Labor is continual challenge for most every business. Outside pressures from other businesses, as well as state governments are continually driving up labor costs. The latest example is from the retailing giant Target. On June 17th, Target announced that it will permanently raise its minimum wage for workers by $2, to $15 per hour starting next month. These cost increases will have a direct impact on your fulfillment cost per order.
The wage hike will go into effect on July 5 and includes a one-time “recognition bonus” of $200 to “front-line store and distribution center hourly workers” for their work during the coronavirus pandemic. The new Target minimum starting pay is higher than all state minimum wages plus good benefits. The District of Columbia is $15.00; and 34 states are under $10.00 per hour. In our opinion, this move will put pressure on many retail and distribution center businesses.
According to Target’s press release, “All U.S. hourly full-time and part-time team members at stores, distribution centers and headquarters locations will be eligible for the $15 starting wage, which is more than 20% higher than the U.S. industry average. Target set the goal of a $15 starting wage in September 2017, and over the last three years has increased wages from a starting wage of $11. The last starting-wage increase was in June 2019 to $13.”
Many companies still do not have employee productivity measures for warehouse and fulfillment operations. Measuring productivity, and paying for increases in productivity, will benefit the employee and make more profit for you. Relying on accurate and timely metrics enables a manager to remain objective when determining the strongest players.
Here are 11 considerations for establishing employee productivity measurement:
1. Data versus metric.
What employee behavior do you want to reward and improve your business with? Two things have become prevalent in information systems today. A plethora of data available, and we can create endless dashboards and charts. It’s better to select a couple meaningful metrics that help you to move to the next level of productivity, than to flood employees with endless graphics and table tables they get lost in - and probably ignore.
2. Scrutinize data.
Is it accurate, timely and easily accessible - and available every week or monthly. Remember that the circumstances surrounding these measurements should always be considered. Whereas, WMS and add-on software modules can provide data easily, older systems may require downloading and massaging complex spreadsheets. These typically require a data analyst to develop and manage.
3. Engineered standards versus metrics.
Engineered labor standards establish expected work performance levels of warehouse employees through detailed time studies and analysis. This is usually expressed as expected units of work to be completed over a given time period. Examples are units picked per hour and cartons packed per hour. Engineered standards can be costly to establish and maintain. If your company does not yet collect departmental and employee productivity start with the productivity workbook previously discussed. Keep the initial systems simple and straight forward. Then graduate to more complex engineered standards.
4. Context of metrics.
One measurement may need to be considered in context of another metric. Take for example picking productivity of an employee. Just how many orders does an employee pick is not an accurate way to measure picking. You should consider the following:
- Picking rate (lines picked rather than orders)
- Types of orders picking single orders versus more complex multi-line orders. Single line orders may be 50% or more of an e-commerce business.
- Error rates measured by employee.
5. Nature of productivity improvement.
Productivity can be improved in many different ways. For example, you may make a capital investment in storage or process change which yields increased productivity. Review productivity measures and goals in light of on-going change management. Productivity measurement is an on-going process in itself.
6. Quarterly review.
Look at productivity metrics at least quarterly. Determine how well the metrics are measuring the productivity. Increase the goals as needed, and consider pay for performance. Make productivity part of the employee review process.
7. Work to standards not to the order count.
There often is a lot of elasticity to productivity of the workforce. Parkinson’s Law: "work expands so as to fill the time available for its completion". In other words, the same number of employees one day can pick 1,000 orders in an 8 hour day. The next day, the same team only fulfills 750 orders, but consumes the same amount of orders. Working to a standard ensures the orders are fulfilled in a timely, efficient manner.
8. Length of data horizon.
Make sure your data covers a reasonable time period for evaluating your chosen productivity metrics. Track metrics for days and months. The averages and peaks and low points will be more meaningful.
9. Combining multiple systems data.
To get more meaningful metrics, you may need to combine data from several systems. For example, to determine the cost per pick, productivity (i.e. lines picked per day and week) typically comes from a WMS, but paid hours by employee would come from your payroll system. All of these systems may have different cut-off times, accessibility and accuracy. You might have employee unit productivity faster (day within a production week) than weekly payroll data (at weekend but not available until say mid-week).
10. Line manager coaching time.
Productivity measurement will be frustrating and negative if you just post results. You will find that in some tasks, like picking, you will have a wide variance among employees doing those jobs. The best pickers might be 30% higher than the average and have few errors.
Your objective is to fairly measure and coach for improvement. Develop a coaching and review process with your managers. Build in time to review with individual employees about their productivity versus your established standards and individual goals for them. This is the heart of productivity improvement.
11. Post top performers’ results.
Once you’ve got measuring productivity measured figured out fairly, celebrate and post the results in common areas like breakrooms. Try not to overdo the reporting with too many charts. Done in a positive way, this should create friendly competition. Some companies actually post all the employee results. We’ll leave that judgement up to you.
Labor costs will continue to increase, and as COVID019 eases, the unemployment rate has fallen dramatically. Make measuring and improving employee a key on-going operations goal.