For many supply chains, the run up to Christmas and the need for additional temporary staff is a real problem, so November seemed an appropriate time to convene a ‘Logistics Europe’ Roundtable, sponsored by Manhattan Associates, to debate labour management issues.
The scale of the difficulty was described by Guy Meisl of Virgin Retail (see panel for post and organisation details). His organisation will employ two and a half times the ‘standard’ workforce in the pre-Christmas period, and ‘a 300 per cent increase in volumes can only be dealt with by bodies in a building’.
Just recruiting ‘bodies’ is not the only problem. Meisl took on 27 different nationalities last year, and regards the reduction to 18 this year as a small triumph. ‘It only works if there are enough people to translate. We are building much closer relations with the employment agencies, and part of that is getting them to test for written and social English’.
For many supply chains automation is not an affordable answer. As Michael Boos of Kurt Salmon Associates pointed out, either automation is hideously expensive for nine months of the year, or if affordable, it still restricts throughput in the other three. Meisl explained that Virgin is working with its 3PLs, applying a lot of pressure to improve very basic processes but although ‘we haven’t taken it as far as it will go, it’s very nearly the best it can be with our buildings and constraints. We would have to change our buildings (a listed aircraft hangar, as it happens!), software packages, everything to improve productivity, and there are big risks in automation, especially in the entertainment industry’.
Alternatively, are there ways of managing and incentivising existing staff differently? Boos suggested that productivity gains of 10-50 per cent are achievable. Meisl has indeed reduced headcount by 130, compared with last year, by for example introducing piecework incentives, and also by using the Virgin ‘brand’, in the form of staff discounts etc to make staff feel they are working for Virgin and help them take an interest in what they do. But again the limits of what is possible seem to be being reached, and as Mark James of AAH pointed out ‘The more productivity you get from the permanent staff, the less capacity is left to soak up extra volumes’.
Sharing productivity gains
Steve Smith of Manhattan Associates suggested that for many the challenge lay in the fact that ‘your peak is at the same time as everyone else’s. To attract the best quality resource against all the other supply chains can’t you differentiate your business through sharing productivity gains or rewarding “overachievement”, even with agency staff’.
But there may be conflicts in offering benefits and incentives to staff who are actually employed by a 3PL. Mike Bousfield of Gist asked ‘How does your 3PL feel about you creating a “Virgin” culture in their organisation. I would be a bit …[displeased] if I felt my employees were being subsumed by my customer’ – Meisl explained that these moves had been worked out together with the 3PL at local level.
Bousfield’s own company acknowledges that ‘culture’ can be very powerful. ‘We contribute vigorously to establishing partnerships with customers and in that context we try to create expectations and cultures that embrace the good things the customer is trying to do. Pride makes a difference and if you can get pride you get involvement and intelligence and have a chance of getting the best out of people – if you don’t you are employing robots’. It’s not easy, he conceded – people are on their feet, physically working, perhaps in the cold of a freezer store, often they don’t see many colleagues, their tasks are driven mechanically – how do you raise productivity from them?
Better leadership may be the answer. Boos described survey work from Germany, where most first-line management is by foremen with no formal management training. ‘Ask the shop floor what they value, and it is words like recognition and encouragement, feedback and discussion; but most supervisors are afraid of speaking about performance’. Bousfield saw the problem slightly differently – ‘The biggest problem in our organisation is that managers lack credibility – they’ve never worked on the line. We now make all our graduates pick for a month.
‘It’s a high transaction business with hundreds of decisions to make. The people who know most are on the shopfloor, but supervisors don’t ask them – they just issue daft instructions and everything falls over’.
Ranjan Banerji of Reckitt Benckiser was surprised by the trend of the discussion so far. ‘In manufacturing’, he said, ‘we had these conversations thirty or forty years ago. It’s really taken logistics that long to get round to it?’
The problem of leading and motivating in a cold store, he suggested, had similarities with coal mines. What is needed is a ‘small team’ ethic, with devolved responsibilities, and the trick is to find the balance between the small team and themore impersonal, ‘scientific’ approach.
Tracking individual performance
But there is a problem, as Meisl and others pointed out – the functioning of many Warehouse Management Systems means there is no way of developing individual task times or tracking individual performance. Boos said ‘There is a big difference between manufacturing and logistics. Manufacturing is much more repeatable and work comes in fixed amounts. In logistics, each pick is totally different’. James, however, said ‘We look for manufacturing managers, not logistics managers. Our processes are quite automated and they are designed around flows like manufacturing processes so the work content is quite regimented and the process quite defined’.
Interestingly, although Meisl at Virgin has introduced piecework incentives with some success, the trend at AAH has been the other way. James explained ‘customers want the same standardised service from each of perhaps 15 units, which requires initiative in the thousands of small decisions. We’ve gone away from measuring individuals because bonus payments were stopping initiative, and we’ve taken out all incentive payments (although we might want to put some differentincentive back in)’.
In which case, asked Smith, how does AAH retain staff, against someone else with an incentive scheme? Is it loyalty? Culture?
