White Paper

Seven Keys to Organizational Excellence

S www.Fortna.com

Fortna is proud to provide thought leadership that will enhance the supply chain communitys scope and understanding of business issues. Fortna, Inc. is a leader in designing, implementing and supporting complete supply chain solutions along with overall organizational performance. For additional information about how Fortna can assist your company achieve business goals, please call us at (800) Fortna-1 or visit our Web site: www.fortna.com

Tight Budgets.Uncertain Economy. Seven Keys to Organizational Excellence

Tighter budgetsUncertain economic trendsIncreasing labor costsSkyrocketing cost of fueland by the way, Increasing customer demand are all reasons why the need for efficient production and timely order fulfillment is more important than ever. This white paper will discuss how Organizational Excellence is the key to success even during tough times; leading the way to increased prosperity when our economic environment improves. Its not all about equipment and software, it is about sound business principles and how now is the time to implement these

Seven Keys to Organizational Excellence!

If you were to evaluate your distribution operations, how would they rank in the following categories? (1 = needs improvement, 2 = meeting expectations, 3 = exceeding expectations)? 1. 2. 3. 4. 5. 6. 7. 8. Productivity, throughput and labor cost Industry best practices Trained and cross-trained associates Morale, retention & recruiting Accurate individual performance metrics Management capability & skills Motivation of the work force Customer service goals 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3

It is very common to find that even highly effective operations have opportunities to improve and these are often masked by their strengths. For example, a company may be meeting its customer service goals, but not achieving budget, productivity or labor cost goals. To achieve Organizational Excellence, attention must be given to several factors that affect those managing and performing critical distribution tasks. Every effort should be made to enable management and associates to succeed, as their success is integral to the overall success of the company.

Seven Keys to Organizational Excellence

1. Organizational Development & Readiness Begin with the end in mind. For most companies, distribution operations have evolved over time vs. following an organizational design. This is particularly true with fast growing, successful companies. As such, it is common to find that many of the basic components of organizational design and structure are lacking. Associate to management staffing ratios are high. Job descriptions dont exist. Organization charts have holes. Documentation of process and procedures is thin. Programs and policies are not documented or communicated. Training and orientation programs are inconsistent. Proper and thorough organizational design requires effort and input from a variety of company stakeholders, including operations, human resources and finance (for policies regarding pay). Once policies and decisions regarding structure are developed, effective multi-channel communication is critical. 2. Lean Processes Streamline, simplify and standardize. Sound processes are the foundation of efficient distribution. Many companies have taken on TQM, Lean and Six Sigma initiatives in the past. Regardless of the method of improvement, inefficient work methods and non-value adding activities need to be minimized or eliminated. As systems and automation become more complicated, it is essential that processes continue to be evaluated and improved. Best practices need to be communicated to associates and they must be clear, concise and internalized. To increase ownership, consider conducting brainstorming sessions with associates, supervisors and managers to solicit their ideas many of which would never be otherwise identified. It is also important to document processes and procedures and create training guides to reinforce and educate the best practices. 3. Training & Cross-training It takes 30 days to establish a habit. Granted, many of todays DC operations are simple and straightforward (e.g. unloading and loading). However, technology in picking operations can be challenging to new associates. Training must include more than following procedures, but also the sequence of tasks and the method of performing the task. Best methods should be developed and shared with all associates, whether they are your top performers, new or low performers. Training should be performed by qualified trainers or front line supervision. Cross-training associates in other operations will enable management to utilize available talent as needed to effectively utilize labor hours across the facility. Be mindful that associates will need to occasionally work in the operations they are cross-trained, or they will lose proficiency. 4. Labor Management Software What is tracked - gets done. Productivity tracking for many companies is still done with a spreadsheet. The most common productivity metrics are departmental and facility-wide units-perhour, cost-per-unit, and direct/indirect labor hours. While these metrics are adequate for measuring overall performance, they do not track individual performance or effectiveness, nor do they allow for individual feedback. This level of visibility is imperative to effectively manage labor. In the past, collecting the data to track individual performance required self-declared time and production tracking via time cards, production sheets and reports. However, advances in technology, particularly by WMS vendors has significantly reduced the administrative burden and automated the collection of data. Most WMS vendors offer Labor Management Software (LMS) modules that are integrated into their WMS or an ERP. Having the detailed reports that provides managers with individual performance information enables them to in intervene and offer low performing associates training or discipline as required. Another benefit of accurate productivity tracking is that the information can be used to plan and balance staffing by operational area, making best use of available labor assets throughout the course of the day.

