Many operations managers believe as a matter of faith that if they take care of their employees—offer continuous training, regularly assess their performance, and treat them with the same respect with which they would like to be treated—those employees will help deliver superior performance. Lo and behold, it's true.
Of managers surveyed for the MHM Census of Distribution, those with higher performing operations are much more likely to say they have effective hiring programs, training programs, employee work teams and safety and health programs. In additional to the standard efficiency measures, one sign of the effectiveness of these human resource programs is lower labor turnover rates. For these top facilities, world-class human resource practices does not mean they have significantly higher labor costs.
To define world-class, rather than set arbitrary performance levels that would not account for the variety and complexity of material handling and distribution activity in the United States, Material Handling Management and our re-search partners asked managers to rate their own facilities. On the Census of Distribution survey form, managers reported if their operation had made "no progress," "some progress," "significant progress" or had achieved "world-class" performance.
Almost 17% of managers reported that they had made no progress toward world class, and 54% said they had made some progress. Validating their self-assessments, managers who said that their facilities had made significant progress (25% of survey respondents), or where they had achieved world-class performance (5% of respondents), did indeed report superior operating metrics. These metrics include on-time delivery, order cycle time, order accuracy and lower ware-housing costs (See "What Is World Class?" MHM Feb. 2006, page 44).
When it comes to people management, managers of the world-class facilities report that they provide employees an average of 35 hours of formal training per year. Managers of these operations were also much more likely to rate their employee and supervisor training programs as somewhat or highly effective.
One reason that the top-performing organizations may be able to offer more training is that they tend to be larger. They report 425 full-time employees on average, compared to 226 on average for all survey respondents. Surprising to some perhaps, the world-class facilities are also more likely to be unionized (18%) compared to all survey respondents (13%).
World-class facilities have more employees who participate in empowered and self-directed work teams (teams empowered to make decisions without supervisor approval). Over three-quarters of employees in the leading facilities participate in such teams, which often include a group that's focused on safety issues. The jobrelated injuries and illness rate per employee at world-class facilities is half the rate reported by facilities that haven't begun to make any progress toward world-class performance.
There is one human resource area where there is little or no differentiation between world-class facilities and other distribution operations. Averaging between 18% to 21% of total labor expenses, the cost of employer-provided health benefits are similar for all operations. These costs are rising at or near double-digit rates for everyone.
Source: MHM 2005 Census of Distribution. Re-search conducted in partnership with The MPI Group (Cleveland) and Industry Insights (Columbus, Ohio), two industry and market research firms. See www.mhmonline.com/cod for more results and the research methodology.
World-Class People Operations Don't Pay (Much) More
Respondents to the MHM Census of Distribution who report that their operations have made significant progress toward or that have achieved world-class performance also report lower labor turnover rates (10%) compared to those that have made "no progress" toward world-class levels (13%). The better performing facilities do not pay employees significantly more, $13.04 vs. $12.59 per hour, nor do they have higher total labor costs per employee. The averages below are based on 51 to 210 respondents for each data point. In total, we received 457 completed survey forms.
|Full-time equivalent employees, 2005:|
|Sig. progress or world-class||424.6|
|Employment change 2004-2005:|
|Sig. progress or world-class||19.6%|
|Annual labor turnover rate (voluntary and involuntary separations as a % of average full-time employees):|
|Sig. progress or world-class||10.3%|
|Average annual hours of formal training for each full-time employee:|
|Sig.progress or world-class||35.0|
|Approximate wage for direct-labor employees (hourly rate without overtime):|
|Sig. progress or world-class||$13.04|
|Total labor cost per direct-labor employee (wages, taxes, benefits, etc.):|
|Sig. progress or world-class||$40,344|
|Employer-provided health-benefit costs as a percentage of total labor costs:|
|Sig. progress or world-class||21.0%|
|Job-related injuries and illnesses in the most recent calendar year (per employee):|
|Sig. progress or world-class||0.06|
|Job-related injuries and illnesses resulting in lost work days (per employee):|
|Sig. progress or world-class||0.03|