Starting A Warehouse Incentive Program

By offering incentives to warehouse staff, distributors can create warehouses that operate more productively, efficiently and accurately.

With labor management system as a part of the overall warehouse management system, distributors determine an average number of jobs to be performed each day and reward workers for going above and beyond the average expectations.

“[Workers] are not going to get a bonus for doing what [employers] expect them to do. But if they produce a certain percent more, they will get a significant bonus,” says Jon Schreibfeder, president, Effective Inventory Management Inc., Coppell, Texas.

Traditionally, warehouse incentive programs are geared towards individual rewards, but this model only fits large distribution centers where one employee performs the same task for an entire shift. For smaller operations — the majority of the jan/san distribution industry — this model needs adjusting. During any given shift, a worker may go from filling orders to restocking bins and back again to filling. For these scenarios, incentive programs can be set up on a departmental, or group, basis.

Distributors can divide tasks into two specific departments — incoming and outgoing — and require at least one worker stay in that department for the entire shift, says Schreibfeder. Incoming tasks include receiving, stocking and replenishing bins from bulk storage. Outgoing jobs include filling and shipping orders. Tracking tasks is easier if the warehouse is set up for barcode- or voice-based picking.

Workers are rewarded for exceeding their normal daily job expectations. As incentive, distributors can offer gift cards, vacation days or other prizes, but money works the best.

“In general for warehouse workers, cash is king,” says Steve Epner, founder of St. Louis-based Brown Smith Wallace Consulting Group and professor at St. Louis University.

To know what is considered exceptional performance, distributors must determine their baseline, i.e. how many tasks on average are filled per hour. Some labor management software programs come with built-in averages, but since no two warehouse operations are alike, it’s worth the time to calculate custom figures with the software.

Use numbers from a three-month period for accuracy since different days will be busier than others and shifts may be under- or overstaffed, says Schreibfeder. In addition, some tasks may be more difficult to perform and deserve more credit. For example, picking a 55-gallon drum of chemical requires a lot more time than pulling one mop head, says Schreibfeder.
After setting the baseline, distributors can then figure out the incentive structure. Schreibfeder recommends awarding bonuses if departments complete tasks exceeding 20 percent of the average. Another bonus is awarded at 30 percent and a final bonus is given at 40 percent.

While it sounds like workers will get rewarded if they work faster, that is not entirely true. Tasks must be completed correctly in order to receive a bonus.

“The whole incentive program is driven by a higher quality customer experience,” says Tom Schmid, vice president of operations for HP Products, Indianapolis. “We want to make sure we deliver the right product, in the right quantity, at the right time, to the right dock and to the right customer. Everything is pivotal around that.”

Since accuracy is so important, mistakes should hurt the worker’s bonus twice as much as doing the job right.

“If you get one credit for filling a line item on a stock order, a problem will subtract two credits,” says Schreibfeder. “That keeps people on their toes and provides self-checking.”

Departmental incentives can also be awarded based on shift performance. For example, whichever shift picks the most accurate orders will receive a bonus. This structure, too, works for even the smallest of companies. All that is needed is one distribution center and two shifts to set up a competition, says Epner.

“People love competition — as long as it is fair, it can get very motivating,” he adds.

HP Products uses a mix of group and individual incentives. In order to be eligible for the incentives, the entire shift must first meet an accuracy goal. If inventory is not accurate, no one shares in the bonus. After this hurdle, individual positions have their own criteria to meet in order to be rewarded.

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