Founded in 1988, Staff Management | SMX is a recognized leader in comprehensive staffing solutions. They partner with mid-sized to Fortune 500 companies to deliver innovative onsite staffing solutions and measurable results to our manufacturing, fulfillment and distribution clients across North America.
Strategic planning can help you avoid surprises during your busiest season. Use this infographic as a quick-reference guide to work your way from a comprehensive review process to a successful ramp up.
Learn more about how we ramped up a client’s workforce by 600%. Click to download the case study today
These days, when it comes to finding and hiring warehouse workers, human resources managers like you are feeling the strain. At distribution and fulfillment centers, recruiters need to possess a higher level of ingenuity and skill than ever before. The expansion of ecommerce, coupled with historically low levels of unemployment, has produced a rising need for workers throughout the supply chain.
You need more warehouse workers, but you’re competing with other logistics companies, and even with different industries, for a shrinking pool of available talent in your area.
So how do you give your operation the edge? We interviewed our internal experts and combed available resources to put together this handy guide. Here’s how to attract warehouse workers to your distribution or fulfillment operation.
1) Start early, and make sure you’re headed in the right direction.
The best time to start recruiting for an open spot, of course, was yesterday, but today is the next best time, so don’t delay.
Denise Park, a recruitment manager at Staff Management | SMX, believes that timing is everything.
“Many people make a mistake by starting the recruitment process when it’s closer to the time frame for the labor requirements given that month by the distribution or fulfillment center,” says Park. “Unfortunately, the candidate pool has usually dwindled by then, so the recruiter winds up being reactive rather than proactive, which leaves the recruitment team grasping at straws for candidates.”
This lesson is fairly straightforward. You need to build a candidate pipeline, and that means you need to start recruiting right away. You should aim to have new warehouse workers on the job at least a couple weeks before your peak.
Still, that doesn’t mean you can afford to be hasty. It’s also important to start your recruitment drive by putting the right foot forward. When you create a job description, you can’t immediately assume job seekers will be on the same page as you.
“Be as specific as possible,” says Gurvinder Dhaliwal, who also works as a recruiting manager at Staff Management | SMX. “Not all warehouse work is the same. If you post for an ‘order picker,’ that can mean walking for 8 to 10 hours and picking items off of a shelf, or it could also mean operating a powered industrial truck (PIT), which reaches a height of 50 feet to pick items.”
In addition to instituting a formal referral program, informal social events can help facilitate referrals too.
“Perhaps hold an event for friends and families of current workers, such as an outdoor barbecue, where they can bring acquaintances to show them how great the workplace is and have a bite to eat,” says Dhaliwal.
The first benefit of using referrals to attract warehouse workers is information. You already have firsthand insight into the applicant’s character and work history.
Many job seekers in this field don’t have resumes detailing their experience, so a friend or family member of theirs, who knows the job, will be able to take an educated guess about whether or not their referral can do the work.
Additionally, if you do hire a new team member through a referral, the new worker will already know one of their colleagues, making them more likely to be engaged on the job.
Perhaps most importantly, your veteran worker will be able to give their referral an informed perspective about what makes your workplace or job offer stand out compared to other available jobs in the area. That brings us to our third tip.
3) Know your community and make your job offer distinct for the region.
This last tip is only possible if recruiting managers keep their ears to the ground in an effort to find out what the job seekers in their community are looking for.
The idea is that you don’t have to compete for warehouse workers solely using your wage rate. There are perks that make your workplace distinct when compared to other distribution or fulfillment centers, and when compared to job opportunities in other industries.
The key is to tailor those features to the needs of your community. At Staff Management | SMX, one of our special job offer benefits, which is an optional component of our onsite staffing solution, is flexible scheduling.
Sometimes you have to get creative too. If your distribution center is located somewhere that’s hard to access using public transit, providing a free shuttle for workers can help increase your candidate pool.
Once you understand the needs of the talent pool in your community, you’ll discover new opportunities for increasing the appeal of your job offer, and you’ll stand out when compared to other workplaces in the area.
Rise to the Recruiting Challenge
Recruiting for distribution and fulfillment centers can be uniquely challenging these days. More and more businesses are attempting to draw talent from a smaller pool of applicants than ever before. If you want to know how to attract warehouse workers to your company, there are some simple strategies you can follow.
You can stay ahead of the curve by enacting a proactive recruitment strategy that incorporates a robust referral program and provides tailored benefits that will appeal to workers in your community.
