Relationships Go Beyond Metrics

“We do have facility audit checklists,” explains Montgomery. “We will assign actual aisles to employees so that, again, you get a sense of ownership. I think you're only as successful as the lowest paid person out there on the floor understanding your overall objectives. And then also, I'm a firm believer that people don't come to work to do a bad job. But if they're not heard and they don't feel like they're a part of the process, and they don't feel like they have some ownership, then some stagnation might result.”

A simple quality check or culture barometer Montgomery employs isn't likely to apppear on most checklists. “I have facilities from Santiago, Chile to the Bay area in San Francisco, and the first thing I always do when I visit one of those facilities is I walk into the restrooms. Not the management restrooms, the employee restrooms out on the floor. You'd be surprised the cleanliness of that restroom and how that gives you an overall impression of how the entire facility is run. It's the pride that local people have in their facility themselves that is showing.”

The audit checklist is important because it drives performance through the things it measures. It should also drive compensation through incentives because it provides a benchmark for improvement. Ask to see the check list. It should cover security as well as safety and sanitation. And, as far as metrics, “If I were a potential client, I wouldn't want to have to ask for that, I'd want to see those posted. At every one of our facilities you have a metric board, basically at the entrance to the break room or the entrance to the office area so it's visible to all of the employees as they enter and exit for their breaks.” That's where APLL posts productivity and accident-free days or the results of the gain share program, inventory accuracy, outbound accuracy etc. It gives everyone a sense of ownership of the goals and the results.

Compensation is then a matter of a little creativity. Montgomery describes “safety bingo” where prizes are given out for accident-free days. “Each day you don't have an accident there's a bingo number given out to the employees. Depending on the length of accident-free period, the prizes get bigger. I've got a facility that's going on two years accident free. We're giving away flat screen TVs with our safety bingo. So those prizes escalate the longer the facility is accident free.”

Safety is only one measure and one area for employees to realize incentives. Gainshare incentive programs are funded by productivity increases. These gainshare programs can operate in any contract environment, cost plus, fixed and variable or totally variable, Montgomery reiteraes. When you gain productivity you're going to eliminate labor cost, he says. “And then typically what we do is, the employees will receive a lion's share of that productivity savings in dollars.” In a total variable environment where the 3PL's taking all of the risk, they're typically going to receive the other portion of that cost saving. “In a fixed and variable or a cost plus environment, we will typically share those productivity savings with the customer. Because they are sharing in some of the risk by having some of the fixed cost,” says Montgomery.

But a key to ownership of the continuous improvement process is to put that reward where the improvement is achieved. Montgomery explains. If a facility generated $10,000 in gainsharing dollars for the month, $2,500 of it might go to the 3PL corporation, $2,500 to the customer and $5,000 to the employees. But that $5,000 would be split into five categories. In other words, one category would be injury free. And if you had an injury for that month, that $1,000 would not be paid to the employees. The next category might be inventory accuracy. You have to hit the quality as well as your productivity to get that payout.

Most of the incentives would be run by true productivity dollars, but if there's an incentive from the user on a certain metric, that might not be productivity dollars. “Again, I'm such a strong believer that you're only as successful as the lowest paid person in the facility and empowering them, so we would set that incentive up.”

Montgomery sums up on incentives, saying that success goes to the relationship again and making sure both parties understand what's critical and what's not. Depending on the industry, some things may be more critical than others. And industry-specific factors aren't the only drivers. Montgomery notes that even some long-term users will say, “You guys are just doing great with the blocking and tackling with the facility, but I'm getting a lot of pressure from my board to think out of the box and find savings.”

Enter lean logistics. Under a lean program APLL will put a team together. That team is not just the local general manager at the facility, says Montgomery, it includes the hourly people out on the floor that are actually doing the job. “That's really where a lot of the ideas for savings come from,” he points out. “And in addition to that, we will train lean employees for the user as well — at their site.” The real win on lean savings comes when it was a project team with lean members from both the user and the 3PL.

Often, the 3PL won't have the authority to make changes that can produce savings and the user will need to be involved. That's where the lean-trained people at the user's company are really important. Communication is vital, and having everyone speaking the same lean language helps.

In fact, communication is a universal need when it comes to keeping an outsource relationship working. Montgomery suggests taking some time outside the facility and corporate setting to build a little more into the relationship. It helps with the communication and, “Pre and post-contract, I think where most failures come, and I know it sounds simple, but it is lack of communication. It is so critical that the two companies are communicating clearly and you don't have somebody on the supplier side or on the 3PL side that has an agenda that's not understood by both parties.”

Quarterly business reviews are a formal tool APLL uses to give an opportunity to walk through all the metrics and incentive programs. The reviews are written into the contract, and typically one of those quarterly reviews requires executive management attendance from both sides. “That way you make sure communication is clear. But to me that's the biggest place that the relationships go sour is that open line of communication is not kept open and the objectives are not made clear by both sides.”

If there are two things that remain consistent in Montgomery's discussions of outsourced relationships, they are contact and communication. One ensures everyone has a sense of what is the current, the other ensures both sides understand the desired state and how it will be achieved. And when that is working, there is less of an “us and them” attitude and more a sense of a group striving for a common goal.