Posts Tagged ‘Risk Avoidance’

Click on the image or the link below to download the March 2010 issue of Warehousing Forum, published by The Ackerman Company.  Warehousing Forum is a leading supply chain newsletter that is recognized around the world as a great resource for supply chain executives.  This award winning publication is dedicated to helping warehouse managers and their bosses improve productivity and manage more profitably with tips, comments and articles written by practicing professionals.  If you are in supply chain management at any level, you will want to subscribe to this publication.

The featured article in the March 2010 issue discusses critical components to keeping warehouses and distribution facilities union free, and was written by Curtis Greve.  Enjoy your free download of this thought leading publication.

Warehouse Forum March2010

Many Third Party Logistics Companies (3PL’s) churn through customers, repeating the same expensive customer churning cycle, year after year, customer after customer.  For these 3PL’s it is like Hyde says “One day you’re in, and the next day you’re out.”  There are companies that have the reputation in the market of changing their supply chain service provider every two or three years, when the contract expires.  Churning through providers is bad for companies and 3PL’s alike.  Anyone involved in this churn cycle will agree there are costs to changing providers and it is usually painful for everyone involved.

So what do some 3PL’s do that enable them to keep their customers for decades, while others can’t seem to keep their customers for more than a two or three year contract term?  So, why does it happen? Obviously there are some 3PL that just do a bad job and deserve to get fired.  However, there are many 3PL’s that do a great job, only to get an RFP package in the mail from their customer.  Why?

Answer: Communication

There is a three stage cycle of communications that a company and their 3PL repeatedly go through that determines whether their relationship will continue or if a bid package will be sent out.  If the cycle is recognized and acted upon, a 3PL could have extended relations with a company for years to come.  If any part of this cycle is ignored, it will eventually result in a change in operators.

The first stage is “Setting Expectations”.  In a new operation this is when the company outsourcing clearly expresses their goals and expectations to the 3PL.  Likewise, the 3PL makes commitment on the service that is to be provided, typically supported with level of service metrics, and other measurable performance data.  In the beginning of the relationship, these terms are captured in a contract.  Ongoing however, as exceptions, special projects and changes occur, each party must ensure both expectations and deliverables are communicated verbally and in writing.  The expectations and deliverables must be mutually understood and agreed to prior to any substantive action taking place.

The second stage of communications is “Ongoing Updates”.  Again, this is a dialogue of sorts between the solutions provider and the company that has outsourced to them.  It is not simply reporting metrics.  This is where many 3PL’s drop the ball.  This is where you have ongoing communications about what is going on in the operations on a day to day basis.  At a tactical level, there is generally a manager talking to a single point of contact every day about operational issues.  Just as important, there is a strategic conversation that must take place, at least monthly, between a senior executive from the 3PL and the executive decision maker.  These strategic discussions will ensure alignment between the two entities and it will also ensure expectations are clearly understood and performance is explained.

The third stage of communication is “Exception Management”.  This is often the most important stage in communications between a company and the 3PL.  Remember, companies outsource either because they don’t have the internal core competency required or because they want to focus their energies and resources on other critical parts of their business, or both.  Put simply, companies pay 3PL’s to lose sleep over their operations so the company’s executives don’t have to.  3PL’s get paid provide a level of expertise, identify issues before they get out of control and to do a really good job of managing the exceptions and minimizing the impact of operational issues.

In any complex operations “stuff” is going to happen.  It is how a 3PL deals with these irregularities that  separate best in class from the rest of the crowd.  A top quality service provider will be the one who identifies the issue or problem and informs the customer.  Not only are they the first to tell the customer, they do so with a plan in their pocket and recommendations for action at the ready.  Solution providers should be expected to act as a red flag mechanism, supported by a proactive team that will take steps to minimize risk and maximize profits.

Communications is key.  In the market place, a solutions provider is only as good as their ability to communicate in each of the three stages of communications.

If your business is a target of a union, you could be hiring “union plants” or “seeds” and not even be aware of it. Many business owners are shocked when they find out that it is perfectly legal for a person who is on a union’s payroll to apply for and get hired by a target company, for the sole purpose of organizing that company’s employees. The fact is that it happens every day.

If you are a business owner, how can you avoid hiring a union plant?