If you feel like your plate is full when it comes to recruiting warehouse workers to fill positions at your facility, our onsite staffing teams are experts at recruiting contingent workers, which will enable your operations to scale during your peak season as well as during other times of demand volatility.
For one client, we partnered with our fellow TrueBlue brands to roll out a comprehensive contingent workforce solution at 14 different distribution centers, and it only took us 4 months.
TrueBlue Names Jeff Dirks Chief Information and Technology Officer and Carl Schweihs President of PeopleManagement
TACOMA, Wash.–(BUSINESS WIRE)–TrueBlue, a global leader in specialized workforce solutions, announced new appointments to its senior executive team as the company works to redefine the staffing experience and underscore market leadership. High-tech industry veteran and innovator Jeff Dirks was named TrueBlue’s Chief Information and Technology Officer, overseeing the company’s digital transformation. Carl Schweihs, an accomplished business leader known for accelerating growth, will serve as the President of People Management, a core division of TrueBlue.
Dirks, who is replacing the retiring CTO Carole McCluskey, has spent nearly three decades developing cutting-edge technology solutions that help businesses and people. He will lead the expansion of TrueBlue’s AI-powered technologies that are bringing new possibilities to staffing and recruitment process outsourcing, including its popular JobStack and Affinix offerings.
Dirks is a military veteran and entrepreneur who spearheaded two successful tech startups before joining TrueBlue in 2018 as the Senior Vice President of Corporate Technology. In his new role, he oversees business product software and cloud R&D, analytics and data science, enterprise applications, cybersecurity, IT infrastructure services and cloud platform services (AWS) for TrueBlue’s global technology organization.
Carl Schweihs is replacing the departing president of PeopleManagement Jonathan Means. A collaborative leader with a proven track record of driving strong financial and operational performance, Schweihs will set the corporate direction for three distinct staffing businesses that make up PeopleManagement: Staff Management | SMX, SIMOS Insourcing Solutions and Centerline Drivers.
Schweihs previously served as TrueBlue’s Senior Vice President of Strategic Accounts – delivering the full spectrum of TrueBlue’s solutions to produce higher ROI for the world’s largest brands. Prior to this, he helped to drive strong business performance at TrueBlue, Seaton Corp. and Grant Thornton in a variety of financial leadership roles. He joined TrueBlue following its acquisition of Seaton Corp. in 2014.
“Jeff has deep experience and the right vision to lead TrueBlue’s efforts in transforming the traditional staffing model through technology innovation,” said Patrick Beharelle, CEO of TrueBlue. “Carl’s sharp business acumen and customer-centric approach will help us to strengthen our market penetration and growth. Both are forward-thinking, passionate leaders who will help us to deliver even more value for our clients, associates and business.”
TrueBlue (NYSE: TBI) is a leading provider of specialized workforce solutions that help clients achieve business growth and improve productivity. In 2018, the company connected approximately 730,000 people with work. TrueBlue’s PeopleReady segment offers industrial staffing services, PeopleManagement offers contingent and productivity-based on-site industrial staffing services, and PeopleScout offers recruitment process outsourcing (RPO) and managed service provider (MSP) solutions to a wide variety of industries. Learn more at www.trueblue.com.
Ditch Industrial-Age Thinking and Create Strategies to Power Growth in Staffing’s Largest Segment
With leading firms projecting revenue increases of 10% to 15% through a mix of organic growth and strategic acquisitions, industrial staffing has reaffirmed its position as the industry’s biggest segment in 2019.
But despite the good news, this is no time for complacency.
Data from The Manufacturing Institute and Society for Human Resource Management reveals why staffing leaders need to ditch outdated, industrial-age thinking: There are currently more than 500,000 manufacturing vacancies in the US and 27% of workers plan to retire over the next 10 years.
What’s worse, some staffing clients have been slow to recognize changes in the industrial labor market, notes Tom Landry, president of Allegiance Staffing.
“They continue to expect overnight delivery at low cost due to the ‘Amazon effect,’” he says.
Here’s an inside look at the so-called Amazon effect and other major forces of change across the industrial staffing landscape, and why sustaining growth calls for new ways of conducting business.
The Amazon Effect
After years of $10 pay rates and an excess labor supply, staffing clients got used to bringing on more people or using overtime to get their products out the door, Landry says. Some staffing clients have fallen into an unsustainable practice known as “headcount creep.”
