The company had initiated a plan to reduce product damage across its network, especially in its distribution centers (DCs), and the supply chain leaders had heard that Ron and I recently teamed up to significantly reduce recordable injuries and turnover in one of the company’s key manufacturing plants.
The leaders were interested in seeing if we could apply our Lean-based performance improvement process to damage in a 600,000 square foot DC in Ohio.
Damage was being caused primarily by forklift drivers who were accidentally ramming the forks on their forklifts into products that they were moving from one location in the warehouse to another. Damage was also created when pallets of product were accidentally dropped in the process of being moved from racks in the DC to trucks that would transport the product to customers.
We agreed to go to the DC in Ohio and try to learn the root cause of the damage and potential opportunities to fix the problem. We both believe the people who do the jobs every day almost always know best how to improve how the job is done. So we started with a meeting of 12 or so people who were closest to the problem. We got an earful.
“We don’t walk the talk,” a young woman says. “We say quality is important but we bring people in who’ve never run forklift, put them on the machine and let them go. Accidents happen,” she said.
“If they really cared about quality, they’d ask us how to improve it, wouldn’t they? But, they don’t, another said.
“You never hear anyone recognized or rewarded for good quality,” a man wearing an Ohio State ball cap said. “The focus has always been on productivity.”
Every employee we met with said that given the resources, they could significantly reduce damage.
We shared what employees told us with the DC leadership team. Although they were surprised at what we told them, they made it clear that their goal was to have a safe, high quality, high productivity operation. They wanted to fix the problem.
Before ending the meeting we asked Sharon, the facility leader, to provide us with the leaders’ performance goals and the design of the incentive compensation plan. Problems we were hearing about often start there. While we say quality is important, we’re being paid to improve productivity. It really isn’t intended to be by design but it is by design. Sharon retrieved the goals from her office.
“I’m embarrassed at what I found,” she said somewhat sheepishly. “Everyone in management has three goals: productivity; safety and quality. As far as incentive is concerned: 80 percent is weighted to productivity; 10 percent on safety; 10 percent on quality. I guess we’re getting what we’re paying for.”
We had found the root cause. We say quality is important. But our actions–starting with goals and pay–tell us to push productivity. It is producing unnecessary scrap and rework in the form of product that has to be thrown away product that needs to be re-packaged. Now it was time to identify the best way to make the quality problem go away and stay away.
Sharon asked us to work with her to improve quality, but not at the expense of productivity, which was high or safety where accidents stood at zero for the year.
To eliminate the mixed messages, we helped the leaders develop a strategic story that they could use to align the organization around the DC business strategy and the three performance measures.
A strategic story is a set of messages that everyone in the business needs to understand in order for it to be successful. It’s an alignment tool that makes sure the organization and its systems and processes communicate consistently. It aligns the say communication and the do communication.
Over five months we re-focused the organization equally on safety, quality and productivity. We used small high impact teams on every aspect of the improvement process. They improve recruiting, making sure we hired people with forklift experience. We increased forklift training time, changed the way product moved through the DC and modified leadership goals and incentives.
We created a balanced scorecard and balanced rewards and recognition. We created a fast-paced huddle process that focused on the three primary performance measures.
Everything was aligned. Everything said the same thing.
At the end of five months quality had improved by 65 percent. And remember that Sharon told us we couldn’t improve quality at the expense of productivity or safety?
Safety remained at zero accidents.
Productivity improved by 16 percent.
Key Takeaways: Mixed messages can undermine performance. Often the most powerful mixed messages start with leadership goals and incentive compensation that communicate powerfully what’s important and what’s not.