This is Part 4 of "Shifting Profit Drivers," a periodic collection of essays

Jim Enter
Courtesy Jim Enter Jim Enter

The further into the delivery chain that a mistake is discovered, the greater the expense of the error. I use a general rule of 10X. A mistake caught after the material is bundled, but not loaded, will cost $1 to correct. If the inaccuracy is discovered after loading, the cost is $10. If it is discovered after the delivery, the cost is $100. And if the oversight is discovered after the material is installed, the cost is $1,000.

When the incorrect material is installed, everyone gets excited. It’s likely, I am not alone in hating the notion of having to replace the wrong color roofing or hardwood flooring. Actually, the cost for replacing both was much more than $1,000. But delivering the mistaken material and replacing it is so common that no one seems to notice.

The cost implications actually are worse than $1,000 because you pay for that error out of your earnings. Assuming you have a pretax profit of 5%, a preventable $1,000 error requires a sale of $20,000 just to pay for the preventable problem. And this doesn’t include the “soft” cost of late deliveries, overtime, or upset and possibly lost customers.

Anyone correctly using a warehouse management system (WMS) using barcode readers and bin locations will not have this problem. However, with the cost of the systems as well as the discipline required to use WMS, very few dealers have embraced this solution.Alternatively, you can have a second count and verification of product as soon as the order is pulled. Many larger dealers have a yard manager responsible for this task.

Then there is another option: Have any knowledgeable person, other than the person pulling the order, function as quality control. If you have two pullers, they should QC each other. An audit trail is necessary, so I recommend having a tag attached to the bundle with lines for the puller and QC person to signoff. This simple action will improve accuracy by likely 90%.

Solving order-pulling mistakes is the first step in providing accurate on-time deliveries to your customers. Recognizing the importance of this, I recommend incentivizing accurate order pulling and deliveries.

I have heard the arguments against incentives, the number one being “Why should I incentivize what I am already paying employees to do?” Realistically, you are paying them to show up, punch the clock and pull enough orders to stay out of trouble. If that’s your viewpoint, consider a “take-away” incentive.

At the beginning of each month, announce you intend to give $100 to each yard and warehouse employee as well as every truck driver. But add to this a notice: When an order is pulled wrong, a product is left off of the truck, or a delivery is made incorrectly, you will “take away” $50.

I suggest posting the “cash statement” for all to see. At the end of the month divide the cash balance by number of employees and pay it out. I have witnessed amazing results with this plan. If each employee only makes two mistakes in a month the entire balance goes away. So paying everyone a $100 for a zero-mistake month is well worth it, and I have seen dealers actually have zero-mistake months.

Previously in this series:
1. Want Higher Profits? Start Thinking More About Logistics.
2. How Efficient Is Your Operation? Find Out With These Benchmarks.
3. Lots of Dealers Drive Trucks Until They Collapse. That's Wrong.