7 Questions to Ask When Thinking About Installing Individual Incentives in Your Warehouse

With the increased difficulties of finding qualified labor for warehouse operations, many companies are turning to options that increase the productivity of their existing labor force.  One common way of doing this is to offer monetary incentives for the warehouse workforce.  Not only does this drive increased throughput and lower cost per unit, but it’s a great tactic for HR teams to recruit and retain top talent in a competitive labor market.

When considering individual incentive programs, here are 7 questions to ask:

  1.  Is the process standardized?  Are your SOPs accurate and are best practices being followed?  No operation is perfect, but if you don’t have standard processes, then you are not ready for incentives. 
  2. Is there a Labor Management System (LMS) in place?   Warehouse incentives are typically calculated off dynamically ‘Earned’ Hours and performance calculations versus a static rate (e.g. units per hour). To calculate dynamic performance, an LMS is typically needed.
  3. Is the Labor Management System established and tested?  When incentives go live, associate behavior typically changes, and this can be monitored in the LMS, but only if you have established baselines of a ‘daywork’ environment. It is imperative to have a period of testing and baseline data collection before implementing incentives.
  4. Are the Engineered Labor Standards (ELS) accurate?  Engineered Labor Standards need to be fair and accurate.  Individual incentives demand +/- 5% accuracy which means standards need to validate at that level.   Launching a program with inaccurate Engineered Labor Standards will create a long-term problem both financially and culturally.  
  5. Are operations ‘On Standard’?  To ensure a fair and equitable plan, the entire operation should be ‘on standard’ and included in the incentive opportunity.  Excluding departments establishes a culture of the “haves” and “have nots”.
  6. Is adequate support staff in place?  Incentives require additional support to administer and maintain.  Not only administrative, but also Industrial Engineering, front line Leads and Supervisors.  One fatal flaw is the set it and forget it approach.  Incentives plans require constant attention and maintenance to be successful.
  7. Is performance actively being managed?    Basic Performance Management fundamentals should be in place to support incentives.  Supervisors should complete daily observations to address performance and utilization issues and recognize good performance.  Incentive plans are not a replacement for front line supervision, they are simple another tool to help establish a high-performance culture.

If you can check the box on these qualifiers, then performance incentives may be a great solution to drive additional productivity.

The Good Jobs Strategy Revisted

To drive myself towards continuous learning, I will occasionally revisit my library and re-read a book that I have found impactful…

I recently revisited a book I read a while ago titled: The Good Jobs Strategy, by Zeynep Ton. Ton’s primary emphasis of the strategy is to establish a “virtuous cycle” by creating sustainable, good jobs for employees, which in turn will promote operational excellence in the stores, which in-turn will result in higher conversion, basket size, and sales. While this book was originally published almost ten years ago, I was struck by how incredibly relevant it remains today, and how closely her arguments align with the fundamental beliefs of the Connors Group.

There has been a lot of talk in recent years about the “Amazon Effect” and the coming retail apocalypse. While there is no denying the impact of the omnichannel shift, it should be noted that physical retail is still not only alive, but an integral piece of the shopping cycle…What is no longer tenable, however, is a physical retailer that is not focused, well-run and purposeful. Retailers cannot afford waste. Unfortunately, in the mindset of many retail executives this translates to minimizing labor.

Labor is essential to delivering the physical experience to the customer, but as Ton points out it is often managed as a short-term controllable expense:

  •  Stores cut the quantity of labor to hit short-term financial objectives, which creates unpredictability within the workforce.
  • The focus of hiring models is on part-time employees to reduce benefits liabilities and to maintain perceived flexibility in scheduling.
  • Employees are assumed to be able to operate in the retail environment with minimal training.
  • Wages are kept as low as possible while remaining somewhat competitive.

All these tactics are aimed at “optimizing” the second-largest expense line on the P&L. As the book illustrates, though, the longer-term impact of these tactics is often not seen until it is too late.

The “Good Jobs Strategy” proposes a different approach…

It is important to note that the motivation for this strategy is not altruistic in nature. It is founded on a genuine belief that if retailers offer better jobs it will establish a “virtuous cycle” that will pay off in increased top-line sales that far exceed the increased labor costs. Following this strategy, retailers invest in labor rather than cut costs. These investments are manifested in higher wages, fuller training, better benefits, and more-convenient and consistent schedules. While this is a sound strategy, it is important to note that this is predicated on an assumption that the employees are focused on doing the right thing.

Investing more in labor is not an altruistic endeavor…

The companies that Ton points to as examples not only invest more in their labor, but they expect more from their labor. This means that these are companies that understand the importance of labor in their service model. If an outlet brand invests more in their labor and expects proactive high-touch selling, it may not pay off if their customers value clean stores and full shelves.
Successful retailers have integrity in their expectations. They understand the balance between the customer value proposition, the associate investment and the profit model, and leadership systems are focused on maintaining and executing on this model.

