It's a fundamental question: How can we get people and organizations to consistently perform at high levels? The answer is more complicated than simply implementing some sort of incentive program. Instead, companies need to have a well thought-out performance management program that establishes not just what the metrics are but also how they should be used.
Metrics come with responsibilities
Elevating performance is closely related to the subject of metrics. When an organization chooses to focus on a few mission-critical metrics, its management has a couple of subsequent responsibilities.
The first is to report performance results often, visibly, simply, and on a timely basis. It's not enough to report current status or even to relate that status to a baseline. People need a target, something to shoot for. It's human nature to want to strive—to meet expectations, to reach the goal, to excel. People from all over the world respond positively to clearly communicated expectations.
The best way to motivate them is to begin by setting equitable, achievable targets. Not "stretch" goals that can only be met when the sun is out and the planets are aligned. Not generous allowances that can be achieved all day every day without breaking a sweat.
The specific standards on which your targets are based can be engineered, derived from historical data or reasonable expectancies, or the product of MTM (methods time measurement) or MOST (Maynard Operations Sequence Technique)-like programs. Which type of standards you choose is not material. Just stay away from guesses and management estimates.
The second responsibility is to have a plan for what to do when targets are reached—and then do it. Highlighting metrics creates an expectation that something will happen when targets have been reached. Failure to take visible action when a goal has been met, therefore, will cause people to lose interest in doing what it takes to continue meeting the targets you have set for them.
It's not a matter of having to bribe people to perform. It is very much a matter of demonstrating a positive link between cause and effect—in other words, between employees' actions and the results they produce. That demonstration reinforces employees' interest in and commitment to contributing to sustained, high-level performance. In fact, the details of the associated reward and recognition—such as whether the measures and targets are quantitative (more production, say, or perfect orders) or qualitative (zero defects or on-time deliveries)—are less important than their consistent implementation.
Similarly, the payoff itself can vary from company to company; it might be a group pizza party, a quarterly bonus, a field trip, or desirable parking spots. The key is to make the rewards as visible as the accomplishments. Remember, too, that even as you recognize individuals' performance, the emphasis should remain on group rewards for meeting group objectives.
Finally, don't use day-to-day quantitative performance for disciplinary purposes. If you do, the program will immediately be discredited, and good performers' achievements will drop like a stone.
Not just what but why
The reporting process is not just about highlighting success and failure; it also gives management a chance to understand why that success or failure happened. Supervisors should interview high-performing associates to determine what factors account for their success. The answer might be a process, a short cut, an absence of obstacles, or the mix of tasks and transactions.
Failure presents an even greater opportunity. Failure provides supervisors with an excuse to interview the less successful employees to try to determine what went wrong. If the supervisor is able to identify the root causes for failure, two good things can happen. First, it will demonstrate to the worker that the company's intentions in setting up the measurement program were pure—that it's not a thinly disguised disciplinary tool. The effects of this realization on morale and employee commitment can be enormous.
Second, it will provide a forum for workers to inform their supervisors about those things that hamper their performance: barriers, obstacles, problems, events, bad processes, upstream failures, downstream disconnects, insufficient tools, lack of information, and poor communication. Supervisors then have the opportunity to analyze, prioritize, and remedy those problems.
In addition, continuous reporting of performance relative to targets provides a way for both working and supervising employees to track the effectiveness of their problemsolving and repair efforts. This approach, which is powerful indeed, is a far cry from the old system of punishment, rewards, and incentive pay.
When you boil it all down to the essentials, the way to get people to meet or exceed targets, goals, standards, or objectives is not to push them to strive for excellence. Instead, it's simply to remove the obstacles that get in the way of stellar performance. Once the barriers have been dismantled, they'll strive on their own to do what is expected and needed.
Editor's Note: This column was adapted from Fundamentals of Supply Chain Management: An Essential Guide for 21st Century Managers, published by DC Velocity Books (2007). Reprinted by permission.
Metrics vs. Standards
As we discuss metrics and performance management it's important to be clear that there is a big difference between performance metrics and performance standards.
In the world of metrics, we generally are after outcomes, ideally outcomes that bear directly on customers and profitability. In the realm of standards, we are working with details that, in the aggregate, contribute to the outcome metrics. Standards also help us devise better processes, understand and improve costs, and plan the labor component of supply chain management.
By way of illustration, in a logistics environment, we might want to have standards that are related to the number of stops, miles driven, parcels handled, or number of orders delivered. The performance metric, by contrast, would likely be on-time delivery percentage. In a distribution center, we might have standards for picks per hour, putaway productivity, fill rate, and the like. An appropriate performance metric might be cost per order.
