This is the story of a manager who made a huge contribution to supply chain effectiveness. Ed Pearson's five-step approach to quality improvement applied equal measures of common sense and creativity. He encouraged his people to select the leadership and set the ground rules for the quality initiatives. At the same time, he made use of a valuable concept he calls "employee civic virtue"— incentives for everyone to act for the greater good of the organization.

Remember TQM?

One of the most popular quality philosophies of the 20^th century, Total Quality Management (TQM) was developed by W. Edwards Deming, an American statistician who applied his system to Japan's revitalized manufacturing industry after World War II. Deming's ideas, which have been expanded by others including J. M. Juran, helped spark an explosion in the recognized importance of product and service quality.

Proponents of "formalized"¹ quality initiatives like TQM promote the core ideas of quality, quality control, and quality improvement with a focus on the customer. These ideas came together in the concept of Six Sigma—and in the pursuit of Six Sigma designation as a badge of quality stature.

But TQM — along with Six Sigma, ISO 9000, Baldrige Awards, and other major quality-standard initiatives — has all but faded from the headlines. Despite demonstrated appeal, many managers found it wasn't effective. They considered the cost too high and manager and employee commitment too low for formalized quality programs to reap strategic benefits. Although many quality disciplines are still being applied worldwide, managers who experienced TQM failures suggest that programs such as Six Sigma are just TQM with a new name. It has been easy to dismiss the "quality movement" as a management fad whose time has come and gone.

In the context of supply chain management, most initiatives that have resulted in quality improvements have been dictated by senior management. In practice, they have worked to improve performance measures affecting inventory levels and turns, incoming component and materials quality, leadtime performance, and work-in-process levels, for example. But for the most part, quality was not considered the key strategic driver.

Ed Pearson (not his real name) did not and does not think that way. Pearson believed that by continuously applying quality principles at the distribution center (DC) he ran, service performance would improve and supply chain managers would be more efficient and effective. The results bear him out.

The following story describes an 18-month implementation during which Pearson assembled a formal five-step program to enhance overall performance at his distribution center. (Those five steps are depicted in Exhibit 1 and described below.) In addition to describing the tactical lessons that Pearson and his team learned, the story suggests paths for more effective strategic management of quality initiatives. While not all parts of Pearson's initiative were successful, the program caused a significant change in employees' behavior, motivating them toward continuous improvement and ultimately making the DC the top-quality facility for their Fortune 500 parent company.

Pearson's initiative reaffirmed that quality-management disciplines are still important and relevant for supply chain managers. The experience also revealed something else that's every bit as important: "Employee civic virtue"—or behavior that demonstrates a true concern about the organization's well-being—plays a key role in the success of any change-management program.

Ed Pearson, a manager with 13 years of experience in wholesale distribution, started as a supervisor in 1991. Ed's drive for success helped him rise rapidly through purchasing, logistics management, and outside sales. He completed his MBA shortly after assuming the role of regional DC manager of GenFlow Inc. (not its real name), a stationery-products wholesaler headquartered in Dallas. In this position, Ed would manage the daily operations and the regional business strategy for north Texas, Oklahoma, west Arkansas, and south Kansas. The Dallas DC was the largest of GenFlow's 38 distribution centers.

Founded in 1940, GenFlow is one of North America's largest and most successful wholesalers of school and stationery products. The company grew rapidly, distributing products across the United States and into Mexico and Canada as well as occasionally exporting further afield. Gross revenue for 2003 grew to a respectable $1.45 billion. Today, GenFlow employs about 2,300 people in logistics and sales across 44 locations worldwide—40 in the United States and four overseas. GenFlow supplies its resellers with more than 30,000 different SKUs, including computer supplies, educational aids, furniture, janitorial products, office products, presentation products, and lounge/break-room supplies.

GenFlow's DCs typically run on a 20-22 hour business cycle. Orders are transmitted via electronic data interchange (EDI) to 80 percent of its vendors over the course of the day. They are then picked, packed, loaded, and delivered before the reseller opens its doors the following day. Quality in order accuracy, fill rate, and on-time delivery is key to success as many of the retailers carry little to no inventory.

