This article is a sidebar to "Evolved Operations Enable Progressive Supply Chain Management."
A regional distribution center in upstate New York supplies goods to retail outlets throughout the state. This particular distribution center largely consists of labor operations, and there is minimal use of automated storage and retrieval systems. As a result, the company had focused on achieving low costs and driving productivity through the hard work of its employees.
Distribution center leaders strictly defined the workforce as follows:
- Receivers, who unload trucks and put away products, were measured by individual performance in terms of receipts per hour.
- Order selectors, who pick products for customer orders, were measured by cases picked per hour.
- Loaders, who load orders onto trucks, were measured by the number of cases loaded per hour.
Management believed such individual performance metrics would motivate employees to be productive, which, in turn, would result in lower costs. However, these metrics actually drove up operational costs. Products were put away in the wrong locations simply due to the fact that receivers were in a hurry. Plus, because they were measured by volume, these professionals would put away an entire truckload of a product that was already in stock, ignoring a pallet of a previously out-of-stock item because prioritizing this item type would hurt their rates.
The effect was similar on selectors, who, as a result of their goal metrics, would pick the wrong product or wrong quantity. Loaders would hastily throw cases onto trucks, resulting in dam-age. If an error was caught before a truck left the distribution center, loaders would have to rework the load, which resulted in late shipments and deliveries.
Upon noticing these effects, managers called for a meeting of all warehouse personnel to discuss the quality issues of missed picks, damage and customer returns, which had totaled $2.8 million in a single fiscal quarter. A consultant suggested getting rid of the individual performance metrics, which were driving the wrong behavior. One manager replied that if they stopped measuring picks per hour, they would go out of business. The consultant immediately retorted, “You mean to tell me you’d go out of business if you didn’t have $2.8 million in quality losses every quarter?”
The solution to this challenge is to have the distribution center hone in on the nine R’s of a perfect order. If a business can ensure that the right quantity and the right quality of the right item are delivered to the right person at the right place and the right time for the right price and with the right documentation and right level of customer service, then customers will be satisfied.