As a case in point, Landry described a cell phone repair company that was using 310 people to do the work of 250 — until he showed them the math.
“They weren’t calculating the true cost of labor or turnover,” he says.
“They were spending a lot more than they thought they were because they were focused on headcount instead of labor efficiency and output.”
The good news is that some clients can be educated into embracing a new way of thinking. For example, TrueBlue is using predictive hiring models and data analysis to demonstrate how modifying shift schedules to accommodate part-time workers can expand the talent pool and help control costs, explains Jonathan Means, president of TrueBlue’s PeopleManagement division.
“To guard against unexpected talent shortfalls, we’re giving clients greater visibility into our candidate pipeline down to shift and line levels,” Means says.
Representatives from BelFlex Staffing Network have started attending client planning meetings in the hopes of convincing old-school hiring managers that when it comes to solutions, one size no longer fits all.
“We need clients who are open to creative ideas,” notes BelFlex President Tim Mueller.
In some markets, workers with in-demand skills have to be recruited away from competitors, making recruitment process outsourcing or direct hire a better solution than traditional temporary staffing for long-term positions.
“We’ve trained our clients to act the way they do,” Landry admits. “The problem is fixable but it’s going to take some doing.”
More Business, Fewer Clients
What happens when a staffing firm has more orders than it can fill? Fast-growing industrial firms are finding success from working more strategically with fewer clients and with more intention.
Historically, staffing execs have been hesitant to accept the notion that having fewer customers is a healthy way to sustain growth. But recruiting talent in today’s market requires a substantial financial commitment, collective effort and a true collaborative partnership.
In fact, the need to be closer to the customer has been the death knell of the transactional vendor-supplier relationship.
“We can’t get people fast enough,” explains Bob Baer, COO at BelFlex. “Based on the economics of the deal and the specific market conditions, we may be forced to turn away business, because failing to deliver can ruin your reputation.”
Increasingly, the number of clients a staffing firm services has nothing to do with sales prowess; rather, it is dictated by the market’s talent supply.
Candidates Want Careers, Not Jobs
Regardless of status, today’s candidates — even for temporary placements — want more than a paycheck. They expect a fulfilling career and a great place to work — and they don’t have to compromise.
Meeting their heightened expectations requires new models and approaches.
“We’ve adapted to the needs of candidates by focusing on career planning and showing them how an opportunity will advance their career and earning power two to three years down the road,” Baer explains.
Even temporary workers thoroughly research a company’s reputation and work environment before making a commitment. In some cases, staffing firms are offering onsite training as well as sign-on and completion bonuses to entice workers into accepting two- to three-month assignments, while shrewd clients are creating specific landing pages that cater to the career interests of contingent industrial workers.
Industrial staffing firms can’t just swoop into a market and expect to recruit 200 to 400 people. Staffing up for a company’s peak period now takes months of planning, relationship building and communication with candidates, Means says.
“You have to maintain a steady presence in the geography using a blend of social media and shoe leather,” he adds.
To that end, industrial staffing leaders are replacing traditional brick-and-mortar branches with digital recruiting strategies and recruiting centers. Forget cost per hire. Dedicated social media managers engage candidates with a steady flow of interesting content and job opportunities and measure success with cost-per-click or starts-per-click.
“We’re replacing paperwork with technology so our recruiters can spend more time talking with candidates,” Landry adds. “You can’t take the people out of the people business.”
Skill Development and Second Chances
Today, even picker/packers and forklift drivers need some degree of technology and computer skills. From light manufacturing to third-party logistics and e-commerce order fulfillment, the demand for tech-savvy blue-collar workers is far outstripping supply.
Many staffing firms are tackling the problem head-on by developing customized training curriculums in conjunction with community colleges, industry associations and other local employers.
State-of-the-art programs provide valuable certifications and college credits as well.
For example, BelFlex offers a free, 10-week logistics training course in Northern Kentucky in conjunction with Logistics, Inventory Management, Facilities Management, the Freestore Foodbank and Transportation and Gateway Community and Technical College. So far, the firm has placed 95% of program graduates. The company also sponsors a junior mentoring program that is designed to provide high school students with the skills and confidence needed to pursue their education and career goals after graduation.
But perhaps the biggest paradigm shift in industrial recruitment has been the willingness of staffing firms and their clients to hire people with criminal records. Struggling to find enough workers, many hiring managers have let go of long-held biases and agreed to give people convicted of nonviolent offenses a second chance … and they haven’t been disappointed.