The company's flat management structure and multitasking environment make the job of GenFlow leaders like Ed Pearson quite complicated. On any given day, Ed would be directly responsible for management of more than 100 employees, including a six-person sales force, 10 in the customer service department, a purchasing manager and two purchasing agents, three warehouse/operations managers and 48 to 56 warehouse personnel, and a fleet of 20-plus less-than-truckload (LTL) delivery vehicles. Here's how the five-step quality initiative played out in this environment.

Key activities:

—Keep an open door and hold early "clear the air" meetings.

—Ask for program ownership.

—Provide immediate and consistent recognition.

In the summer of 2001, Ed took over the management of GenFlow's Dallas distribution center when the previous manager retired.

The region had a number of untapped markets. The capable staff had already won two quality awards while posting modest sales gains. But as in many wholesale environments, the employees were strapped for time and were quite negative about their jobs. Despite GenFlow's reputation as one of the more generous businesses in the region in terms of employee compensation, the daily pressure and high expectations contributed to increasing employee turnover reaching as high as 17 percent a year.

Ed started his first week with meetings to get to know the entire staff. He went over his own background and stated what he expected of the staff. He stressed the importance of service quality and told the group, "You folks know how to win quality awards—which is something you will have to teach me." With that, some employees shuffled their feet and others grunted; meanwhile, the warehouse managers looked anxious. Ed was concerned that he'd lost some respect from the employees for making this comment. But he was confident that he could change that in short order.

Around 4 p.m. that day, the purchasing manager and operations manager came to Ed's office. They explained that the employees were concerned that he would want them to live up to expectations that were unattainable. The operations chief explained that the prior DC manager had tweaked the operations numbers every few months to prevent headquarters from giving him a hard time. So nobody was clear about what performance metrics made sense. Moreover, they did not want to be held accountable to new goals created out of goals they did not understand. Specifically, the employees were concerned that now they would not be able to meet Ed's criteria, especially considering the volume that the Dallas DC supplied on a given day.

Ed realized that he had a major problem—one that was deeper than just tweaking some operational numbers. He had a management crisis in the making that could threaten the performance of the facility as well as the viability of GenFlow's customers and its relationships with them.

The DC manager had been spending many nights reading about developing excellence in employees. Although he had managed staff before, he had never been responsible for an operation on the scale of the Dallas facility. Many of his readings were tied to the TQM concept. Authors like Deming, Juran, Tom Peters, and Ken Blanchard had many suggestions that seemed doable, but the sequence and value of each suggestion seemed questionable to Ed. One point on which all the authors agreed was the value of getting the people closest to the problem involved in solving the problem. With that in mind, Ed decided, in his first week at Dallas, to call a meeting of his management team to discuss quality improvement.

The following week, Ed met in the break room with the three warehouse/operations managers, the purchasing manager, the customer service manager, and one of the sales representatives. The theme: "clearing the air." The participants were encouraged to reveal managerial practices that may have been considered questionable and to prepare to take steps towards setting things straight. The managers disclosed how inventory, returns, and service figures had been manipulated to improve the Dallas DC's standing.

"The meeting was tense at first," Ed remembers. "But as one manager would reveal a problem, another would add something, and the list snowballed. I was left thinking, 'How would I have ever found these things out?' The truth was, they had to tell me, or I would be in the dark forever. Best of all, it was a relief for them. We took the process back to square one and started looking at the real issues rather than trying to cover them up."

Ed's next goal was to get the managers' buy-in and active involvement. He made a guarantee: "I told them I would always be there for them and that my door would always be open. I also promised them recognition and acknowledgement for their efforts in improving the process. But they had to promise me they would take ownership of the problem and get the employees behind a program to fix the process." They all agreed. Ed called the group the steering team.

The meeting ended with a shortlist of employees from each area whom the steering team believed would be most helpful in gathering groups of the workers closest to the problems. Employees were identified in areas such as customer service, transportation, information systems, order selection, packaging and loading, purchasing, returns management, sales, and stocking/inventory management.

Key activities:

—Select employees with their hands on the process.

—Let the team choose the leadership.

—Let the team set up the team infrastructure and responsibilities.

