defray the rising cost of the shipping & handling-related promotions it considered so critical to building customer loyalty.
As part of the project, HSN installed TZA’s labor management software, a program that runs on a stand-alone
basis but functions in close concert with the company’s
warehouse management system. For the first time, HSN
had the visibility to track DC performance at the individual employee level and to reward workers—as well as hold
them accountable—for meeting the engineered standards.
In addition, the program helped HSN determine best
practices for each of the operation’s functional areas.
Through it, the company was able to eliminate steps
impacting its 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.
$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 million. 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,
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. ” ●