“Many of the workers who come through these programs end up being the best workers in the plant,” Means says.
Original article written by Leslie Stevens-Huffman and published by Staffing Industry Analysts. Original article can be found here.
With a consistently low unemployment rate and a widening gap in manufacturing skills, the pressure is on to be as creative and skillful as possible to ramp up for peak season. As experts in the industry, we know the challenge you’re facing. Here are three best practices, based on our 30 years in the business, that can help you reach your peak season fill rate goals.
Timing Really is Everything
It’s never too early to start. It’s best practice to define your recruiting strategy and standardize your candidate criteria at least six months ahead of peak season. Then begin to energize your candidate pipeline by highlighting specific requirements that reinforce your strategy. When you are ready to hire, you’ll have a ready pool of applicants, with the right skill set, who are ready to get started right away.
Ask a Friend
Referrals from current employees can be an easily leveraged tactic for sourcing quality talent- especially during peak when you need high quality, eager staff with low potential turnover to supplement your existing workforce.
Organize your employee referral program around specific goals in order to maximize effectiveness. For example, increasing your referral conversions from 10 percent to 20 percent is a measurable, achievable goal that will direct program focus.
To help boost the amount of quality referrals you receive, offer incentives to employees for referring their friends and family. By doing so, you will cultivate an engaged referral culture that will benefit you during peak hiring season and beyond.
Location, Location, Location
Millennials and younger workers seek positions that offer perks beyond pay, like community involvement opportunities and flexible schedules. To discover the best fit, many job seekers attend local job fairs and events where they can explore a variety of positions available in their community.
Building authentic partnerships and actively engaging with local organizations and schools can help gain a better understanding of what job seekers value during peak hiring seasons in your area. With that knowledge, tailor incentives to the needs of your community and create flexible options and additional benefits. This will increase the appeal of your open positions, and more importantly, help you stand out from the competition.
For example, if your facility is located in a remote area, providing free transportation for workers can aid your recruiting efforts.
Partner with an Expert
Peak season recruiting is always challenging. As the market shifts, companies like yours need a strategic partner with insights that can help them adjust overall workforce strategy as well as recruit quality applicants in order to ensure smooth, efficient operations.
Staff Management | SMX has been connecting people and work for over 30 years. Our mission is to help our partners drive business growth and remain flexible while responding to increasing demands, variable operational costs and constant change. Specialization in contingent workforce strategy and implementation uniquely positions Staff Management | SMX at the crossroads of industry and workforce– allowing a deep understanding and holistic view of the way the world of work works.
5 Considerations to Navigate the Pitfalls of Strategic Partnerships
Whether your company is an established powerhouse looking for cutting edge tech, a highly specialized custom shop looking to merge products with a big-name brand or a start-up just looking to break through, strategic partnerships can benefit your company. They can also get complicated fast. Being aware of, and planning for, them before they arise is the simplest way to minimize and mitigate potential complications.
Here is a list of considerations to make before entering into a strategic partnership
Is alignment possible?
The ideal partnership scenario leverages the strengths of all parties involved. Companies must be able to match strengths and weaknesses such that strengths do not compete. Think beyond product and technology and consider culture, size, locations and other factors before entering final contracts.
Mitigation: Find a company with strengths that will compliment your company’s weaknesses.
Who owns what?
Strategic partnerships often involve cutting edge technology and valuable new processes, but who ultimately owns the fruits of your partnership? Contracts need to include very specific descriptions of ownership, including potential penalties in the event of nonfulfillment of specific contractual details. If your strategic partner doesn’t live up to their end of the agreement, they shouldn’t be able to reap its benefits.
Mitigation: Contracts need to be comprehensive and crystal clear.
Deter Employee migration
Strategic partnerships afford the opportunity to see up close how another organization works internally, but your employees will have the same chance. This may be good or bad, depending on the ways in which your company differs from the one you partner with. Even if you manage to bring on new talent, doing so may sour the partnership.
Mitigation: Include language in the contract to prevent employee migration and take steps to boost your own company culture and engagement.
Ramp up the right way
You’ve sorted out the production details and built a complex process. Now is the time to go to market. An untested manufacturing process places a premium on competent staffing. That staff will need to master your process as quickly as possible to maximize delivery of the partnership’s benefits.