—Have management facilitate, not lead.

By the end of Ed Pearson's second week at the Dallas DC, his managers had explained the new direction to the employees. Meanwhile, Ed was working on how to develop the employee teams that would devise solutions for the problems they encountered. He figured he would need the steering team to handle the early issues and two pilot teams to navigate through the operational difficulties. He used a cross-functional approach, inviting one member from each of the areas listed above and having a sales rep or manager sit in the meeting to answer questions related to customer-specific issues. The customer aspect was crucial. Ed often told employees, "If a meeting goes on more than 15 minutes and no one mentions the customer, get up and leave!"

The managers did not run the meetings. Ed knew from his quality management reading that the staff most involved in the jobs would know the answers. He knew, too, that if a manager directed their ideas, the employees would offer fewer suggestions and be less likely to attend meetings for fear of rejection or disapproval. The meetings were to last one hour and include a formal agenda, assignment of duties, and follow-up process check. By the end of the fourth week, the employee teams had formalized the following:

• Meeting guidelines, leadership, and responsibilities.
• Employee-level development of a local DC mission.
• Employee-level development of a vision of local quality standards.
• Team members as liaisons from their functional areas.

Early meetings were no walk in the park. Several employees were cynical about the weekly meetings, believing that branch management was simply following through on another of those morale-building campaigns from headquarters. Others, especially area supervisors, were concerned about losing productivity by having key people in a long meeting once a week.

Those issues were complicated by the DC managers' new facilitator roles. Ed often had to remind the managers that they were not to take the lead—that they were there only to help the employees solve the problems their way. He didn't want the meeting to become a forum for managers to simply bounce their ideas off the employees. Ed understood that there would be resistance to change and that the DC personnel would just have to tough it out for several weeks before the teams could really gain momentum.

From week eight to week 20, the teams accomplished the following:

• Developed a communications and rewards system that (1) identified tasks related to superior job performance; (2) identified information and feedback needs and reporting procedures; (3) quantified employee performance metrics in individual work units and across the DC; and (4) specifically recognized employees for going above and beyond the call of duty—that is, demonstrating civic virtue.
• Identified root causes of major problems in such areas as order selection and stocking, cycle time, overtime, leadtimes, on-time delivery, customer-service wait time, housekeeping, cross-dock cycle time, and facility upgrades and housekeeping.

The teams also made great strides across multiple areas of the facility. One major success was in order selection. The teams realized that item stocking and selection location could be made more specific. Rather than simply inventorying items by row, bar-coded tags were placed at the specific bin and shelf location. Some employees balked at a loss of flexibility resulting from having "specific" locations. Yet after the teams discussed the advantages of the new idea, the entire staff got behind it. Ed relates the details: "We actually had people volunteer to work overnight to label the shelves and stock the misplaced inventory. It was amazing. We completely re-inventoried the entire facility in under 24 hours!" The long-term results were impressive: improved selection speed and accuracy, a reduction in training hours for new employees, and a sizeable financial (inventory) gain when annual physical inventory was taken.

The teams also developed a number of useful process forms. Most were developed to make sure employees didn't forget tasks not necessarily directly related to unit productivity. For instance, one form encouraged daily housekeeping. Having employees take a few minutes each day to think about this subject kept the facility in excellent condition. The approach also reduced injury claims, shrinkage, and lost paperwork.

The true cross-functional nature of the teams proved advantageous in several areas. Order fill rate is one example. The team structure meant that staff from purchasing, receiving, and order selection were able to talk to each other about how to improve fill rate and reduce inventory exceptions. The purchasers made a deal with their counterparts in receiving: They committed to review all 30,000 SKUs on a 1.5-week cycle rather than on a monthly cycle to fill more of the gaps created by forecasting error. In return, receiving committed to stocking and posting all inbound inventory within 24 hours. The changes boosted the fill rate from 93 percent to more than 97 percent.

Ed made sure that each team had a person designated to record progress. The teams would use an action register to track who was responsible for what task and when it was to be completed. Ed would follow up with management to make sure the teams were still effective. He had the teams fill out a process check each week to make sure the members still found the meetings effective. When a team got bogged down, he would close their meetings and start a new team. Ultimately, Ed became the chief facilitator. He reviewed the progress of the teams, praised and motivated them, but only got directly involved when a team wasn't making progress.

