

Not Rocket Science

Many of these labor productivity measures are not new. But with more effective data coming from warehouse information systems, companies can do a better job getting the most from their warehouse workers.

“Improving labor performance is not rocket science,” concludes Richards. “But it makes a huge difference in worker productivity, performance, and job satisfaction. Everyone wins.”

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