Giving money back for quality saves a food distrubution company $10,000 in one quarter.

by Melodie Bateman and Timothy Ludwig

Primary Topic: Compensation Systems
Incentives have been shown to be more effective than hourly pay in influencing employee performance because they provide monetary reinforcement contingent on the worker’s performance (Abernathy, Duffy, & O’Brien, 1982; Gaetani, Hoxeng, & Austin, 1985) often in weekly paychecks. Although individual incentives may be considered small, they are available each and every time a unit is produced. Therefore, this type of performance management system is a popular technique among employees as well as management (Redmon & Agnew, 1991).

Problem: Selection Errors
Selectors receive an order list for as many as three customers and drive pallet jacks to the designated locations of the food items. Cases are then stacked onto pallets based on weight of the item. When all items have been collected, the selector transports the pallets to the loading docks. There are, on average, 60 cases per order. Selectors typically pick 20-24 orders per day.

Therefore, selection errors are costly to the food distribution industry. Errors such as mispicks (shipping the wrong item), shorts (not shipping an item), or damaging product incur significant reshipping costs to correcting the mistake. Additionally, low quality distribution practices such as these ultimately result in lost customers. A food distribution company in North Carolina purchases and receives cases of food items from manufacturers and stores these items in its warehouse. Orders are received from restaurant managers and filled by selectors who pick food items and assemble a delivery pallet. After the orders are prepared, delivery drivers transport the food items to the restaurants. This company wanted to evaluate an incentive program designed to improve the work quality of their food selectors.

Solution: Adapt the company’s disincentive program.
The company had previously adopted a disincentive program where selectors (n=23) forfeited money $.50 for every short and $1.50 for every mispick. On average, selectors were losing $13.29 for these errors per week. This punitive disincentive program was adapted to allow the selectors the opportunity to earn back their money if they kept their total errors under a weekly goal. For example, if a selector had 11 errors for a week (6 mispicks and 5 shorts) out of 6000 total cases picked (an average of 1.8 errors per 1000 cases), he would not lose the $11.50 from his paycheck for those errors on the following Friday.

The initial goal for the first two weeks was set at 2.0 errors per 1000 cases and every two weeks thereafter the new goal was reduced by 0.1 errors per 1000 cases until the final goal of 1.5 errors per 1000 cases. Weekly feedback was posted on a prominent bulletin board next to time clocks. This feedback graphically displayed the individual error rates of the selectors along with the week’s goal.

Results: 10% fewer errors
Selection errors decreased 10% as a result of the adapted incentive program resulting in 1,382 fewer errors over the quarter. While the existing disincentive program was in place selectors where making an average of 3.16 errors per 1000 cases. When the selectors had a chance to earn their money back during this program they reduced their errors to an average of 2.54 per 1000 cases. By the end of the 13-week program 47% of the selectors were meeting their error goal.

On average, selectors saved an average of $43.50 in returned disincentives during the course of this study. Consequently, 91% of the selectors voted that the program should continue.

A cost-benefit analysis revealed potential savings of $9,799.50 for the company during the study. Over the course of a year the company may realize an annualized savings of approximately $40,000.

References
Gaetani, J. J., Hoxeng, D. D., & Austin, J. T. (1985). Engineering compensation systems: Effects of commissioned versus wage payment. Journal of Organizational Behavior Management, 7, 51-63.

Redmon, W. K. & Agnew, J. L. (1991). Organizational behavior analysis in the United States: A view from the private sector. In P.A. Lamal (Ed.), Behavior analysis of societies and cultural practices (pp. 125-139). Washington, D.C.: Hemisphere.

Bios

Melodie J. Bateman received her Bachelor’s degree in Psychology with a concentration in Performance Management from Florida State University in 1999. In August of 2001 she graduated from Appalachian State University with a Master’s degree in Industrial-Organizational Psychology and Human Resource Management. While at Appalachian State she received the Zigli Research Award, a grant for her thesis entitled “Managing Quality in Industry through an Adapted Incentive Program with Tiered Goals and Feedback (appearing in the Journal of Organizational Behavior Management, v. 23).” She currently lives in Jacksonville, Florida and is employed at Northeast Florida State Hospital as an Operations and Management Consultant. She has presented at both the Association for Behavior Analysis and the Florida Association for Behavior Analysis annual conventions.

Melodie Bateman
Melodie_Bateman@dcf.state.fl.us
(904) 259-6211 Ext. 1104
Northeast Florida State Hospital
7487 South State Road 121
Macclenny, FL 32063

Tim Ludwig received his Ph.D. from Virginia Tech where he was a Cunningham Research Fellow. Currently, he is an associate professor at Appalachian State University where he is the Director of their Industrial/Organizational Psychology masters program. He is also the Director of the Center for Organizational Health Behavior and is a member of ASU's Academy of Outstanding Teachers. His recent book, Intervening to improve the safety of occupational driving, reviews 10 years of systematic behavioral safety studies. He is an associate editor of the Journal of Organizational Behavior Management. He has published numerous data-based studies on goal setting and feedback as well as empirical descriptions of response generalization. Ludwig's research has been cited in numerous textbooks including Cooper& Locke (2000), Goodwin (1998), Kazdin (1994), Lieberman (1999), and Spector (2003). Ludwig also serves as a strategic planning and human resources development consultant to the U.S. Navy and a number of private sector organizations.

Timothy D. Ludwig, Ph.D.
Ludwigtd@appstate.edu
828 262 2712
Department of Psychology
114 Smith Wright Hall
Appalachian State University
Boone, NC 28608