At Connors Group our philosophy is aligned around this cycle…

We believe that first and foremost, companies need to understand and be honest about their service model. The cornerstone for all operations is understanding, through data not opinion, what customers value and how store behavior impacts their behavior. Once this understanding is established, successful retailers align the staffing model around the service model. This is where the good jobs strategy actualizes; but again, although this is necessary, it is not enough…In order to achieve high execution of the service model, a robust and focused leadership model must also be in place. This involves, among many other things, established expectations, accurate and relevant reporting and metrics, capable and trained leadership, and accountability through the constant and calibrated use of assessments…With these three elements (service model, staffing model and leadership model) in place, the optimization of the labor model is possible. Without any of those three in place, the returns from any optimization effort will be compromised.

The “Good Jobs Strategy” can work. It is true that good employees are a necessary component of delivering a good customer experience. However, this is predicated on an ecosystem that is balanced and aligned between the service, staffing and leadership models. This is what enables the return on investment that establishes the “virtuous cycle” espoused by Ton in her book… Connors Group was established to help our clients establish and maintain this balance, and it is why I am proud to be a part of this organization.

Current Trends and Business Challenges in Supply Chain Labor – Part 2: Optimizing the Workforce

Last week, we explored the business challenges and trends in supply chain labor. In part 2, let’s take a deeper look at how companies are addressing those challenges.
Best-In-class supply chains are addressing workforce challenges by taking a comprehensive approach to their labor strategy…

When observing workforce optimization in warehouse and distribution centers, we can typically refer to three areas that comprise the building blocks of effective Employee Engagement.

Experience shows that best-in-class companies take a Crawl – Walk – Run approach to the implementation of workforce optimization strategies. The overall journey typically requires a cultural transformation within an organization, but the benefits outweigh the efforts with improvements in employee engagement, retention and bottom-line results
If we take a closer look at the three areas, here is what’s working:

Lean Warehousing:

  • Process Standardization works because it produces documentation for processes across all shifts, reduces variability, makes training of new employees more effective, increases safety and provides a baseline for continuous improvement.
  • Establishing a Baseline for Measurement is important, because it can reveal how much improvement has occurred through incremental changes.
  • “Walking the Floor” is an ideal way to engage employees in real-time and provide opportunities for coaching and learning.
  • Process Improvement is continuous, effective, necessary and is at the core of Kaizen
  • Recruiting and Hiring Best-Practices are the hallmarks of any successful business with a people-first culture.
  • Eliminating Waste across all aspects of the business enables investment in additional resources.

Workforce Performance:

  • Establishing productivity, quality and safety targets is an effective way to set a reference point for expectations.
  • Engagement and Education is a favorable way to encourage positive behavioral change in employees.
  • Reinforcing desired work habits is a positive way to reiterate the goal of continuous improvement.

Workforce Staffing and Planning:

  • Utilizing Technology to establish Engineered Labor Standards with software products like LaborPro™ is an effective way to better manage ever-changing labor models.
  • Performance Reporting is imperative to highlight the effectiveness or shortcomings of established and agreed upon goals and targets.
  • ROI Analysis confirms that all efforts point to improvement to the bottom-line.

Final take…

The challenges in supply chain labor will continue to evolve, just as trends will continue to change. By Staying nimble and relying on tried and true Lean Principles and Performance Goals, best-in-class companies will not only endure but will also thrive in today’s challenging environment.

Current Trends and Business Challenges in Supply Chain Labor – Part 1

Last week, several Connors Group Consultants were in Chicago for the JDA Autonomous Supply Chain and Workforce Labor Summit. As a sponsor of the event, we were very pleased with the turnout and content. The speakers presented case studies and industry insight that helped frame deeper conversations with our industry peers and clients.

During our panel discussion, Connors Group provided a summary of the Current Trends and Business Challenges in Supply Chain Labor

Here is what we are seeing…

Staff Sourcing and Retention is a recurring challenge for all industries, but retail and distribution seem to be feeling the brunt of the tight labor market. High-quality workers are hard-to-come-by and turnover continues to escalate as workers leave for higher wages, the promise of better schedules and work environments…Some of the trends we are seeing to address staffing and retention issues are employee engagement initiatives, performance recognition, schedule equilibrium, and reward programs.

Another challenging area is with Forecasting Labor Demand. Inaccurate forecasts are causing wide swings in labor demand, primarily at the day level, but weekly challenges also exist. We are also seeing an uptick in special events and promotions becoming more difficult to accommodate using current forecast models…To remedy this, most of our clients are seeking assistance in researching and implementing systems that can forecast a variety of complex labor models and scenarios, no matter what time of year or event.

Schedule Optimization is also an issue… “We have heard several DC managers say that they still create schedules like they did in the 1950’s, with fixed shifts, that neither adjust for demand, nor easily accommodate for the changing labor market.” Says, Ty Law, Senior Director and Labor Specialist. He adds, “The workforce management scheduling systems coming to this market both optimize shifts based on labor demand as well as generate schedules that are equitable for the employees – which helps drive retention”.

The bottom line…

Labor continues to be the largest controllable cost in warehouses and distribution centers. As a result, companies must continuously reassess their current processes and technology, while looking for new ways to maximizing the value they get from their labor investment.

In Part 2 of our follow-up, we will discuss the specific ways that best-in-class companies are tackling these challenges in the workforce today.