Mitigation: Bring in a responsive staffing solution provider.
Renewal and reinvestment
Maybe your partnership has been a tremendous success and you want to keep it going or maybe you’ve identified areas of potential improvement. Regardless, partnerships are likely to require adjustment as time goes by, so including this consideration in your contract is key to easing the discomfort that comes with committing to anything. Remember, if they know there’s a designated time to bring up concerns, your strategic partner will be as pleased with the contract as you.
Mitigation: Agree upon a renegotiation window with your strategic partner.
Extended from just a day to the entire month of October, Manufacturing Month is a celebration designed to address common misperceptions about manufacturing by giving manufacturers an opportunity to open their doors and show what manufacturing is – and what it isn’t. More information about the month can be found here.
At several manufacturing sites across the country this month, local high school students are invited to take facility tours, listen to panel discussions with workers, and learn about the possibility of a job in the manufacturing industry. By engaging with the public, especially young people, manufacturers hope to get Americans excited about the skilled jobs the manufacturing industry has to offer.
Manufacturing remains the lifeblood of communities across America—providing reliable, skilled work. Staff Management | SMX is proud to be a partner to industry. From helping young people access their first jobs to getting skilled, experienced workers placed in jobs and with employers they love, Staff Management | SMX is living our mission of connecting people with work.
Join with us in celebrating Manufacturing Month 2018! Click here to find a celebration in your area.
Cybersecurity for Industrial Control Systems: Attacks Are Everyone’s Concern
In “The Third Industrial Revolution” American economic and social theorist Jeremy Rifkin detailed how modern communication and new ways of generating and distributing energy had converged to produce fundamental economic change.
Unfortunately, one such change, the widespread use of computer systems to control manufacturing processes, has left many manufacturers vulnerable to cyberattack because they can be operated via the Internet.
Stuxnet, 2010: malware caused industrial machinery in Iranian nuclear facilities to malfunction, resulting in the destruction of between 900 and 1,000 centerfuges.
BlackEnergy, 2014: a trojan, an attack strategy that involved using malware disguised as regular software, specifically targeted ICSs to conduct cyber espionage and destroy information.
Industroyer aka Crashoverride, 2016: malware cut electricity to 20 percent of the city of Kiev, Ukraine for an hour. Industroyer provided attackers with multiple backdoors to execute command and control of ICSs and included code to erase registry keys and overwrite files, making recovery extremely difficult.
WannaCry, 2017: access to anything from data to an entire computer system is blocked until money is paid to the hacker in this kind of attack, using viruses called ransomware. A new version of WannaCry recently caused a temporary shutdown of chip production facilities and adversely affected 10,000 computers at the Taiwanese Semiconductor Manufacturing Company.
ICS Cyberattacks: Are you at risk?
Some cyberattacks on ICSs are accidental, as ICS’s inherent complexity leaves them susceptible to damage from simple negligence or over-operation. Intentional attacks can be launched externally by hackers or internally by improperly screened, disgruntled employees with access to ICSs or their security systems.
Because ICSs are built upon commercial technology that is widely available, hackers often exploit key vulnerabilities to launch destructive external attacks. These hackers exploit both software weaknesses they discover on their own and known vulnerabilities left exploitable when patches and updates are not made in a timely manner.
Finally, while it is virtually inevitable that IIoT advancement will continue to push ICS complexity, humans will always be the key piece of the puzzle. How manufacturing, fulfillment and distribution professionals staff their facilities will remain just as important as their ICS software. No matter how complex the system at your facility, your staffing provider should be able to design and implement a workforce solution hyper-tailored to fit your organization’s specific needs.
Service-Level Agreement Best Practices for Logistics Leaders
Evaluation is the first step in implementing a lean sourcing process, the goal of which is to optimize profitability by minimizing waste and maximizing efficiency. Only by evaluating existing processes, can logistics leaders be sure about what their company and facilities already do well, in order to outsource anything else with a service-level agreement (SLA).
What is an SLA?
In the simplest terms, an SLA is a contractual agreement between two parties, traditionally a company and a vendor, that specifically details the following:
The clearest benefit of an SLA is the ease that comes with full transparency. By setting a feedback schedule, an SLA ensures regular communication. Establishing priorities, needs and goals heads off potential points of difficulty from the outset. This equalization of expectations along a baseline allows both parties a reference when KPIs are evaluated to measure the success of the SLA.