The first thing you should look at is your application.  Make sure that you have room for and require information, including wage rate, position, etc. for up to five previous employers.   At the bottom of the application you should have appropriate language that states the applicant can be fired if they lie on the application.  A good example of this would be:

Information to the applicant: References may be checked. If you have misrepresented or omitted any facts on this application, and are subsequently hired, you may be discharged from your job. You may make a written request for information derived from the checking of your references. If necessary for employment, you may be required to: supply your birth certificate or other proof of authorization to work in the US, have a physical examination and/or a drug test, or to sign a conflict of interest agreement and abide by its terms.

I understand and agree to the information shown above:

Signature:_________________________ Date:_________________

Once you have the completed application, you should do a background check to verify that the person was employed as stated on their application.  As you go through the applications, after the background checks are completed, watch outfor people who have significant gaps in employment, have worked for companies that had organized workers, and people who’s wages were 15% or higher than the job for which they are applying.

If you hire temporary workers, make sure that you have a good discussion with the temp agency.  The temp agency should use similar screening processes as well.  Many companies us temps as a way to “screen” applicants for long term employment.  If a temp is a “plant”, they won’t wait for full time status to get going on their real job of organizing and union card signing. 

Even if you are the target of a union, there are things you are not allowed to ask an applicant, some of topics include:

• Age
• Sexual orientation
• Religious affiliation
• Race or nationality

You should have a working knowledge of the following federal laws:

• Title VII of the Civil Rights Act of 1964, which covers the subject of discrimination or harassment on the basis of race, religion, sex or creed
• The Age Discrimination in Employment Act of 1967
• The Americans with Disabilities Act of 1990 
• The Family Medical Leave Act of 1993

Hiring is a critical part of every organization.  Getting a union organizer hired is one of the most effective union tactic to literally get their foot in the door.  You have to have good, prudent, hiring practices to ensure you don’t fan the flames of an aggressive union within your workforce.

January and February is the time of year when companies send out RFP’s (Request For Proposal) to solution providers. Most companies come up with a long list of providers to include in the first round, with hopes of culling the list down to the top three or four for the next round. Many companies target awarding the business in the first quarter so they they can get things up and going by the end of the second quarter, which will ensure they will be fully operational in the third quarter.

There are basically two approaches companies can take in selecting a third party to provide supply chain management functions. The first approach is the “Commodity Pricing” approach. This is used by companies that, for a number of reasons, are going to base everything solely on price. The lowest, BELIEVABLE price will get the deal.

Most of the Commodity Pricing RFP questions concern establishing credibility and presents in the market. Of course, the final version will be based on exacting specifications that require a firm price. Often the final RFP will have a completed contract that has to have pricing filled in and signed when returned for final review and selection by the buying company.

Companies that issue Commodity Pricing RFP’s don’t care how much is profit, what the provider’s cost is, or what assumptions were built in by the service provider. Their only concern is their cost. For some it could be a cost per unit, others look at total dollars out of pocket, and some ask for a monthly dollar amount for fixed expenses and a firm cost per unit based on volume.

This approach works great if the solution calls for a “commodity service” that is not customized, such as moving full trailers from one location to another. However, if customization is called for or if there is going to be significant variability based on uncontrollable conditions, the Commodity Priced approach can end in disaster for both the company and the provider.

The second approach to developing supply chain RFP’s is what we will call the “Relationship” approach. If you are going to outsource a supply chain function that requires flexibility on the part of the provider and the rate of variability is high, you want to select a provider that you trust, one that will work with you and is willing to agree to contract language that will ensure the providers interest are in alignment with your interests.

Relationship contracts are often volume based. Many times contacts are cost plus with a budget cap, based on a mutually agreed to set of assumptions. These contracts are much more complicated than a fixed priced agreement but they can result in much better service over the long haul. Watch out, though, contacts with assumptions and variability require a lot of effort and oversight to ensure everything is on the up and up. If you are outsourcing a function to an industry expert, you better have an internal expert working for you otherwise you could be taken to the cleaners.

