Ron Hounsell is director of logistics services for Cadre Technologies, a Denver-based developer of fulfillment systems. He provides the company with analytical, consulting and project management services.
Kelley and Hounsell are authors of the book Warehouse Productivity, a detailed description of Simplified Gainsharing (for information visit www.distributiongroup.com and www.gainshares.com).
Even by the standards of one of the nation's biggest and best-performing DCs, Pete, a slender fellow sporting a gray ponytail, has become something of a legend. Pete is an order picker, picking pipe— 20-foot lengths of PVC, copper, and other pipe—eight hours a day, five days a week for shipment to hardware stores in the True Value, Servistar and Coast to Coast Hardware co-operatives (all of which operate under the umbrella of True Value Hardware). What makes him stand out, even in a DC noted for its high productivity, is that Pete regularly clocks in at more than 200 percent of the performance standard for his position and department. He has literally doubled the picking productivity of the pipe department, picking volumes of product that used to require two or three employees.
What does Pete gain from this? For one thing, a huge boost in his hourly pay. Pete is an all-star participant in the company's Simplified Gainsharing program, an incentive system that rewards DC workers for exceeding productivity standards by upping their hourly wages. The harder an employee works, the more he or she can earn, with no upward limit. And it's not just the worker who benefits. For the employer, the payoff is a big leap in productivity and reduced employee headcount.
True Value's program, now more than five years old, has been implemented in 16 DCs in three distribution networks, both union and non-union facilities, around the country. Though participation is voluntary, the majority of the 1,200 employees who work in the True Value DCs take part in this program today. The advantage to the employees is obvious: the opportunity to earn higher wages. But the company has also come out way ahead. In the program's first five years alone, the DCs have seen a triple-digit reduction in full-time equivalent employees (FTEs) and a savings of several millions of dollars annually. Turnover has dropped by a whopping 87 percent, while quality has improved by 40 percent.
Simplify, simplify
True Value's Simplified Gainsharing program was born out of the company's frustration with traditional gainsharing, which it found to be complicated, difficult to implement and time consuming. Simplified Gainsharing, by contrast, is a snap to administer and has virtually no drawbacks. It's decidedly low tech, it takes as little as five weeks to implement, and it's compatible with whatever is already in place on site—labor management software, engineered standards, historical averages, pegged rates or all of the above. And unlike automation or engineered standards, Simplified Gainsharing requires very little startup capital, which means payback is typically achieved in well under a year.
But more to the point, Simplified Gainsharing is simple to understand and administer. The basic idea is to reward workers with a higher hourly wage for exceeding standards. That extra pay is calculated as a percentage of what the productivity gain is worth to the company. For example, a company might offer workers who are already earning $10 an hour a 25-cent increase in their hourly wage the following month if they exceed performance standards by 10 percent. If they perform at 10 percent above standard, they're worth $11 per hour to the company. If the company's benefits average 30 percent of labor costs, a 10-percent per-hour productivity gain is really worth $11.30 to the company. So for the $1.30 increase on the first 10-percent gain, the company pays the worker 25 cents and the company profits $1.05.
But the benefits to the company don't end with its percentage of the gainshare; there are indirect benefits as well. Because workers become more productive over time, eventually fewer workers will be needed. As the workforce headcount drops, the least skilled and least productive portion of the group disappears, either through attrition or because those folks become better workers. In either case, it's not long before the facility's workforce is performing at levels that are well above what you'd find in the typical workforce in the area.
Similarly, because those employees are more satisfied with their jobs (not to mention more highly compensated), retention levels are higher. That adds up to big savings too. Although estimates vary, turnover costs are often put at around $4,000 per person, which means a 10-percent turnover rate would cost a company that employs 1,000 workers $400,000 annually. With Simplified Gainsharing, turnover plummets, and those costs disappear.
Looking beyond the arithmetic, what makes Simplified Gainsharing work is its simplicity and its implicit acknowledgment that workers and managers see the world differently. For the typical manager, there are never enough hours in a day to accomplish what he or she wants. For most warehouse workers, however, time tends to drag—the tasks are repetitive, which means that for most, the goal is just to get through the day. Simplified Gainsharing takes that into account and aligns the interests and goals of workers with those of management. As Pete would say, "Have a goal, and waste no time."
Leveraging "buyouts"
While the incentive program in theory has no upper limits, the reality is that sometimes adjustments are necessary. For example, the addition of new technology, changes in the external market or improved skill levels can render initial metrics obsolete. That's where "buyouts" come in.
Buyouts are the Simplified Gainsharing program's mechanism for adjusting metrics as the program matures. They are a safe, fair way to gain the broad consensus needed to raise the bar while overcoming employees' fears that the program is a backdoor way to raise the productivity standards against which they'll be measured.
