Entering another busy season or a peak in demand, and the data says you need to boost productivity to 120 cases picked per hour. If you’re like most distribution centers, you’ll solve that problem with another one — hiring more workers at an hourly rate.
Traditional wisdom says to boost your manual labor when you need to boost productivity. You have a global number that a data-driven decision model identifies — whether it’s cartons per hour, output per associate hour, or something else. And that number becomes the one standard to reach. The good news is that your workers reach that number, but it comes at a cost.
The Problem with Hourly Pay Models
What happens once your productivity goal is reached? Complacency enters in. Workers know that they’re being measured against that single number, and nothing more. Perhaps they need to pick 120 cases per hour, so they pick the cases as fast as they can. Once they reach 120, they coast for the balance of the hour — whether that’s five minutes or 20 minutes.
Likewise, operations managers strive to get their workers to the quota, but seldom beyond it. The managers use the standard as a goal, not as a baseline — partly because they realize there isn’t any incentive for workers if they outperform the quota. There’s only so much motivating and prodding that a manager can do before it backfires on them.
When there’s no incentive for the workforce, other than to receive their guaranteed hourly pay, they have every reason to be complacent. If they’re getting paid by the hour, the only incentive to meet quota is to get their manager off their back and not to get fired.
Distribution Centers that follow this model are leaving productivity on the table because they could potentially get more productivity out of their people. Workers could easily improve their productivity, but they get the same pay whether they do or not, so why push themselves?
But lost productivity isn’t the only repercussion.
Side Effects That Hit Your Bottom Line
There’s an adage that people don’t quit their jobs, they quit their bosses. When managers have to nag their employees to meet quota, it creates lower morale, higher turnover, and more attitude issues. Now your managers aren’t just managing productivity, they also have to manage difficult people.
Quality also suffers under this model. Workers find shortcuts to hit a number, and those shortcuts often create quality issues. For example, during scanning and picking, they may not pick all the cartons. Instead, they scan the carton and abandon the pick. Thus, the inventory is off and the customer doesn’t get the product.
These side effects all impact your organization’s bottom line.
At Eclipse IA, we’ve adopted a different kind of incentive model that boosts productivity, quality, turnover, and morale.
The Productivity Pay Model
The productivity pay model, or team-based pay model (TBP), is an incentive pay system that rewards all of the members of a project or a department team with the same rate of pay. TBP is based on their performance to complete a productivity goal, such as the number of containers packed or trucks unloaded. As they produce more units, they earn more money.
Unlike individual hourly pay systems, team-based pay rewards the output of the team as a whole and divides the rewards equally among team members. Workers are incentivized to produce more, because greater productivity means more pay. And because everyone on the team is paid equally, low performers are incentivized by their teammates to improve their production.
At Eclipse IA, we call these teammates Industrial Athletes.
In order to boost the team’s output, Industrial Athletes are constantly learning from each other and discovering innovative ways to become more efficient. They encourage one another, share their techniques with each other, and grow as a team.
Just as athletes compete, our Industrial Athletes compete with each other to outperform the guy next to them. And they make it fun. They come up with innovative methods and they see who can do the job best.
Now, not only is your warehouse more productive, you’ve also boosted morale, and reduced attitude and truancy issues.
Quality is better, too, because if you have to stop and redo your work, you’ll fall behind the others on your team and you’ve just cost your team more pay. You don’t want to be the person that’s making all the mistakes, because you’re the one who drags everybody down.
By emphasizing teamwork, you reward the collective effort to get the job done in the quickest and safest way possible. Warehouse workers are highly motivated to achieve high productivity and quality, and you see a higher retention rate due to the inherent camaraderie and vested interest employees have for one another.
The team-based pay model is a bold and innovative approach, but studies show that it works.
It’s the ideal blend of art and science. Data-driven numbers are established for teams, but workers are empowered to develop an art to their work. By owning their output and solving problems creatively, art and science combine to create a warehouse culture that achieves productivity numbers you’ve never seen before.
Find Out How Eclipse IA Can Support Your Labor Needs.