VP’s of Procurement often hate “Relationship” RFP’s and the resulting contracts because they are “fuzzy” and require a significant amount of subject matter expertise.   Procurement folks also don’t like the RFP’s for “Relationship” providers because they usually have to ask a lot of questions about culture, customer experience, references, intellectual capacity, questions that get to the depth and breadth of the 3PL but don’t say much about how much it will cost.

Selecting a provider with the idea of building the proverbial Win / Win relationship usually comes down to the two senior guys getting along. The senior decision maker basically hires the senior solution provider based on trust that is developed during the vetting process.

So, if your company is going to outsource this year and you are putting together an RFP, you need to carefully think about what kind of service are you outsourcing. You should begin with the end in mind and ask yourself the following questions:

1. What type of RFP and contract is typical for the industry?
2. How much variability occurs that is out of our control? How predictable are the basic metrics?
3. How complex is the supply chain function that you are outsourcing?
4. Why are you outsourcing this function?  Flexibility? Lack of knowledge internally?  Tight resources?
5. What kind of additional “value adds” are you looking for the service provider to bring?
6. How long do you anticipate the contract and associated relationship to last?
7. What was the justification used to get approval for the project?
8. What risks can be controlled if included in the contact?  Shrinkage, mis-ships, worker’s comp, health insurance increases, union organizing efforts……

This short list of questions should help get the gray matter working.  The one important component in developing an RFP and later, a contract is to ensure that you have someone on your side of the table that is as knowledgeable as the supply chain solution provider sitting on the other side of the table.  If you are equally matched and you end up with a professional service provider that hits it out of the park, you will come to see outsourcing as a career building step second to none.

But remember, it all starts with the RFP.

Over the course of the next eight weeks, most consumer goods manufacturers will receive and process between 30% and 50% of this years total returns volume. How they deal with this tidal wave of volume and the reconciliation of credits with their retail customers will have a profound impact on their future relationships.

As the former head of Walmart’s reverse logistics division, I use to be amazed at how many manufacturers set themselves up for a fall. Many seemed to go out of their way to earn a poor reputation that would carry over to the spring when the buyers place their orders. Before I go on, I realize that Walmart was tough to deal with and overly demanding in many cases. However, as the head of all reverse logistics for Genco, the largest third processor of returns in the world, I saw the same behavior even for smaller, seemingly nicer retailers.

There are number of things a manufacturer can do to avoid taking a customer service hit resulting from how they deal with returns. Regardless of the retailer, manufacturers can set themselves up to actually improve their standing in the eyes of their retail customer, as opposed to becoming the target for ridicule and revenge come deal making time in the spring.

The biggest mistake that many manufacturers make is to shut down their factories and returns operations in January or February for maintenance and retooling. The impact of this on the retailer is huge. The reverse logistics pipeline gets backed up and that usually means damage rates go up, accuracy goes down, and tempers start to rise. If you must shut the factory down, fine, just don’t shut off the flow of returns during the most important time of the year.

Another area of consternation is around what “cost” to use when processing returns. This is perhaps the biggest area of debate between the retailers and manufacturers. To exacerbate the situation, arguments over cost usually land on the buyers desk, in spring, just when he is getting ready to negotiate the next year’s deals. Great timing.

To avoid this, the manufacturer should proactively address what cost basis will be used for returns, when they negotiate the terms of sales in the first place. Along with the cost basis for returns, manufacturers should ensure that the following impact items are clearly defined and agreed to:

• Consolidation fees if the retailer uses a return center
• Freight charges from movement of returns
• Product condition and packaging requirements
• Model or serial number ranges that are acceptable, if appropriate
• Restrictions on throwing the product away or selling it on the secondary market

Keep in mind that the above points of clarification and resulting financial terms will vary depending on if the item returned has been sold to a customer and returned or it is a guaranteed sale item.

Manufacturers should view returns as an opportunity to differentiate themselves to their customers.  “Easy to do business with”, does not mean “make bad business decisions”, or “negotiate a bad deal.”  If your sales person can engage the buyer upfront with a proactive approach to deal with the realities of selling products and dealing with returns, the overall relations benefits.

You better watch out, you better not cry.

You better watch out I’m telling you why.

OSHA’s coming to inspect you…………someday………soon

When the Secretary of Labor, Hilda Solis, took over the helm at the Department of Labor she famously declared “OSHA’s back in the enforcement business.”  David Michaels is now the new Assistant Secretary of Labor for Occupational Safety and Health and the question is “what should employers expect?”

