DC Velocity - September 2011

product returns function, through which 6. 5 million units move per year.

To Monti and Dreyer, seasoned logisticians who felt they already ran an efficient shop, it was an eye-opener to have a specialist in DC work-force issues apply high-level labor standards to the HSN operation. “You don’t know what you don’t know until you put these tools in and run with them,” Monti said.

Monti said that without the TZA toolkit, “we couldn’t have achieved this level of improvement.” Leveraging the visibility provided by TZA’s labor management software and applying it to the engineered labor standards, “made all the difference in the world for us,” he added.

lion. It also developed a broad-based logistics program with UPS that included, among other things, volume-based incentives for customers and an enhanced returns solution.

Monti acknowledges that expanding HSN’s use of the USPS system and introducing a physical exchange of packages between the two carriers “slowed down” the retailer’s delivery schedules by half a day, on average. However, he said that the newly streamlined picking and packing operations allow the DCs to push packages out the door faster, offsetting the impact of the slower delivery timetables.

$10 MILLION IN TRANSPORTATION SAVINGS

With the fulfillment project behind them, Monti and Dreyer turned to revamping HSN’s delivery network. For years, UPS Inc. had been HSN’s main shipping vendor, mostly managing end-to-end deliveries from the three DCs to the consumer. But Monti and Dreyer decided to tap into a joint venture between UPS and the U.S. Postal Service (USPS), under which UPS hands off HSN’s packages to the USPS system for “last-mile” deliveries to any U.S. address.

By relying more heavily on the lower-cost postal network, HSN cut its annualized shipping spend by $10 mil-

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MONETARY INCENTIVES

As for the transition, Monti and Dreyer said many members of the DC work force were apprehensive about what the new efficiency standards would mean to them. To quell uncertainty and motivate workers, they instituted a plan to give workers half of the proceeds from productivity gains above a certain baseline called for by the engineered standards implemented by TZA.

About 70 percent of the workers have achieved more than what Monti termed “baseline productivity” metrics and have pocketed what can be considered performance bonuses. Monti and Dreyer said DC employee turnover is currently at an all-time low.

Based on his conversations with TZA, Monti believes companies in and out of the multi-channel retailing category can achieve productivity gains of up to 30 percent through implementing a mix of DC labor management software and processes. HSN’s improvements were lower on a percentage scale, he said, because the company has already worked for years to improve labor productivity and was not starting from scratch.

C. Dwight Klappich, vice president of research at consultancy Gartner Inc., said the use of labor management software and engineered standards to measure DC worker performance is gaining momentum as companies focus more on productivity improvements than cost-cutting to drive efficiencies. The declining costs of software implementation and ongoing support will further boost demand as the tools become more affordable to a wider customer base, he added.

Klappich said Gartner’s research shows that firms have “already slashed costs about as far as brute force will allow, so now they need tools like [labor management software] to help drive efficiency, to keep costs where they are, and lower costs more intelligently wherever possible.” The consultant added that labor management software is an area of “potential low-hanging fruit, and typically these investments have strong financial returns” for users.

Comments like those are music to the ears of companies like TZA, which has positioned itself as both software vendor and consultant to capitalize on what it sees as a wide-open market opportunity. “The labor management software market is today where the WMS market was 10 years ago,” said Steve Simmerman, the consultancy’s senior vice president of business development. ;