One of North America’s biggest logistics companies needed to reduce costs created by excessive damage in its supply chain. Most damage was occurring in their large distribution centers (often referred to as DCs).
The client assigned the corporate director of communication to work with me. Our objective was to identify one DC that could serve as a pilot to assess the nature, amount and root causes of the current damage and then develop and implement a strategy to reduce or eliminate it.
Then came the caveat. “You can reduce damage to improve overall quality, but you cannot do it in a way that negatively affects productivity.” This was a challenge because attacking one performance measure such as quality often can have an unintended negative effect on productivity, when the speed of work is contributing to the quality problem.
The Discovery and Solution
After assessing which DC had the greatest potential, we launched a major data gathering step that included a tour of the 600,000 square foot facility, reviewing performance data and conducting interviews and focus groups with leaders, supervisors and operators there.
Nearly everyone we spoke with believed that poor recruiting was a part of the problem.
“We just hire anyone to come in and drive forklifts in the distribution center whether they’ve ever driven a forklift or not,” one employee told us in a focus group. Everyone in the room nodded in agreement.
“To make matters worse, we don’t give them good training,” another employee said. “We bring them in for an hour and train them to drive a forklift. That’s not nearly enough. No wonder there’s damage.”
“Supervisors tell us to ship packages that are damaged,” a forklift operator told us. “We call it to their attention, ask them if we should have the package re-wrapped, but all we hear is ‘Pack it,’ which means put the package into the truck. Get it out of here.”
“So, what is it,” quality or productivity?” a focus group employee asked us. They talk a good game around quality but when it comes down to it, it’s all about productivity even if it means send product to a customer that the customer will reject and send back.”
In our original tour, we studied what I call the “little big stuff” such as scoreboards, postings and measures that were throughout the facility. Piece by piece it may be little stuff, but after scouring the 600,000 square foot DC, all of those little data points turned into tell-tale signs that told us the big stuff—what was going on. The heavy emphasis was on productivity.
“Why do they talk about quality, but almost obsessively push productivity and the resulting damage that further leads to costly rework and returns?” I mused to the smart young man from corporate who was working with me on this project. “What is the root cause of all of this? It’s got to be something bigger than telling people to pack damaged goods is driving these results. We’ve got to find out what it is so we can make it go away.”
“What stands out as the most likely root cause?” he asked me.
“If I had only one guess, I’d say it’s lodged somewhere in the performance management system,” I told him.
“Like their goals or incentives,” I responded. “I would bet their incentives are weighted toward productivity. There’s something golden to these folks about productivity. I believe it’s money.
The next day, just before a meeting to discuss our findings, I asked, the DC leader how the leadership team and supervisors were incented. “I don’t want to know how much they’re paid,” I told her. “I just want to know their goals and how they’re weighted; the highest, second highest and so on.”
The leader excused herself to review the incentive compensation plan for her team and returned 15 minutes later with a sheepish looks on her face.
“I’m embarrassed to tell you that eighty percent of our incentive comp for both leaders and supervisors is weighted toward productivity. Ten percent is weighted toward safety and ten percent is weighted for quality.”
She looked up at us and said: “I guess we’re getting what we’re paying for, huh?’
They were indeed.
Although the center’s leaders said quality was important, all of the systems-from recruiting, training, rewards, recognition, work processes and measurement-were skewed toward productivity.
We helped the center’s leaders create and implement a strategy to reduce damage by emphasizing that safety, quality and productivity were of equal importance. We started with creating a strategic story that would drive communication and the importance of the three equal measures.
High performance teams addressed huddles and scorecards, incentives, pallet staging, recruiting and learning and development. Every aspect of the DC was now equally focused on quality, safety and productivity.
In five months, damage decreased 65 percent. To the leaders’ surprise, productivity during this period actually went up 16 percent. Safety remained at zero.
Why did productivity improve? Because our strategy was not designed to improve quality only. When organizations do that, other measures can be negatively affected. We focused equally on the three as a package, so to speak. One third. One third. One third. They were all important.
We packaged our process and taught it to more than a dozen DC leaders throughout the company.
KEY TAKEAWAY: Never take a situation at face value. If you want to improve results dig deeper, beyond the symptoms presented, to determine the root cause of an issue. It almost always has to do with how the systems in place hold leaders accountable.