In September of this year, Acting Assistant Secretary of Labor for Occupational Safety and Health, Jordan Barab said “Under the new administration, OSHA is heading back to the original intent of the OSH Act. We’re back in the enforcement business and we’re back in the standards-writing business.” The fact is that OSHA has become much more aggressive in issuing citations, increasing the characterization of the citations issued, as well as introducing recommendations for higher penalties.

What sould employers expect as Michaels takes over?

• A more agressive OSHA
• More citations issues by inspectors
• Citations that are more serious with bigger penalties
• Aggressive use of various enforcement tools.  For example, employers with multiple locations and who are part of larger corporate families should expect that OSHA will attempt to use its Enhanced Enforcement Program to attempt to issue more significant citations and penalties.

Given Mr. Michaels’s background, it would also not be surprising if OSHA were to increase the number of inspections that involve industrial hygiene and health issues with the corresponding increase in the number of citations based on health standards. Health-based programs such as respiratory protection, chemical hazard communication, and bloodborne pathogens will likely be targeted. There have also been indications that OSHA will increase its efforts to investigate and issue “ergonomics” citations and OSHA may attempt to promulgate an ergonomics standard.

Internal and outside audits of OSHA compliance can be an effective way of measuring current performance and ensuring sustained compliance in the future. Management commitment to OSHA compliance, an effective and up-to-date safety and health program, employee training, and audit trails that prove proper equipment is being provided and maintained are critical in this increased enforcement environment.

Employers should not only look to existing OSHA standards, but also consider industry standards and injury trends. Employers should also consider the role of safety committees as part of an overall compliance program and ensure that committee action or inaction is not increasing potential OSHA liabilities.

With the growing “OSHA Threat” out there, companies should ensure programs are in place to ensure they are in compliance and can show a real effort toward providing a safe working environment for their workforce.  Company executives should increase efforts to create an effective safety and health program that can withstand OSHA’s new and aggressive enforcement tactics. A critical part of this training should be training management in what to do when an OSHA inspector shows up at the door for an inspection.

How does Wall Street react when the word gets out that a publicly traded company lost a union election?

The National Bureau of Economic Research found an estimated abnormal post-election returns of about negative 10% in companies where unions won certification elections, measured over the two-year period following the union’s victory.

The study analyzed all publicly traded firms that had NLRB union elections between 1961 and 1999. The data-set includes 6,114 elections gleaned from a database of nearly 200,000 certification elections.

The study’s authors analyzed stock market returns for each company for the 24 months prior to the certification election event, and for another 24 months following the election. The pre-election data were used to develop a predictive model for post-election returns for two panels of companies: those in which the union won; and those where the union lost the certification election. The predictive model accurately tracked actual returns in both panels in the 24 months before the election, and is viewed as an excellent predictor of what returns would have been during the next 24 months had an election not occurred.

The study firms’ average returns are quite close to the predicted returns every month leading up to the election, for both the panel of firms where unions were victorious, as well as those where unions ultimately lost.

But at precisely the time of the election, the actual and predicted returns diverge for companies that lost elections. The pace of the value adjustment is slow, but steady and significant over the 24 months following the election.

In contrast, companies that beat the union continued to exhibit positive returns that track closely with the predicted values.
The amount of decline in union victory firms is correlated with the union margin of victory. The largest negative returns were experienced in companies in which unions won their elections by large margins. When unions win with greater than 60% of the vote, the cumulative return is -20 to -30%.

The Department of Labor announced it will hire an additional 250 people to help police employers and ensure they follow labor laws. This was in response to a recent study that showed rampant violations of virtually every labor law imaginable.

While on the surface the study is troubling, it should be noted that, a number of labor organizations and unions including the Teamsters and the SEIU were named advisers to the team of academics who conducted the study. This begs the question “Is this one more way for the Obama Administration to pay back big labor?

The study included surveying over 4,000 hourly workers in LA, Chicago, and New York to determine if their employers followed wage and hour laws. The study found, among other things that:

“Many employment and labor laws are regularly and systematically violated, impacting a significant part of the low-wage labor force in the nation’s largest cities….

