A large retailer with a network of eight DCs across the United States needed support in developing an incentive program for a physically demanding picking function.
Due to the physically demanding nature of the picking function, hourly associates were prone to high turnover and low performance, as well as low morale in this area. The challenge became: if we change the compensation structure for these associates, will that change the attitudes, perceptions, and results of this operation?
The LogistiPoint team developed robust Engineered Labor Standards (ELS) that reflected the high demands of this job. These ELS standards recognized all the effort required of this job, including the weight of the product being picked, the distance each picker had to walk, the number of orders and pallets, and several other criteria. The team then designed a generous, yet fair, incentive program designed to reward higher performances by the associates with an increase in their hourly earnings. This pay-for-performance plan rewards the associates for higher performances, which yields more output per hour. The resulting labor savings are then shared between the company and the associates. The key was to ensure the incentive program would be rich enough to drive performance while simultaneously reducing overall total labor costs. If successful, the retailer hoped to leverage that model to drive performance and reduce labor costs throughout other operations and departments across the network. Keeping this in mind, we needed to build a program that could work not only for the targeted process but could also scale and still be successful.
After implementing this program in two DCs in a pilot mode, the results were dramatic. Associates received the new incentive program with gusto. Performances by the associates jumped up almost immediately. The associates were earning significantly higher wages as a result, and the operation ran more smoothly.
Both DCs have been very happy with the success of the program and are interested in expanding it into other operations. Supervisor feedback has been very positive with reports that the areas are much easier to manage due to the smaller headcount needed. The lack of congestion has rolled out benefits to the putaway functions in the area as well. Associates are now volunteering to be assigned to this pick area instead of shrinking away from it.
Tremendous results can be achieved when clients are willing to recognize each individual associate for their own contribution. When every associate is paid nearly the same hourly wage, this can create a dis-incentive to the top performers. And when a fair and accurate incentive program can be installed, this can motivate everyone to perform better. It all starts with a solid foundation of fair and equitable engineered labor standards. And a management team that feels an obligation to reward associates for their individual contributions. Blending those together to create a strong variable compensation plan can yield tremendous rewards, for both the associates and the business.