Does your warehouse management system offer your workers "carrots" for stellar performance? In a bid to track DC productivity, many companies have started deploying the labor management software that often comes as an add-on module for their warehouse management systems (WMS). But before committing to a particular labor management package, they should make sure it offers the capability to set up a performance incentive program for DC workers. Many top WMS vendors—RedPrairie and Manhattan, to name a couple—and consulting firms such as TZA include some way of calculating incentives in their labor management solutions.

Under these programs, warehouse workers are offered incentives for meeting pre-established unit-based performance goals—like picking or putting away X number of items or cases per hour. By the way, all labor management software is predicated on companies' using bar codes, radio-frequency identification, or voice technology. The software uses these systems as the basis for tracking. For example, every time a warehouse worker scans a bar code or verbally confirms that he or she has completed a task, that action gets "time-stamped." The software notes all of those time-stamps and then creates a record of activity for that worker on a given day.

Although some labor management systems use historical averages to set general benchmarks for tasks such as picking or putaway, that practice has attracted criticism. Consultant Phil Obal, for one, argues that this approach is "inherently unfair to employees and reduces the pay-for-performance benefits of incentive systems." The problem, he explains, is that no two warehouse operations are alike. There are bound to be differences in, say, warehouse layout from one operation to the next, which means travel distances for workers retrieving or putting away items can vary all over the map. A system based on historical averages provides no way to take those differences into account, making equitable comparisons difficult, if not impossible.

Establishing goals that are fair, accurate, and effective will likely require the development of engineered standards. Basically, an industrial engineer comes in and determines how much time it takes for a high-performing worker to complete a task and then uses that data to set a performance baseline for each warehouse activity. Obal advises warehouse managers to give some thought in advance regarding the depth of detail they want in their standards. "The challenge with engineered labor standards is how detailed do you want to be," says Obal, who is president of Industrial Data & Information Inc. (IDII) in Tulsa, Okla. "For every vehicle such as a forklift, do you have to know its speed, how fast it accelerates, and how fast it decelerates?"

Once the goals for worker performance are set, the incentive module then automatically calculates employee pay. Obal notes that the better labor management systems will not only keep track of output but also monitor accuracy. If it's later determined that the wrong item was picked, for instance, the worker's score can be recalculated to reflect the error. "You don't want the guy to be sloppy," says Obal. "You want the guy to be accurate both at a slow rate and a fast rate. When there are errors because the guy has picked the wrong item, you have to ding him."

At the end of the week, the incentive module automatically calculates the worker's pay based on his or her performance during the reporting period. Although incentives are generally monetary, some companies reward outstanding performance with perks like additional vacation time or a meal on the company. "Some people want gift cards or time off," says Obal. "With the recession, though, many just want the money."