…Fully 26 percent of workers in our sample were paid less than the legally required minimum wage ƒƒin the previous work week….

…Over a quarter of our respondents worked more than 40 hours during the previous week. Of ƒƒthose, 76 percent were not paid the legally required overtime rate by their employers….

…ƒƒNearly a quarter of the workers in our sample came in early and/or stayed late after their shift during the previous work week. Of these workers, 70 percent did not receive any pay at all for the work they performed outside of their regular shift….

…The large majority of our respondents (86 percent) worked enough consecutive hours to be ƒƒlegally entitled to at least one meal break during the previous week. Of these workers, more than two-thirds (69 percent) received no break at all, had their break shortened, were interrupted by their employer, or worked during the break—all of which constitute a violation of meal break law….

ƒƒ…We found that when workers complained about their working conditions or tried to organize a union, employers often responded by retaliating against them. Just as important, many workers never made complaints in the first place, often because they feared retaliation by their employer….

…One in five workers in our sample reported that they had made a complaint to their employer or ƒƒattempted to form a union in the last year. Of those, 43 percent experienced one or more forms of illegal retaliation from their employer or supervisor….”

This study will clearly be ammo for unions trying to organize low wage earners. Employers must ensure they obey all the laws and keep in mind that the penalty for not following these regulations could be very costly.

If you were a union organizer how would you pick your next target?  I would look at the stats below and figure it out from there.  As you will see, manufacturers with less than 50 employees have the highest union win rate and currently have the most union activity.

Many times, small business owners think they do not have to worry about union organizers.  The numbers below seem to indicate that isn’t the case. Recently, a group specializing in training union organizers published a study to help future organizers pick their targets.  Use these to help determine your risk of your business becoming a prime target for a union organizer:

Number Employees               <50             50 -99           100-199           200-500          >500

% Union Elections                 65%             16%                 10%                     6%              2%

% Union Wins                        58%             47%                40%                   38%            38%

What industries are unions targeting?  The same union organizer trainers also published this:

Industry     % Union Elections    % Union Wins

Business Svcs            6%                          65%

Health Care               16%                         63%

Entertainment          2%                           62%

Other Svcs                 8%                          61%

Construction             10%                         54%

Transportation          13%                          53%

Hotels                         2%                          51%

Trade                        12%                           50%

Telecom/Utils            6%                           49%

Manufacturing          25%                        41%

Like the old saying goes, the numbers don’t lie.  Where does your organization fall in the two sets of numbers above.  Are you prepared?  Are your leaders trained?  Have you told your employees what your stance on unions is?  Remember the Boy Scout Motto – Be Prepared.

Human Resources is one of the most important departments within any organization. HR responsibilities can range from policy administration, to hiring, to labor relations, benefits, and beyond. HR departments are like….. uh… noses.  Everyone has one but they can vary greatly.

My experience has been that there are three kinds of Human Resource Departments:

1. Bureaucratic – They are more interested in filling out the right form than they are helping people
2. Road Block – Their job is to stop management until they ask nicely and always remind everyone of the risk of a legal suit that the company will lose, through no fault of theirs.
3. Advocate – These HR professionals recognize that their job is to champion the cause of their employees and help management apply policies in a fair, firm, and consistent manner.

You often hear about the “culture” in a company.  The HR department has more to do with defining that culture than most think.  If they work WITH management to help them achieve their tactical and strategic goals, while filling their role as employee advocate, the culture will be norished and will thrive.

If Human Resources is contantly at odds with Operations or serves employees only by filing forms and effectively shutting the “open door”, the culture is undermined both in the board room and on the shop floor.

HR impacts every part of every organization.  If you have a “culture” issue in your company, look first at how the Human Resource Department interacts with the rest of the organization.  If there is no upward communications from the shop floor, or rampant law suits, or union organizing efforts going on, don’t ignore HR’s role in helping create the situation while on your way to fire the VP of Operations.

Human Resources must be your finger on the pulse of your people.  They have to maintain a balance between supporting management and “protecting” your employees from unfair decisions or work place abuse.  HR can be a company’s greatest tool or it’s weakest link.  Like everything else, it comes down to leadership.  If Human Resources is not walking the talk, you must take action or a ripple could turn into a tsunami.