Managers typically initiate the buyout process by approaching the top-performing workers (the program's "banshees") to explain that management would like to raise the bar and is prepared to offer a one-time lump sum payment to do so. Any employees who have not done so are granted a specific grace period in which to raise their performance to the new minimum level. Word soon spreads among the group that a buyout is available. But a change is made only when details have been communicated to all affected workers and everybody has agreed that the plan is acceptable. This illustrates one of the cardinal rules of Simplified Gainsharing: No one gets hurt by Gainsharing.
Although this approach may take longer than might seem strictly necessary, to charge ahead without gaining a consensus would be to court disaster. In instances where minimum rates have been changed by management without this consensus, trust was eroded and the program soon collapsed entirely.
One word of caution: Don't be too anxious to implement buyouts. The perception of trust and fairness among the workers is an essential ingredient for success. Being too aggressive in seeking to raise the bar will compromise that perception. The short-term gains realized by rushing a buyout simply aren't worth the risks of undermining workers' confidence. And considering that two-thirds of every dollar saved already accrues to the company, there's no point to rushing the buyout process.
Sharing the wealth
Though the savings are potentially limitless, there obviously will come a time when the facility has pretty much maxed out on productivity improvements. What happens then? Can a typical DC network really expect to keep saving money over time?
Indeed it can. Exhibit A shows representative savings by type for a typical distribution network with 1,000 employees over the first four years. You'll note that the source of the biggest savings varies from year to year. For example, savings from attrition will surge in years two and three and then level off. Likewise, the savings from productivity improvements tend to peak in the second year and then decline as the program matures. Savings sparked by the buyout process, however, will continue to accrue. In this case, buyout-related savings grew three-fold between years two and four. These savings recur for the indefinite future.
Whatever their source, the savings clearly add up to big money. All told, the accumulated total savings from this prototype model organization have exceeded $24 million in just four years.
That may sound highly improbable, yet several DCs we know of are achieving results in line with those projections on a regular basis. One typical moderate-sized facility that adopted Simplified Gainsharing paid out more than $300,000 in gainshares in the program's second year alone. The productivity improvements that generated those employee incentives saved 66,800 hours. For the company, net savings exceeded $1,000,000.
Another particularly high-performing facility in that same company's network was able to reduce its headcount by 144 FTEs in five years' time, with a savings of $5.3 million. These gains were achieved in a context where inbound and outbound volumes remained essentially the same. Truly, more is being done with less.
Finally, it's important to point out that in the model cited above, savings per FTE are conservatively estimated at $2,500 annually. However, today, many companies are finding that the savings actually run to nearly three times that rate. What portion of that savings could be yours? All indications are that it's a large figure—and the sky's the limit.
before you start ...
You won't need a five-inch thick procedural manual to implement a Simplified Gainsharing program. But there are some things you can do to ensure a smooth rollout. Here are some tips:
Make the program plug and play. It's crucial that the program be simple to understand and easy to implement. Complexity is the most common reason why gainsharing schemes fail. All you really need to do is set the measures for performance (or validate existing metrics) and establish an effective reporting process. Then communicate the program essentials to all employees and begin.
Focus on the individual. Design the incentives for the individual worker wherever possible, not for teams or the entire workforce.
Build in a sliding scale for compensation based on performance, but don't place any caps or limits on what workers can earn. For example, you might offer workers an extra 25 cents per hour if they exceed the standard by 10 percent, 50 cents an hour if they exceed it by 15 percent, 75 cents an hour if they exceed it by 20 percent, and so on.
Pay out incentives as an hourly wage rate for the following month, not as a lump sum.
To get finance and accounting people on board, show them the math. They'll initially be reluctant to endorse "unlimited" compensation. But once you demonstrate that the company will retain two-thirds of the savings, they'll begin to see the size of the opportunity.
Talk to both human resources and the legal department before you start to make sure that all elements of the program comply with company policies and the terms of any legal or contractual obligations.
Get the local facility management team involved. For Simplified Gainsharing to succeed, both managers and line supervisors must also participate in the benefits that hourly employees qualify for. While the payout may be different for salaried staff, recognition should be monthly and linked to accomplishments, just as it is for hourly workers.
Implementation is most effective when it's done one facility at a time. Within the facility, it's sometimes prudent to begin with a single department, but that will vary by site. Keep the lines of communication open. Once the program is under way, supervisors should communicate with hourly workers daily—answering questions, reminding workers where they stand, offering suggestions and feedback to help people qualify, and extending congratulations as individuals attain higher performance levels.
Make the program available to as many associates as possible. The perception of fairness and value is directly linked to workers' opportunity to participate.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.