Critically, SLAs guarantee understanding by establishing how KPIs are to be measured and lay out what each party can expect should any portion of their responsibilities be left incomplete. A comprehensive SLA will include both breach-of-contract and renegotiation clauses, to outline how any possible outcome is to be handled: business relationships can be adjusted or simply reconfirmed without change.
What are the finer points of an SLA?
While their clarity and balance are what make SLAs easy to use, their contractual power comes from inclusion of an indemnity clause. Because “indemnity” means payment, an indemnity clause in an SLA describes the conditions under which compensation is to be paid to either party because of a situation like the example below:
A manufacturer conducts an audit of all internal processes.
The audit reveals consistent failure to meet a specific production target is due to suboptimal attendance.
To fix the problem, the manufacturer decides to outsource production their workforce management.
The manufacturer and vendor agree to the following conditions in an SLA.
Amount: at least 95 percent of requested workers must turn up daily
Delivery: workers must be thoroughly screened, trained and provided with the proper clothing to ensure a safe workplace
The vendor succeeds in meeting these objectives.
The SLA indemnity clause provides for a cash incentive for meeting the SLA’s objectives.
The indemnity clause functions as a guarantee that the terms of the contract will be upheld by incentivizing success and penalizing failure. This sort of arrangement drives the most key function of the lean process, by incentivizing success a vendor is encouraged to do better what they already do best, and the company that contracts with them thus receives an excellent product on time and in exactly the right amount.
Another fine point of SLAs regards transferability. It’s important to include a clause in your SLA indicating what will happen in the event the ownership of your vendor changes, to say nothing of your own company’s status. Your vendor might be sold by a parent company or bought out, and it’s likely the new owners will want to at least review the terms of your SLA to look for ways they might benefit from adjusting it. Getting those terms hammered out in the original contract is a mark of solid planning.
What is SLA success and how do you measure it?
Generally, you might assume an SLA is successful if the vendor fulfills their end of the contract by providing their service(s), but those criteria are too simplistic. Remember that a guiding principle of lean sourcing is synergy, one form this should take is construction of long-term relationships both with vendors as well as customers. This means the real success of any SLA involves a broader up as well as downstream picture of outcome. Use the questions below as a model to gauge your SLA’s success.
Did your customer(s) benefit because of the SLA?
Did your company benefit because of the SLA?
Did the vendor benefit because of the SLA?
Was the SLA renewed?
If the SLA was renewed, are the new terms likely to produce more benefit for your customers, your company and the vendor?
Specifically, to measure whether the terms of an SLA were fulfilled or not requires including precise language in the contract concerning production of goods and provision of services. If you contracted for a service, was it reliably available when you needed it to be? If you contracted for workers, was the vendor able to meet your attendance targets? Regardless of other concerns, were the terms of the SLA surrounding the security of your proprietary information followed correctly and reliably?
What’s in a metric?
At its most fundamental level, any SLA will need to include a description of how provision of the points of the contract are to be measured. Mark Twain famously quipped, “There are three kinds of lies: lies, damn lies, and statistics.” Likewise, companies and the individuals who work for them can have wildly different ideas about which numbers reveal the most important information.
Different ideas can lead to misunderstandings if not mitigated in advance by the gist of the SLA, which should carefully point out that metrics should:
Be easily collected and understood
Set a baseline
Incentivize the performance you desire from your vendor
Reflect only factors under the vendor’s direct control
Most importantly, while a vendor cannot be expected to succeed where they do not have control, be careful that metrics are not set up to let vendors manipulate them in any way they choose. It is critical your SLA walk the fine line between providing your vendor with too much leeway and tying their hands behind their back. Your vendor shouldn’t be able to justify success in any way they want, but they should still be able to make their case.
Service Credits Versus Earn Backs
Being the customer under your SLA, you will want to include the means to pay less for service which is unsatisfactory; these are typically referred to as service credits. Remember that incentivizing desired performance is a key element of SLAs, and inclusion of service credits is an excellent way to make sure you get the most out of your SLA.
However, it has become increasingly common for vendors to hedge losses by including language mitigating service credits, these are called earn backs. Simply put, earn backs allow vendors to cancel service credits by fulfilling some other commitment included in the SLA, such as demonstrating performance beyond criteria stipulated in the agreement like in the example below:
According to your SLA, your vendor is required to provide between 95 and 105 percent of a specific component at least 95 percent of the time.