Benefits that can be achieved by becoming Organizationally Excellent

5. Labor Standards Everyone needs a goal. Engineered, multi-variable labor standards are an objective tool to measure individual or team-based performance and are necessary to accurate reflect work content in distribution operations. When setting performance goals, it is important that they are perceived by the associates as being realistic, fair and accurate. If they are not, it is common for associates to become discouraged which affects morale, productivity and retention. The use of multi-variable standards enables labor standards to be self adjusting to account for inevitable changes to product mix, product slotting or travel.
There are several methods of developing standards, including time & motion studies, MOST and master standard data (MSD). There are pros and cons to each method, but the output is the same standard allowed minutes (SAMs). SAMs are a time measurement for the tasks that are being performed the standard goal time for the operation. By developing accurate and fair standards, you can set one performance goal facility-wide: 100% Performance.

6. Leadership Skills Dont just manage, COACH. Most managers and supervisors are trained to manage the required administrative tasks and to reactively solve problems that occur. However, many managers are not well equipped to LEAD their people. Many hours of the day are spent on tracking order or wave status, attending meetings and answering email messages all from the convenience of their office. Floor presence is becoming a lost art form. The amount of time spent training, mentoring, motivating and coaching their associates is minimal. Goal setting and performance review is reserved for the annual review process. Managers need to lead, and they need to have daily contact with their people. They need to be knowledgeable of their operations at the process detail and of optimal operating conditions. They need to be vested in their associates performance and remove roadblocks to high performance. They need to be trained in soft skills, such as coaching techniques and change management. They need tools to effectively track performance and utilize the labor pool across the facility. They need to have their performance linked to their peoples performance. 7. Motivation There are 1001 ways to reward people. If you want to create a high performance environment, you will need to provide multiple forms of motivation as people are not all influenced in the same way. It is typical for people to put forth maximum effort when there is something in it for me. The three main forms of motivation include recognition, rewards and incentives and they are most effective when used together. Recognition programs can be public or personal, but require personal interaction between management and associate. This can include a pat on the back or being honored at a town hall meeting. Reward programs can be individual or team-based, and are usually characterized by give-aways, raffles, tickets, or company sponsored lunches. Incentive programs, also know as pay-for-performance motivate associates by paying them a bonus based on their performance against the standard. Incentive programs are typically self funding in that the labor savings generated by the increase in productivity is shared with associates. It is very common that the labor savings exceeds the incentive payments, creating a positive cash flow situation.

Summary
In summary, Organizational Excellence requires focus on the following key areas: 1. 2. 3. 4. 5. 6. 7. Organizational development and readiness Lean processes Training & cross-training Labor management software Labor standards Leadership Skills Motivation

It is important to understand that the sequence is critical. For example, you should not consider incentive pay systems without first developing labor standards and implementing a LMS. Similarly, you should not develop labor standards without first improving processes and training associates. Benefits that can be achieved by becoming Organizationally Excellent? Increased productivity (30-50% with incentives) Reduced labor cost (25-40%), including reduced overtime and temporaries Managements visibility of associate performance and overall effectiveness Extended operating capacity and throughput volume Improved morale, retention and recruiting effectiveness Increased management effectiveness knowledge and tools Self-motivated work force focused on performance Increased customer service levels

The potential labor savings are significant - often in the multi-million dollar range. The culture shift that occurs - high performing associates with positive attitudes - will affect many facets of the organization. To become Organizationally Excellent, just focus on the keys.

About Fortna

Fortna Driving Supply Chain Results Fortna, Inc. is a leader in designing, implementing and supporting complete supply chain solutions along with overall organizational performance. For additional information about how Fortna can assist your company achieve business goals, please call us at (800) Fortna-1 or visit our Web site: www.fortna.com

Atlanta, Georgia | Cleveland, Ohio | Nashville, Tennessee | Reading, Pennsylvania

2008 Fortna Inc. All rights reserved.