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Managing production targets - Hilton HPS

A number of retail companies have been called out recently about their approach to managing production targets in their logistics operations and the way that they are perceived by the employees who are being assessed. Amazon are the latest company to be challenged on their performance management practices, with a report from Organise.org.uk based on a survey of employees having been released last week.
So just what do we mean by ‘production targets’? Broadly speaking they fit into 3 categories. This short summary will provide an explanation and some pros and cons associated with each one.

I think it’s important to understand the differences in methodology as the approach in each case will have a significant bearing on the guidelines that should be established when performance management processes are defined. Workforce engagement can be improved if the methodology and the guidelines are properly aligned, but problems will eventually be exposed if they are not. Note that I cannot comment specifically on Amazon as I do not have enough knowledge of their internal processes.

Category 1 – Standard minute values
This is the traditional and well-established way to evaluate the correct time that it takes to complete a task. Work study engineers are trained and, by examination, become qualified in the techniques of work measurement. The specialist knowledge used in the process includes;
• Identifying the appropriate unit of measure (or unit of output)
• Breaking tasks down into elements by categories of work type, for example transport, manual handling, machine operation
• Assessing the skill level required to achieve defined quality standards
• Assessing the operatives pace of work using the BSI rating scale (75-125) for performance
• Applying frequencies to individual elements of a task
• Applying allowances for rest and contingency time

Critically, the work study engineer is accountable for the accuracy of the standard minute value. During my formative years in this role I had many instances where a Trade Union would be called in to provide an independent check on labour standards that were in dispute.

The main drawback of this method is that the standard is calculated on the work that is being observed. This presents a number of risks, and so the work study engineer has to take a series of studies to provide a sample size large enough to cover all eventualities.

Even after capturing this data at one point in time there is a risk that at some point in the future a process change somewhere along the production line will have an impact on task times. Seasonal changes to product mixes or general changes in customer demand or the product range can also impact on task times.

In normal circumstances, deciding to use standard minute values as production targets means implementing a level of governance that defines a commitment to updating and maintaining those standards on a regular basis, using professional services, or employing a work study engineer.

In my experience the benefits of this approach always far outweigh the costs. The level of performance of operatives working in repetitive and high volume activity has a significant impact on the hours used in the business. As the table below shows, knowing what the standard is and being able to manage performance on that basis provides significant opportunity to reduce operating hours, in this case by around 15%.

Volume Units per week Single task time (standard minute value) Day rate performance (no standards) Total hours required at day rate Performance on standards Total hours required managing performance
100000 1.00 75% 2221 90% 1851

Category 2 – Engineered Labour Standards
Not long after the introduction of Warehouse Management Systems, came the possibility of implementing Labour Management Systems.

WMS uses systematic capability to create tasks in the most efficient sequence and in manageable batches. It uses the layout of the warehouse and storage locations to evaluate the routes taken, time stamps the events and links each task completed to the user ID and equipment type. LMS is designed to use standard minute values associated with individual elements of tasks to calculate the appropriate labour standard for any combination, or batch, of tasks.

For example, a category 1 labour standard for any batch of picks will be an average of all the observations taken over a period of time. LMS works from the WMS to provide a unique labour standard for every batch based on the exact amount of travel, the number of handling units and the range of picks in each batch.

This process, despite its obvious advantages, has an added cost (the system itself) and still requires an amount of maintenance. Labour standards for elements of work still need to be maintained and system configurations need to be updated. Another issue is that most operating models include a proportion of manual processes that are off-system. Applying a fair performance management process across all activities requires a combination of observed standards and engineered standards. The question is whether the LMS costs can be justified, and experience suggests that this is a significant barrier to entry.

Category 3 – Production targets (not subject to governance)
This is a wide ranging category as it can include any performance management practice that incorporates the setting of a target for units of output but does not have a rigorous process of governance to support it. In today’s non-unionised environments this model has become much more prevalent.

Production targets may be based on;
• historical information that is derived from manual records
• some form of evaluation of systematic records of task times
• aligning either of the above with other business targets related to overall operating performance

Over recent times the amount of specialist work study expertise has declined, fewer numbers are being trained and businesses may find it difficult to find the right resources, or feel that the costs of bringing that resource in are too expensive. Over the same time period systematic data has become much more obtainable. Also, many more people have data management skills and access to data analysis tools.

These factors have encouraged some businesses to feel that they can performance manage operatives adequately using existing resources to set production targets, and not invest in the development of in-house work study knowledge and expertise.

Summary
Governance is a critical aspect of any performance management system, whether the basis of your production targets is derived from any of the 3 categories I have identified. In order to drive up employee engagement the process has to conform to defined quality standards and be open to scrutiny in order to be applied fairly. It should be subject to the same internal audit processes that are applied across the business.

This governance has to be tailored according to the management system in place and failing to get this balance right means risking engagement and a potential for the type of exposure that Amazon is facing now.