One month, metrics show the vendor has allowed provision to fall below 90 percent.
The SLA dictates that your company therefore is required to pay a lesser percentage of the mandated monthly payment for services rendered, effectively meaning the vendor’s failure has generated a service credit.
The vendor adjusts their practices and over the following four months manages to deliver between 99 and 100 percent of the ordered components more than 99 percent of the time.
The SLA also includes language which states each month the vendor can meet just such criteria, they are entitled to cancel one service credit generated in that fiscal year.
This essentially means the vendor earns back payment in full of previous monthly payments which were previously reduced due to poor performance by outperforming the criteria of the SLA in subsequent months.
With the End Comes Renewal
It is important to remember that the lean process is a cyclical one. Lean isn’t about setting up a strategy, making sure it plays out correctly and then moving on to something else, lean is about repeating and improving with each pass of the process. Therefore, when your SLA comes up for renewal, take time to reflect on how your business has evolved over the course of the previous year, and update the terms of the agreement to match.
Lean Sourcing: Proactive Preparation, Effective Execution and Intelligent Iteration
When looking for strategies to eliminate waste, drive efficiency and create value, becoming overwhelmed can be a common problem, particularly for manufacturing procurement leaders.
As such, let’s start with a simple idea about mastering the complex processes necessary to approach lean sourcing. One way to understand the connection between Kendo, the Japanese art of sword fighting, and the simplicity of Zen is to see absorbing knowledge and mastering practice as cyclical. Accept that the first lesson is the same as the last, that the least and most complicated lessons are one and the same, and you understand the key to lean thinking: continuous improvement.
The first allows for production to cease immediately when a problem arises, minimizing waste. The second allows for the amount of parts produced to match as closely as possible the amount required further down the line. Thus, lean too is a cycle of mastery: minimize waste, maximize value, repeat.
Further, each step of the process mirrors the whole, which is to say that each step should be repeated consistently while the process itself recycles. At the core of lean lies the idea that while perfection is the goal, arriving at that perfection is inherently impossible: there is always room for improvement.
Finally, while theory is important, practice, how to go about minimizing waste and maximizing value, is what you really want to know. Therefore, we take a deep dive into each step outlined below to facilitate practical application as much as possible, and finish with some examples of lean sourcing in action.
Traditional Approaches to Sourcing are Obsolete
In the simplest terms, sourcing is defined as the process of finding suppliers of goods or services, but the methods that have been traditionally relied upon are woefully out of date.
A lean approach is like an exercise in proactively creating a gestalt situation: once complete, the full scope of your strategy will be more valuable than the sum of its individual parts. While each element may contribute a certain measure of savings, those elements will also need to work seamlessly in combination with one another; they ought to be replaced with others if they don’t.
Simply, a short-term mindset can bring you savings today that may result in losses later, if individual steps are not linked to maximize value together across your entire process. With specific regard to sourcing, instead of just looking for the lowest possible price or greatest possible savings, the goal should be to find the highest possible value each step can provide to a total whole.
Below we have outlined the ways in which a traditional sourcing process can be shifted to implement lean efficiency to deliver ROI.
Reality Check: any lean strategy must begin with a detailed study of all current practices to identify strengths to be maximized and weaknesses to eliminated.
Buying in bulk: shift your mindset from one of simply buying the largest quantity possible to drive mass discount toward looking to maximize quality against investment.
Building relationships: a lean approach is not negotiating for the best price for the company, but looking to collaborate and develop long-term partnerships that pay off over time, the keys being compromise and symbiosis.
Efficiency in everything: the goal of the lean approach is maximization of production with the barest minimum amount of supply.
Proactivity: instead of waiting for problems to arise to come up with solutions, the lean approach focuses on constantly innovating so that problems can be avoided ahead of time, before they arise.
Repetition: it cannot be said enough that the goal of any lean process should be its perpetuation; there is always a new, cheaper supplier, a cleaner, simpler process and a different way of looking at an old problem.
Adapting Lean Principles to Sourcing
All lean processes begin with an evaluation of current processes to first identify valueless steps that can be eliminated and then adjust the necessary steps which remain to save both time and money. Externally, contracts with any vendors found to be providing low value should be canceled, as fewer vendors means less invoicing and paperwork, and fewer deliveries. Contracting with fewer vendors will also reduce the number of relationships you manage, saving time and effort.
