Mhlnews 1877 Lipari Drivers Pay Incentives

Incentives Fuel the Lean Journey

July 1, 2011
Taking lean logistics from fad to fact requires buy-in from employees and managers. Here’s how a lean-margined business justifies an incentive-based approach.

Wholesale food distribution is a lean-margin business and it takes lean business philosophies to compete effectively in it. And while Lipari Foods doesn’t use all the terminology found in textbooks about lean business practices, its dedication to process improvement makes it a good case to follow for any business mapping out its own lean journey.

Lipari is a family-run wholesale distributor based in Warren, Mich., serving 13 Midwestern states. Its product range includes deli, bakery, fresh fish, confections, even packaging and supplies. The company works with Ryder Logistics to serve its regions out of 21 depots. Orders that come into its headquarters by 4 p.m. are delivered to customer location the next morning. But as Lipari grows its business, it will be tougher to maintain that service level. That’s why John Heathfield, vice president of operations, is so dedicated to constant process improvement. Finding and eliminating waste is his focus.

Re-Work is Waste

Lipari receives during the day and ships at night to its remote depot locations in full truckloads. At the Ryder depots these truckloads are then broken down for loading into local route trailers.

Lipari’s number-one lean tactic is eliminating re-work. To accomplish that it created the position of “systems and process manager.” This individual seeks out waste in the form of any function that has to be done twice.

Customer returns is a good example. This is a delicate area, Heathfield says, because on one hand Lipari wants to differentiate itself through customer service by making the returns process easier, but on the other hand, if it can get orders right on the front end, it can minimize customer returns.

The challenge for Lipari is it offers close to 10,000 items and its pick line in the warehouse covers over 240,000 sq. ft. It often has multiple customer orders on a single pallet, so a big target of waste is the picking process.

“Any inaccuracy creates re-work,” Heathfield says, “so we have a rewards program for the most accurate and effective selectors, and we have a penalty program for anybody who is inaccurate beyond a certain threshold.”

Carrots and Sticks

Order information is relayed from Lipari’s WMS (Retailix) to its time management system (Kronos), which interfaces to payroll. This helps Lipari administer its payment reward and penalty system.

“It appears that a mixture of carrot and stick is driving an effective result for us, but as the volume grows in the company and the amount of bulk selection goes up, that could change,” Heathfield acknowledges. “Right now a healthy combination of both is getting us where we want to be.”

Selectors are guided through the warehouse via their WMS-driven voice directed picking system (Vocollect). They use double-pallet jacks (Crown) that have dramatically improved throughput since converting to them from single-pallet jacks four years ago.

“Any time you can eliminate travel, which is a huge component of time taken to process an order, you are coming out ahead,” Heathfield says. “The way our warehouse was set up, everything was going back to an original starting point where the selector would pick up their work, go into the warehouse with one pallet, build that 6½-foot pallet, take it to the dock and then have to retrieve another order. By going to a double pallet jack you cut out half of your travel. We saw at least a 10% improvement in cases per manhour, and in some cases more than that.”

Clean is Lean

Making sure those selectors work in an unobstructed environment contributes to that throughput. That’s why good housekeeping was a key component of Lipari’s lean approach. So was getting input from those selectors before actually implementing these new practices.

“If you’re going to ask for higher productivity you can’t just ask for a higher rate. We needed to make sure the selectors were communicated with properly and that they understood the improvements being made and why we were increasing the expectations put upon them,” Heathfield adds.

That feedback is still coming. On a nightly basis Lipari’s nightshift supervisors solicit input from the selectors and that can result in new slotting strategies.

“Just about every day I see bin change requests coming out of night shift supervision to day shift inventory control that are all driven by the order selectors,” Heathfield says. “They put in their recommendations when they see something slotted in a C tier that’s causing damage, or if, for the velocity of the item, we don’t have it in the right location.”

Lean on the Road

On the driver side of the incentive spectrum, these workers were probably more instrumental in developing Lipari’s incentive program. The challenge was to establish the standard on which to base incentives: Delivery time? Travel time?

Lipari set up the system to be able to import pieces of information into it, like route and information about particular stops to determine how much each stop costs. Information can be broken down into rate per case to determine how much each stop typically costs.

“If the delivery is a two-wheel stop we can pay more money than if it was a pallet drop stop,” says Heathfield. “And now we have the information to back it up.”

Today outbound case volume is 8% above last year without Lipari having to add drivers or fixed costs in tractors, trailers or more selectors. Before incentive- based pay in the warehouse it was putting out 65 cases per hour. Today in the cooler dry area it is achieving 135 cases per hour and in the freezer as high as 180, on average. Heathfield believes incentives will get the same results on the transportation side.

Beware Lean’s Soft Costs

Although at present only their 70 pickers and 150 drivers are on incentives, Heathfield would like to eventually extend the program to everyone. The only things getting in the way are what he calls the “soft costs.” Those include damage, inaccuracy, improper gate rotation and injuries.

“Many times you’ll see those numbers go up without proper controls put on the incentive-based pay system,” he says. “We’re in the midst of figuring out how we can continue to improve productivity without effectively seeing those soft costs go up.”

What makes Heathfield a believer in incentives is that it puts employees in control of their own destinies.

“They can possibly add $10 an hour to their pay,” he says. “But in return there are higher expectations from those people.”

It’s up to management to clearly communicate those expectations.

“It’s a lot to ask them to trust you that the new system will be fair, even with all the effort you’ve put in to make sure it’s fair,” he concludes. “If you communicate along the way and solicit their input through the development, there will be no surprises. The more you can manage away surprise, the better.”

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