After multiple years of fast growth, an online fashion retailer needed to expand their distribution operation into a new facility.
During the transition, process expectations and front-line leadership consistency were lost. Coupled with a tight regional labor market and already low-starting wages, they needed to strengthen their core operations and leadership ability quickly in order to reduce operating costs and retain quality labor with better benefits.
After an initial month-long review where LogistiPoint observed their three largest operations, the team realized the opportunity was great enough to include new incentives as part of the performance management program’s package. While the new standards would provide a structured, measured approach to performing their jobs, the incentives would also offer a monetary reward that would raise wages 12%-25% given performance criteria being met. A labor management system was previously selected but not yet installed. LogistiPoint and the team spent the initial month of the project customizing the LMS to be in-line with financial reporting while also being easily understood by associates.
This performance management program would benefit them in three different ways: making their hourly wages more competitive, providing foundational leadership routines for supervisors, and building a culture focused on incremental improvement to drive down operational costs.
After six months, the client’s largest operation—returns processing—had grown from a 78% operation to a consistent 95%, representing a 12% increase in UPH vs. their initial baseline. This operation alone is generating weekly savings between $1k – $2k, after all performance bonuses are paid.
As of January 2019, nine operations (65-70% of total hours) have been incentivized and savings in FY 2019 are accruing at a rate of ~$300k annually. For associates in on-standard activities, the bonuses they receive represent a $0.40 per hour increase on their base-wage. As performances improve in the newer operations, associates can expect their pay to increase further, while the client can expect to reduce operational costs.
While the savings are beginning to show in the client’s financials, the positive development in culture and leadership ability is also evident. In the returns department, culture surveys were the most positive in recent history. Daily performance feedback and regular process observations by supervisors are giving insights into obstacles their associates face on an everyday basis, and they give the associates a chance to have recurring conversation with their supervisors.
Their VP of Operations stated, “This program has helped them to instill the disciplines needed to provide for continuous improvement.”