Evaluation should also be focused internally on figuring out how to consolidate all like activities and processes across the full breadth of your business. Once you know how you are going to eliminate waste and consolidate processes, the savings of doing so will be easy to calculate; repeat this process to further drive savings.
The next step in a lean strategy is to standardize all processes, policies and practices identified as similar across all departments. While implementation may take time and adjustment may be difficult, standardization will save in the long term on training and will increase inter-departmental cooperation, synergizing operations. Like interchangeable parts in a machine, standardization across your entire facility will simplify operations and make future changes easier to implement more quickly as you repeat the full lean process over and again.
Standardization will also assist in alignment of goals across all departments, the next step of the lean process. Competing goals waste time and individual departmental successes detract from overall success when goals are different. Further, competing goals, which can pit departments against each other, often result in inefficiencies when departments dependent upon each other’s productivity are not aligned. Such misalignment can lead to out of sync delivery of products, which must move between departments according to your production process. Eliminating this type of waste is precisely what lean seeks to accomplish.
Aligning goals will also mitigate competition between departments that otherwise myopically view their own successes as more important than the overall production goals of the company. Remember that inter-departmental competition can be the wellspring of inefficiency and potentially lead to the kind of animosity that fractures a workforce, none of which results in smooth, profitable production.
Your initial evaluation should have identified the core strengths on which to focus, such that everything else can be outsourced. Whereas internal resources seem to do better in the short term, vendors often deliver better results in the long term. The reason for this should be obvious as they too are focusing on their core strengths, which means delivering you a better product than your own company or any of their competitors can at the lowest possible price.
Technology enters the picture in the next step, as using a supply chain management (SCM) software package to share data upstream with suppliers and downstream with clients will drive collaboration between your company and those you partner with. Increased synergy of supply and demand among all parties involved should be focused on the core goal of lean: decreasing waste while increasing profitability. This is achieved by decreasing inventory and improving fulfillment rates, both of which will increase customer satisfaction. Finally, the ultimate result of collaboration is the positive affect on product availability at point of purchase, driving customer satisfaction even further.
Last, but far from least, the lean process involves building and nurturing a culture of continuous improvement across all departments of your facility, company and business. Such a culture comes at the cost of total support from all members of every team you employ. While such a potential shift in culture may be difficult for some employees, particularly those who’ve been with your company the longest, ultimately the goal of its adoption should be to build, reinforce and maintain a team ethic across departments. This unified team spirit will result in increased loyalty to the company, providing employees with an increased sense of worth, fulfillment and happiness, and a happy employee is a productive employee.
The Benefits of a Lean Sourcing Process
No description of this kind of a process would be complete without a practical example, and for that we need look no further than some of the biggest names in the US manufacturing industry today.
In 2003, John Deere invested 100 million dollars to move from mass manufacturing to lean manufacturing. The process began with an evaluation of the company’s core business, to determine what parts they should continue to make in house and which should be outsourced. This initial process allowed the company to move from a 64,000-square foot transfer line production model to one centered on machining cells that takes up only 8,000 square feet.
Coca Cola’s lean production model focuses on local sourcing, ensuring 95 percent of the drinks it produces in Europe are sold in the same country their made in. Short supply chains and distribution channels minimize the time necessary to make and ship their products, meaning Coca Cola drinks are often consumed within 48 hours of its being produced in Europe.
The founder of Ford Motor Company, Henry Ford, invested his company in service and efficiency. While other car makers at the time focused on quick profits by selling expensive cars requiring costly replacement parts, Ford knew selling cheaper cars that used interchangeable parts would allow him to build a solid base of loyal customers. Ford also famously worked to reduce what he called “waste motion,” by implementing the efficiencies inherent to technological improvements in his factories.
Much more recently, Intel implemented lean principles at its chip factory in Leixlip, Ireland, to simplify a previously costly and time-consuming production process involving 25 production lines that each included as many as 300 steps. By optimizing production volumes, Intel was able to shorten the amount of time they needed to produce a chip from more than three months to only 10 days.
To maximize efficiency and productivity enterprise-wise, the Caterpillar Production System was initiated in 2005. Caterpillar knew from the beginning that limiting lean implementation to their factories would mean other departments, such as design, logistics and quality control, would miss out on what was otherwise designed to be a plan of company-wide achievement. What followed was dramatic success, as revenue reached $51 billion by 2008, while the plan had set a sales goal of $50 billion for 2010.