Adopting a ‘people plan’
It isn’t just one thing, said James ‘and we do lose staff to competitors, although we often get them back again, and our turnover rate seems below average. Every site, every manager has a ‘people plan’ some elements are standard, some like social organisations are optional. We also work very hard on making a nicer working environment – things like lighting and heating’.
But, said James, it is getting harder to promote yourself as a desirable employer. ‘Things like the Working Time Directive mean that things I used to do to differentiate us to staff are now legal requirements’.
So, said Bousfield, we have to push the boundaries further. ‘We need to make sure they know the job is important, and the results of not doing it properly. It is also about showing you care in ways outside mainstream employment practices’.
He gave some examples from his own firm – at a depot near Heathrow there are up to 25 nationalities, so language training is provided. A depot in the poorest part of Northampton offers City & Guilds Literacy and Numeracy courses to meet a need. At a Scottish depot, training on drug abuse is offered. They all, said Bousfield, extend the company influence beyond the workplace into the family. Comfortingly, Boos quoted surveys that show that companies with high commitment to their employees do better financially.
For Banerji ‘These are general principles that apply anywhere. What’s special about logistics?’. Most of Reckitt Benckiser’s logistics is outsourced but ‘we still have some of our own warehouses because they are performing better than offered by any external quote, and we’ve found out why. Most of it is from the fact that logistics is adjacent to manufacturing and uses manufacturing-type processes. That saves us a small fortune, but also these HR issues have been embedded in manufacturing for years, in a way that they haven’t in logistics.
‘For instance, annualised hours – if you’ve finished your work then off you go. This is basic stuff in manufacturing’. For Banerji, the issue is more ‘Should I bring in East Europeans, or should I move to Eastern Europe? Are we going to do radical things or are we comfortable that what we are doing now will carry us over the next few years?’
Bousfield noted ‘I have to follow manufacturing to Eastern Europe, and I’ll get the advantage of lower labour costs there – but I can’t service Marks & Spencer from Poland. At the same time, the idea that ‘if you want a distribution centre it has to be Milton Keynes’ is a pain: you can’t recruit there, there is ‘negative unemployment’!’
Christmas is a peak for many supply chains, but others peak at different times. Could there be scope for a collaborative approach to labour? Steve Smith of Manhattan Associates said they had tried to get organisations with different peaks to talk together – ‘It didn’t work, but the idea ought to have merit’. Of course, an organisation that provides staff for different peaks is called an agency, but ‘the people are different every time’. Banerji noted that collaboration between noncompeting supply chains, is practically zero, even in procurement. Meisl suggested that it could be that the lead on labour collaboration would have to come from the 3PLs.
Finding a competitive edge
More generally, Banerji said ‘People management in logistics is not that different from in marketing or manufacturing – if you don’t have it you are going to suffer.
‘The most important costs are wages and service. Even in Eastern Europe I need a competitive edge in service as well as on wages. I have to ‘outservice’ Procter & Gamble in Tesco’s eyes’.
Banerji felt there was not one service (and therefore labour) model to serve every industry sector, and Boos felt an even bigger difference lay in customers and their requirements. Smith said that in system terms this isn’t a problem. ‘We have the ability to optimise processes, even where every task is unique. The challenge of taking manufacturing standards into this more dynamic environment is entirely achievable and has been for many years’.
But what to model, what to measure, what to reward? Boos said ‘Most people use, for instance, case rate but that’s totally inappropriate – it doesn’t reflect the work content. You have to work on time elements’. Smith revealed that Manhattan had analysed those of its clients using labour management control and found that ’60 per cent of a picker’s time is spent walking, not picking. We have to make it easy for the guys to achieve their goals, for example by minimising travel distances’.
‘Agreed’, said James, ‘We’ve done that. But we still see productivity differences between sites with all the same tools. If we change the leadership team, we get up to 30 per cent improvement in three months. You can’t overestimate the time you need to put into leadership – it makes such an impact. There are people with technical understanding that lack people skills and vice versa, so you have to put the effort into finding and developing the right leadership qualities’.
There was general agreement that too many first line managers are promoted not for their leadership qualities but because they were the best lift truck driver, and would often rather be driving the truck. Said Guy Dunkerley of AMR Research ‘It’s too easy for them not to make a decision, or simply to do whatever it is themselves’. Indeed, the relative lack of career progression paths may be a key part of the problem. Without robust process measurement, or verifiable and rewardable performance systems (‘Why have I never seen Six Sigma processes in logistics’ asked Banerji) the only way of rewarding someone may be to make them foreman!
Under the chairmanship of Logistics Europe Editor Nick Allen, our panellists were:
Mark James, Group Operations Director for the warehousing and transport activities of AAH Group, a leading distributor of pharmaceuticals and healthcare products
Guy Dunkerley is Research Director of AMR Research
Mike Bousfield is Human Resources Director at Gist, the UK and world-wide supply chain specialists
Michael Boos is a Principal with Kurt Salmon Associates’ logistics practice
Steve Smith is Vice President EMEA at Manhattan Associates, the supplychain solutions provider
Ranjan Banerji is Senior Vice President, Europe, for Reckitt Benckiser, a leading manufacturer of cleaning and other consumer products
Guy Meisl is Logistics Operations Manager at Virgin Retail, the entertainment products retailer