Warehouse and distribution center: Clocking performance

By John Kerr, Contributing Editor -- 4/1/2007

Steve Belardi, Vice President, Logistics Steve Belardi knew things were going well when he recently observed what his warehouse workers were doing on their breaks. They weren’t opening the newspaper or sitting down for coffee. Instead, they were crowding around the bulletin board to check their individual job performance data—and to see how their performance efficiency stacked up against their co-workers’. Some months earlier, Belardi, the vice president of logistics at sporting goods retailer Sport Chalet, Inc., let the warehouse associates know that he intended to begin time-and-motion studies in an effort to boost productivity and contain costs as Sport Chalet grew. The consultants soon showed up in the company’s Ontario, Calif., distribution center (DC), stopwatches in hand. Belardi knew the challenge ahead: He had to communicate the changes without alienating his workforce—some of whom had been with the California retailer for as long as 20 years. But instead of provoking a backlash, the introduction of time-and-motion studies sparked better communication about goals, fairer comparisons between jobs, more self-direction by warehouse associates; and in turn, productivity has soared. Today, Belardi and his team are in the process of rolling out an incentive program that’s tied to a fair, fact-based labor management system (LMS) that has not only helped the company trim costs and reassure its growth plans, but has created a workforce that’s eager to play a role in constant throughput improvement. Here’s how he got there. Fast out of the blocks Sport Chalet’s employees are certainly no strangers to change. Over four decades, the $350 million-a-year specialty retailer has grown to 45 stores in California, Nevada, Arizona, and will open its first store in Utah this fall. In 2001, the company concentrated its distribution efforts in a new 325,000-square-foot DC in Ontario with a major emphasis on “put-to-store” processes; the idea of having merchandise ready for sale as soon as it leaves the DC. In 2002, Belardi and Ted Jackson, the company’s CIO, launched a major overhaul of the warehouse management system (WMS) to improve the “put-to-store” process by moving to a flow distribution system that would enable the staff to move merchandise through the DC faster, more accurately, and more “floor-ready.” “Being first to market is very important to us,” explains Jackson. “We want our customers to be able to get the products from our stores before they’re available from our competitors.” Today, the company’s WMS solution (HighJump Software) identifies what’s coming in and where it should go as soon as it arrives. For example, an incoming shipment of a new basketball shoe from Nike can ship out to stores the same day. “Now when merchandise arrives at the stores, it’s ready for purchase,” says Belardi. “We touch the product one time—when it comes in, we label it for the store, and it goes. We save a lot of labor in put-away and picking.” The system, which went live in May 2003, leverages batch store picking techniques: Staff no longer run all over the warehouse fulfilling one store’s orders at a time—they pick in zones for several stores. Overall, the system has boosted the number of line items picked per hour by 90 percent and lifted DC efficiency by 35 percent. However, those gains were still not enough. Sport Chalet needed new solutions if it wasn’t to grow itself into a corner. Early in 2005, the retailer had 40 stores and a little more than 140 staff over two shifts at the DC; plans called for 52 stores by the end of 2007. Management saw that the DC was approaching its throughput capacity, but new facilities were out of the question because the DC’s lease still had five years to go. New material handling equipment wasn’t a viable option either, given its long payback periods. It was time to revamp the playbook. Setting the course Growth projections showed that the warehouse would need to add at least 50 workers by 2008 to meet the needs of the new stores. But it wasn’t practical to add so many employees—and management knew it. Heavier payroll wasn’t the only deterrent to adding more direct labor; availability was also a problem. Although turnover was low among Sport Chalet’s 100 or so full-time warehouse associates, it was very different with the temporary workers on whom the company depended several times each year. “It’s a tough labor market out here,” says Belardi. “There are a lot of DCs and we’re all competing for the same labor. A temp will move for 15 cents an hour.” Sport Chalet had no intention of getting into wage escalation wars. Its next best option: a labor management system (LMS) that would take productivity to the next level. Fresh from their successful WMS implementation, Belardi and Jackson turned to their vendor for answers. They could have searched for an off-the-shelf labor management system (LMS) solution, but HighJump was developing its own LMS—a solution that would require no customized interfaces with its existing WMS. By 2005, the decision had been made to go forward with an LMS system: HighJump was selected as the vendor and enVista Corp., a provider of logistics and transportation cost management services, was brought on to implement the solution that was still in development at the time. The objectives were clear: Sport Chalet wanted to be able to plan, measure, view, and simulate labor activities within the DC in order to improve processes, work measurement, workload planning, productivity reporting and incentives; and to provide an accurate and fair assessment of the performance of its nonexempt direct labor associates. To set expectations for what the incentives could do, the enVista consultants mapped out the productivity levels into four categories: 1) without measurements, 2) with measurements but without feedback, 3) with feedback added, and 4) with financial incentives on top of measurements and feedback. The message was simple: an acceptable engineering labor standard (ELS) would not be possible without measurement or feedback, but it could be exceeded easily given the right incentives. It would be important to convey to employees that the incentives would be transparent and easy to achieve. As such, the specifications for the LMS involved a wide range of factors, among them: clear standards for travel distances; coordinates and stopping points in three dimensions; equipment speed, acceleration and deceleration; and measurement of fatigue and delay by activity, configurable by hour and by shift. The LMS would use “key volume indicators” to help make apples-to-apples comparisons between different types of merchandise. Cycling shirts, for example, are far easier to handle than skis or surfboards. The LMS would also measure labor performance by the associates’ utilization rates (the ratio of total time in the building divided by total time on task) and by their efficiency (total “standard allowable” minutes divided by actual task time.) Importantly, it would provide regular feedback to allow employees to know where they stand and how they can improve. There would be corrective instruction matched to preferred