The firms’ “GEP Global Supply Chain Volatility Index” tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses.
The rise in underutilized vendor capacity was driven by a deterioration in global demand. Factory purchasing activity was at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signaling gloomier prospects for economies heading into Q4, the report said.
According to the report, the slowing economy was seen across the major regions:
North America factory purchasing activity deteriorates more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy
Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam
Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," Jagadish Turimella, president of GEP, said in a release. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
The North American robotics market saw a decline in both units ordered (down 7.9% to 15,705 units) and revenue (down 6.8% to $982.83 million) during the first half of 2024 compared to the same period in 2023, as North American manufacturers faced ongoing economic headwinds, according to a report from the Association for Advancing Automation (A3).
“Rising inflation and borrowing costs have dampened spending on robotics, with many companies opting to delay major investments,” said Jeff Burnstein, president, A3. “Despite these challenges, the push for operational efficiency and workforce augmentation continues to drive demand for robotics in industries such as food and consumer goods and life sciences, among others. As companies navigate labor shortages and increased production costs, the role of automation is becoming ever more critical in maintaining global competitiveness.”
The downward trend was led by weakness in automotive manufacturing, which traditionally leads the charge in buying robots. In the first half of 2024, automotive OEMs ordered 4,159 units (up 14.4%) but generated revenue of $259.96 million (down 12.0%). The Automotive Components sector was even worse, orders 3,574 units (down 38.8%) for $191.93 million in revenue (down 27.3%). Declines also happened in the Semiconductor & Electronics/Photonics sector and the Plastics & Rubber sector.
On the positive side, Food & Consumer Goods companies ordered 1,173 units (up 85.6%) for $62.84 million in revenue (up 56.2%). This growth reflects the increasing reliance on robotics for efficiency in food processing and packaging as companies seek to address labor shortages and rising costs, A3 said. And the Life Sciences industry ordered 1,007 units (up 47.9%) for revenue of $47.29 million (up 86.7%) as it continued its reliance on robotics for efficiency and precision.
Shippers and carriers at ports along the East and Gulf coasts today are working through a backlog of stranded containers stuck on ships at sea, now that dockworkers and port operators have agreed to a tentative deal that ends the dockworkers strike.
In the meantime, U.S. importers and exporters face a mountain of shipping boxes that are now several days behind schedule. By the latest estimate from Everstream Analytics, the number of cargo boxes on ships floating outside affected ports has slightly decreased by 20,000 twenty foot equivalent units (TEUs), dropping to 386,000 from its highpoint of 406,000 yesterday.
To chip away at the problem, some facilities like the Port of Charleston have announced extended daily gate hours to give shippers and carriers more time each day to shuffle through the backlog. And Georgia Ports Authority likewise announced plans to stay open on Saturday and Sunday, saying, “We will be offering weekend gates to help restore your supply chain fluidity.”
But they face a lot of work; the number of container ships waiting outside of U.S. Gulf and East Coast ports on Friday morning had decreased overnight to 54, down from a Thursday peak of 59. Overall, with each day of strike roughly needing about one week to clear the backlog, the 3-day all-out strike will likely take minimum three weeks to return to normal operations at U.S. ports, Everstream said.
Economic activity in the logistics industry expanded for the 10th straight month in September, reaching its highest reading in two years, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The LMI registered 58.6, up more than two points from August’s reading and its highest level since September 2022.
The LMI is a monthly measure of business activity across warehousing and transportation markets. A reading above 50 indicates expansion, and a reading below 50 indicates contraction.
The September data is proof the industry is “back on solid footing” according to the LMI researchers, who pointed to expanding inventory levels driven by a long-expected restocking among retailers gearing up for peak-season demand. That shift is also reflected in higher rates of both warehousing and transportation prices among retailers and other downstream firms—a signal that “retail supply chains are whirring back into motion” for peak.
“The fact that peak season is happening at all should be a bit of a relief for the logistics industry—and economy as a whole—since we have not really seen a traditional seasonal peak since 2021,” the researchers wrote. “… or possibly even 2019, if you don’t consider 2020 or 2021 to be ‘normal.’”
The East Coast dock worker strike earlier this week threatened to complicate that progress, according to LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University. Those fears were eased Thursday following a tentative agreement between the union and port operators that would put workers at dozens of ports back on the job Friday.
“We will have normal peak season demand—our first normal seasonality year in the 2020s,” Rogers said in a separate interview, noting that the port of New York and New Jersey had its busiest month on record this past July. “Inventories are moving now, downstream. That, to me, is an encouraging sign.”
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).