Creating An Incentive Plan That Works Four Seasons Produce, Inc. Dan Frederick Nelson Longenecker Greg Stricker May 8, 2006
Agenda Company Profile Four Seasons Story Remarkable Results Lessons Learned
Four Seasons Produce Ephrata, PA
Company Overview 30 years of full-service produce distribution Providing fresh produce to 10 states and Bermuda Wholesale, Retail, Food Service, and 3PL business
Company Overview 11 million cases shipped in 2005 (50-70 trucks/day) 3,000+ active items 60% case picking, 40% pallet picking
Fast pace Company Overview Short lead times Perishable product Almost in time inventory Passionate about service!
Our Story Chapter 1 Growing Pains Chapter 2 Buy-In Chapter 3 Growing Ideas, Producing Excellence
Chapter 1 - Growing Pains Multiple facilities, and rapidly outgrowing our space Hiring warm bodies Service levels falling Costs rising
Selector Frustrations Cherry Picking Low morale Long hours High turnover Growing Pains
Selectors Wanted Money Recognition Fair standards Accountability Growing Pains
First Steps We retained a software & consulting firm for assistance to: Design a better warehouse layout Define efficient workflow and selector preferred methods Re-slot all pick locations Engineer accurate labor standards
We also: Included our associates insight and experience Changed our selecting and loading process Put money on the line! First Steps
First Steps: Original Selection Incentive Program Selectors earned incentive only on direct time spent selecting assignments Performance % = Direct time for assignment Standard time for assignment
First Steps: Original Selection Incentive Program Qualifiers Built In For: Safety Violations (including near misses) Product, Equipment, or Building Damage Selection errors
Original Selection Incentive Program Performance Direct Hourly Incentive Pay 100% $0 105% $.50 110% $1.00 115% $1.50 120% $2.00 125% $2.50 130% $3.00
Chapter 2: Buy-In Initial selector perception was not positive Mistrusted the computer Assumed standards too hard to achieve Concerned standards would be secretly tweaked to get more work for less
Our Approach We enlisted associates who had experienced labor standards and incentive programs at previous employers Key associates helped develop standards and convey their validity sell the standards and the incentives to other associates The company committed to apply incentive pay at time and half on all overtime hours
The Real Deal Associate buy in didn t happen from managers talking in shift meetings, but as associates talked on outside smoke breaks, at the bar after work, and during weekend card games
Turning The Tide Performance feedback was constantly provided (after every assignment) Credit was given for actual performance Steps were taken to ensure standards were fair (and perceived as fair) We showed them the money People began saying This will work! and perceptions began to shift.
Chapter 3: Growing Ideas We added: An accuracy incentive to reward high accuracy The dock cop our internal auditor
Growing Ideas We needed a more complete system with: Real-time information Increased trace-ability Hands-free voice order picking Increased accuracy Integrated labor standards Capability to run (and grow!) our business
Next Step: WMS A WMS was selected, and a Core Team was formed to lead implementation in: Modeling the WMS for our company Changing configurations to match our processes (or changing our processes to match the system) Ensuring that dynamic labor standards continued our productivity gains
Meanwhile G.R.O.W.
Integrating Labor Standards in the New WMS Examined processes Validated equipment speeds Reviewed labor elements Performed thorough time studies Simulated assignments
Adapting Labor Standards to the Wabash DC
Adapting Labor Standards to the Wabash DC Invested in proper tools (CADD) Developed all new XYZ coordinates Eliminated labor elements for case-label (and eventually, RF handheld) time Incorporated case weight Validated behind the scenes
Adapting Labor Standards to the Wabash Facility Trouble Shooting Audited the processes Caught the errors Obtained feedback from selectors Hired the hacker
Growing Ideas The new warehouse was more open Safety limits could be increased We hadn t updated the incentive plan for almost 7 years We wanted to ensure morale & retention of high-performing selectors
New Incentive Program - April 2005 100% - $0.00 105% - $0.50 110% - $1.00 115% - $1.50 120% - $2.00 125% - $2.50 130% - $3.00 135% - $3.50 140% - $4.00 100% - $0.00 105% - $0.75 110% - $1.50 115% - $2.25 120% - $3.00 125% - $3.75 130% - $4.50 135% - $5.25 140% - $6.00
New Program Producing Excellence 70% 60% 50% 40% 30% 20% 10% 64% 36% 0% Performance Stayed the Same Performance Increased
With Other Benefits We attracted associates back to selection Re-created wide recognition that selectors can make great money with consistent high performance.
Remarkable Results: Early Success (1997) Cases per Hour 120 100 80 60 40 20 80 120 0 Before Incentive After 3 Months
Reduced Selector Staffing Full-time Associates 40 35 30 25 20 15 10 5 0 40 1997 2004 23
Continued Productivity Growth Cases per Hour 240 200 160 120 80 40 120 155 0 1998 2004
Recent Productivity Gains Cases per Hour 240 200 160 120 80 40 155 220 0 2004 2005
While also achieving 22% reduction in lost sales due to mispicks and shorts 98% on-time dispatch of orders Case-level inventory accuracy of 99.8%
Selection Accuracy 100.00% 99.88% 99.80% 99.60% 99.60% 99.40% 99.20% 99.00% 2003 2005
Additional Results Indirect time significantly decreased Selector accountability increased Greatly reduced aisle congestion Warehouse labor costs per case continue to decline
What We Learned
#1 Consult The Experts Internal and external Establish workforce champions for change Ensure best fit for your company Pave the way for positive & effective change
#2 Earn Trust At All Levels Dynamic Leadership is required to build trust with: Executive leadership Front line managers Selectors Without trust, nothing will work!
#3 Keep It Timely, Clear, Simple Examples from our story: Define preferred methods Performance feedback that is clear & constant Credit actual performance
#4 - Test, Validate, Simulate Examples from Our Story: Thorough time studies Audit processes Catch the errors Hire the hacker Validate behind the scenes Obtain feedback from selectors
#5 - Share The Wealth Incentives must be meaningful Approximately one-fourth of our productivity savings were paid out in incentive pay Payback for this project was approximately 8 months
#6 Never Stop Growing Hi-lift incentives Repacking (value-added) group incentives Pick-path optimization Being proactive & responsive to ideas and concerns
On-Going Challenges Safety Accuracy Preferred methods Pallet-building (stacking) quality Turnover
Growing Ideas Producing Excellence