methods—as well as clearly identified disciplinary action for repeated failure to comply with basic performance requirements. On your mark... Now it was time to introduce the concept to the employees—all of them nonunion. Belardi laid out the plans for the workers from each shift at one of the DC’s regular monthly building-wide meetings. He needed to make sure the message sank in. He let the team know there would be consultants with stopwatches timing what they do and noting how they do it. He explained that Sport Chalet would use the information to develop preferred methods and standards centered on an engineering labor standard (ELS)—in effect, a practical “best practices” level. He also explained that there would be weekly feedback on employee performance and there would be generous incentives for those performing above the 100 percent level—above the ELS—using individual measures rather than averages. Belardi emphasized that the LMS would be a lasting program, not just a one-time project. It would be fact-based all the time, removing the subjective bias of supervisors and managers and motivating all associates to perform as entrepreneurs. The plan would call for supervisors and managers to remove barriers to productivity improvements—and for employees to require them to do so. The LMS would be applied fairly and equitably, allowing all associates the same opportunities to participate and would be modified only when changes in procedures, equipment, layout, or systems were required. The big message from the logistics chief: We’re making the shift to a performance-driven culture. Jump on board and you can make a lot more money. “I just told them straight out: Sport Chalet is a growing company and we need to control our costs. We’re trying to figure out how long each job should take at a reasonable pace,” recalls Belardi. “The more assertive people saw it as an opportunity to make more money, and yes, some of the weaker associates saw the writing on the wall.” To ensure that the messages resonated, and to make certain that the staff had ample opportunity to ask questions, Belardi followed the big introductory all-shift meetings with department and small-group meetings where employees were not shy about saying what was on their minds. Interestingly, very few employees expressed concern that they were going to be replaced or let go. Fair play According to Belardi, employees immediately recognized and applauded the fairness factor in the program. One example: incentives for some jobs in receiving had been biased toward certain products. “The person doing shoes could do a lot more than the person doing baseball bats, but there was no fair way to account for the differences,” says Belardi. “The associates told us: 'It’s about time that you guys got down to the item level.’” Of course, when the enVista consultants first began monitoring actual jobs in progress (measuring “travel to workstation,” “log on to PC,” “remove shrink-wrap/tape from pallet,” “dispose of empty receipt carton,” or “scan UPC”) the tendency of many employees was to pick up the pace. So, he and his team leaders had to reaffirm who the consultants were, what their roles were, and why it was not necessary—and not helpful—to hurry the work. The consultants gradually became part of the DC’s working environment; they began to receive direct input from employees about better work practices, and they factored those ideas into their implementation of the LMS solution. However, the presence of the consultants and the regular dialog that Belardi held with the DC associates raised expectations—particularly about when the incentives would be introduced. It also meant that the company had to be able to validate the performance numbers. “Before we showed these numbers to the associates, we would validate them with the consultants and with management, making sure that the software was all working correctly,” says Belardi. “Once we did that, we would turn it on and let the associates take a look at it.” And look at it they did. Some of the earliest posted numbers concerned performance in the put-to-store area, where merchandise is serviced and prepared for the store floor shortly after it leaves the receiving dock, without being put away at the DC. The ensuing discussion was intriguing. “One employee said, 'I always thought I was the best put-to-store guy, but if I’m not, then I’m going to be.’ It brought up a lot of competition,” says Belardi. But what he savored most was the fact that they were reviewing the posted numbers during their breaks. At time of writing, the LMS implementation was almost complete. According to Belardi’s records, some associates are already performing at 120 percent of ELS, even though the incentives are only now being introduced. Productivity has soared: it climbed 11 percent in hard goods receiving from August 7, 2006, to October 6, 2006, and by 10 percent in hand stack picking over the same period. Most of the productivity gains come from improvements in the performance of the lower performers—the largest group of associates. Healthy sign Warehouse Associate Robert De Le Torre performs voice directed put-to-store tasks. Now that the systems are working effectively, with ELS numbers identified and accepted, and performance metrics captured and disseminated, Sport Chalet is about to kick off the incentive system. “The first question at our regular building meetings has been 'Are we still on schedule to get this thing going?’” says Belardi. “My answer has always been 'Yes, we are.’” The schedule calls for a six-week period in each department to allow staff to understand the metrics and the ELS. Temporary staff will not be eligible for the bonus pay, but their performance will affect their ability to be hired permanently under the terms of the “temp to hire” agreements with staffing firm, Citistaff Solutions, Inc. Importantly, the workers themselves now have visibility of, and trust in, quantitative data that shows how they are performing against the ELS and against their peers—and they too get weekly feedback from their supervisors. At the same time, Belardi has been working with Sport Chalet’s HR group to define criteria for disciplinary action. (The basic idea is a three-strikes-and-you’re-out model.) There is a separate policy for error discipline, with ample opportunity to wipe the slate clean of accumulated errors after an error-free period. While long-term results won’t become apparent for a year or two, the early indications are very positive. Steve Belardi is under no illusions about what it has taken to get to this point—beginning with a strong leadership stance, solid change management skills, and a wholesale change in the culture to focus on what matters most to the business. Says Belardi: “I learned a lesson years ago: you’ve got to run the numbers because otherwise you never know how you’re doing.” With the stopwatch studies leaving a deep layer of data and the LMS now tracking individual performance down to the merchandise item level, decisions at the DC are based on facts, not personal bias. Weekly feedback gives associates reliable input on how they’re doing—and the incentive system leverages the data to reward the best associates for all of their hard work.