The REAL cost of pick rate bonuses when they're not managed safely
24th January 2017
When it comes to improving employee motivation in the warehouse, pick rate bonuses are the top choice for increasing productivity, efficiency and profits. But, without safe management, the resulting rush can cost a business much more than additional payments to employees.
Working hard, long shifts in a warehouse, carrying out repetitive and sometimes tedious tasks, can quickly take its toll on your forklift operators… So it only makes sense that many employers offer financial incentives to motivate the workforce, keep it focused and ensure it’s giving its best.
But pick-rate bonuses – particularly those that cover whole sites and include management – need to be handled carefully. If the result is an incentive to cut corners, overlook best practice and ignore the risks in the name of getting the job done quickly, then the real costs are likely to dwarf the bonus payments themselves.
Let's look at the real costs when lift truck operators work at panic pace:
1. Dropped pallets
When staff get careless, it's realistic to expect an increase in pallet handling accidents. The cost of writing off a pallet of stock will vary enormously between sites. However, some factors always remain: expensive time lost to cleanup and restocking, an entire aisle being out of commission, and re-site and recycling costs. Each dropped pallet costs a four-figure number, at least.
But on top of this, and arguably more important, are intangible costs, such as your reputation. Ask yourself this: how many delayed or damaged deliveries will it take before your client takes their custom elsewhere?
2. Damaged trucks
The cost for ‘everyday’ bumps and scrapes can really add up. At contract-renewal time, bills for forklift truck damage can be eye-watering – easily £100,000 on a decent-sized fleet.
But that’s before you consider the cost of repairs during the course of the contract itself, the lost time and productivity. It’s estimated that for every £1 spent repairing a forklift, £5 will be spent on those associated costs on average (although some companies can spend much, much more).
3. Damaged racking
As a rule of thumb: where there’s damage to a truck, there’s certain to be damage to racking and stock, too. We know of companies who regularly write off millions each year in racking repairs, while it's common for individual sites to simply accept annual, million-pound bills for stock damage.
Those managing forklift operations are sometimes incentivised to keep damage down, which is a good start, but it's usually based on a static figure, and rarely linked to any kind of improvement. The implication is clear. Businesses believe damage costs are expected: an unavoidable overhead of the job.
Well they're not.
In fact, most businesses can cut these everyday damage costs significantly. And the biggest contributing factors are the attitude, behaviour and, crucially, the management of your warehouse team.
4. Running costs
These days, the cost of actually running materials handling equipment usually far outweighs the purchase or rental price. Simple things like fuel, tyres and brakes can make a huge difference – and our research indicates that keeping to best practice can slash these costs by a third.
What's more, the study also proved that working in a safe, planned and highly skilled way is actually every bit as productive as working in a short term rush.
And further research confirms that the operators with the highest levels of impact damage generally, have the lowest levels of productivity.
Working at frantic speed does not mean you’re operating efficiently. Ultimately, it means mistakes. In fact, it's every bit as effective to do the job right first time.
A sensible approach
There's nothing wrong with the practice of pick-rate bonuses. However, they need managing safely and carefully to ensure they reward real productivity, reflect real costs and are linked to an achievable path of continuous improvement. If that sounds complicated, just get in touch: we're here to help.
To find out more about the connection between safety and profitability, give us a call on 01246 555222.