The 10 Fallacies of Logistics Productivity Management

Productivity management represents perhaps the lowest hanging fruit for companies
interested in reducing supply chain and distribution costs. With its accelerated ROI, a
productivity management system delivers a rapid, deterministic payback that can improve
distribution center labor productivity 10-30 percent, as well as provide a long list of other
benefits.

While many great companies in the retail, food, consumer goods, and third party logistics
segments of the market have successfully implemented productivity management systems
and achieved these benefits, many others have not. Given the clear economic and
operational benefits of productivity management systems, the failure to implement
advanced productivity management appears to be related to a number of misconceptions
surrounding productivity management system process, technology and impact.

The top 10 of these fallacies include:

Fallacy #1: Im already getting productivity management from my current WMS or ERP system

While leading best-of-breed WMS systems (such as RedPrairies DLx Warehouse)
drive enhanced distribution center productivity, they do not deliver the depth of
productivity management capabilities a true productivity management system can
provide. These advanced productivity management system capabilities generate another
whole level of benefits that achieve rapid ROI, often increasing labor productivity by 10-
20 percent over that obtained from a WMS alone. While many WMS systems have basic
labor productivity trackers, they do not provide the depth of functionality of a true
productivity management system in such areas as support for discrete standards, labor
planning, robust labor reporting and the ability to determine cost to serve.

Fallacy #2: Productivity management embodies an old, unenlightened way
of thinking about employee relations

Achieving increased labor productivity, improved quality and enhanced employee
retention will always be in style. But beyond these hard dollar benefits, a comprehensive
productivity management system also supports a positive, modern approach to employee
relations.

Advanced productivity management emphasizes such elements as
management/supervisor engagement in operator work to ensure safety and remove
barriers to productivity, detailed training on the best method to perform each job, and
consistent feedback and counseling to employees to ensure their success. The most
successful approach to productivity management is to actively involve shop floor
operators in the development of processes and standards.
Well designed and implemented productivity management systems result in a more
positive work environment that will be the model for tomorrows high performance
distribution companies. Therefore, any notion that they are a relic of an unenlightened
past is a real misconception.

Fallacy #3: Implementing an productivity management system will reduce
morale and increase employee turnover

RedPrairies experience in implementing over 100 productivity management systems
across many industries indicates that the reverse is true: implementing a quality
productivity management system almost invariably improves morale and reduces
employee turnover. This is because all employees, including DC operators, like to
understand how they are performing in their jobs, and to have feedback based on fair and
objective standards. They also want to understand the right way to perform specific tasks.
Productivity management directly addresses both these employee issues. Productivity
management also provides the foundation for implementation of fair and accurate
incentive programs, which increase employee satisfaction and retention.

Fallacy #4: Productivity management benefits are primarily for the DC
manager

While the DC manager and his/her operation will benefit significantly from productivity
management through improved productivity, lower costs, improved quality and better
employee retention, productivity management can provide a broad set of benefits that
support many organizational objectives. The entire logistics and supply chain
organization benefits from lower operating costs and improved quality, which drives
shareholder value. Many companies are identifying improved productivity management
as the next area for logistics to make a significant contribution to the companys
bottom line. Customers benefit from improved quality and more consistent delivery. The
CFO benefits not only from higher profitability, but from improved return on assets
through greater throughput at individual facilities. Both finance and marketing benefit
from the ability of productivity management systems to support activity-based costing
and calculation of logistics cost to serve for different customers, markets and valueadded
processes.

Fallacy #5: Adding productivity management to a WMS implementation will
increase complexity, and therefore risk

Actually, the reverse is generally true. Almost invariably, companies that implement
warehouse management systems wish they had invested more in training. Productivity
managements focus on development of preferred methods for warehouse activities and
reporting mechanisms to ensure operators are adhering to these methods, improves
overall training dramatically and reduces variability in operator approach to the job. This
removes a major hurdle to overall WMS implementation success, thus reducing risk.

Fallacy #6: Productivity management software doesnt add a lot of value
developing and implementing engineered standards actually drives most of
the benefits

Many companies have embarked on engineered standards for distribution, only to find
that their investment in this process delivered less than expected results. Those that do
achieve benefits from the standards process often find the momentum and results realized
deteriorate over time through gradual neglect of the key standards or their champion
moving to a new position. To maximize benefits, companies must adopt a comprehensive
productivity management system that incorporates preferred methods for specific tasks,
engineered standards, and productivity management software to support dynamic goal
calculation, labor planning, and robust reporting. The results achieved will be more
substantial and sustainable than those from standards work alone.
RedPrairie Corporation

Fallacy #7: We have high quality DC supervision a new system wont
provide much incremental benefit

Even the most well-managed distribution facilities can benefit substantially from an
productivity management system. The foundation of productivity management is precise,
discrete goal time calculation and detailed feedback and reporting, capabilities that
require robust technology support. These capabilities will drive significant productivity,
quality and employee retention gains even for the most well-supervised crew. The reality
is that a productivity management system leverages quality supervision and allows
supervisors to concentrate on critical management issues due to the order and consistency
found in productivity management system environments. A productivity management
system also provides supervisors with a set of technology tools that make their jobs
easier, give them greater management control, and the information they need to improve
their areas or departments.

Fallacy #8: Productivity management requires too much time for data
collection and administration

Companies that have implemented warehouse management and/or radio frequency (RF)
systems already have the data collection infrastructure required to support an productivity
management system. Those without these systems can still benefit from productivity
management through a variety of collection methods, such as PC-based data entry, that
impose minimal new overhead burden that is more than offset by the significant
improvement in overall productivity. Likewise, the minimal additional administrative
requirements are more than offset by both the reduction in management time required to
collect and analyze labor statistics and the benefits of real-time access to information on
productivity barriers and incipient problems that can quickly degrade productivity.

Fallacy #9: Productivity management is unnecessary in an incentive
environment

The distribution incentive systems of most companies are built on unit-based productivity
measures (picks, lines, cases, etc.) that are based on historical averages. Much less often,
they include travel distance as a factor in the incentive calculations. This approach is
inherently unfair to employees and reduces the pay-for-performance benefits of incentive
systems.

Advanced productivity management offers many critical benefits beyond what can be
accomplished with the majority of these incentive systems. Discrete standards precisely
determine the specific goal times of each task based on its actual work characteristics
(distance, weight, equipment, etc.) thus ensuring fair and accurate incentive calculation
for both the company and employee. Furthermore, development of preferred methods
ensures standards are based on the correct way to perform the incentivized work.
Advanced productivity management is essential for those companies considering an
incentive program. Even those companies that have implemented incentives will make
significant productivity gains and achieve a more fair and manageable solution through a
productivity management system.

Fallacy #10: Productivity management wont work in a union environment

Productivity management systems have a long and successful history of implementation
in union distribution shops across many different union organizations. Unions have
accepted the fundamental basis of preferred methods for warehouse tasks, and desire the
fair and accurate reporting productivity management software provides. In disciplinary
cases, unions often will not even contest the basis of the standards or employee
productivity reporting, instead focusing on perceived company-imposed barriers to
achieving the standards, such as lack of training. Many unions have actively participated
in successful productivity management system implementations.