Key activities:

—Let employees create the standards, making them as specific as possible.

—Make sure the quality standards mean something to everyone.

—Post the standards and live by them.

Now that Ed had formalized the use of teams, his next task was to formalize the overlooked quality standards. He asked the steering team to examine the metrics used by both GenFlow and its major competitors and report back to him by the end of the 24^th week. When the task was complete, the steering team offered the list to each of the two pilot employee teams. Ed then asked each team to develop a DC mission statement and specify a quality vision for the location. In other words, they had to devise an overriding mission indicating why they were in business and then a detailed roadmap for accomplishing the mission. After the 28^th week, the mission and vision were drafted and signed by every employee at the Dallas DC. Team members framed the documents and placed them in high traffic areas, where employees and customers could regularly review them. (See Exhibit 2.)

"The employees had gone quite some time without having to worry about quality," notes Pearson. "We wouldn't react to a problem until our customers complained. This was really the only accurate communication the employees would get about our performance. We had to re-establish a formal listing of quality indicators and goals." Ed's goal was for his teams to have developed the initial quality standards for the DC by the 50^th week.

One of the teams developed a comment card and box for "will call" customers. Most will-calls were salespeople making a delivery, so the will-call counter had become one of the major points for interacting with customers. Near that area, the teams also posted the mission and vision statements as well as the productivity numbers and employee awards. Ed Pearson commented, "Will-calls had always been considered a pain for warehouse employees. Customers would often wait forever for help. With the new focus on quality and specifically on the customer, we had great interaction. If a warehouse employee could not get the order, a customer service employee would run into the warehouse and get it. If neither could do it, then I would. We were becoming increasingly proud of our accomplishments, and the teaming was reaching its way across functions. Our one focus was truly on the customer."

Key activities:

—Let the employees decide on the metrics and be as quantitative as possible.

—Allow for special consideration of "employee civic virtue."

—Report results daily.

Having the overall performance metrics in place is no guarantee that things will improve because the rewards programs may well be out of sync. In Ed Pearson's experience, a fair rewards program rates employees by using quantitative figures—but with some flexibility. He explains: "For instance, if someone spends all their time improving the truck-loading process or order-selection process, they may end up with lower production numbers in their general area. There has to be some flexibility, or nobody will do anything 'special' or think about ways to improve our processes." In other words, there must be performance metrics for daily tasks so that those tasks are not to be marginalized. But there also have to be short-term and long-term rewards to encourage improvements in overall effectiveness.

About 14 months after Ed Pearson's arrival in Dallas, the employee-level cross-functional teams were given the task of developing criteria for judging quality performance in what would be named "The Quality Employee of the Month Program." The teams defined five specific groups for competition:

1. Service (sales and customer service).
2. Order processing (selection, order checking, and packaging).
3. Inventory control (purchasing, receiving, and returns).
4. Delivery (loading and transportation).
5. Facility-wide employee of the month.

There was heated debate about the program across functional lines despite the fact that the functional awards were for only $25 and the facility-wide prize was just $50. "The employees really seemed to be more driven by pride than by the money," comments Ed. "They wanted it to be fair, and they couldn't blame an unfair system on management because they created the system themselves. It took a while to fine-tune the measures, which were updated month after month, but it was worth every minute we put into it!"

Finding a way to weight the various activities—lines pulled vs. phone orders entered vs. purchasing orders placed vs. skids stocked—was more of an art than a science. The teams debated fairness and brought different ideas from other employees in their departments. Even in like areas, it was difficult to rate one job vs. another. How could an order selector working in a bulk zone like furniture be compared to an order selector in an individual-unit zone like pens and pencils? "There was a reasonable amount of debate about the fairness of each metric," Ed recalls, "but the weights didn't have to be exact. They just had to be fair, and the only way I know how to tell if you are treating someone justly is to ask them if they think they're being treated justly!" With the employees developing and testing the metrics themselves, they gradually accepted the reward system.

During the meetings, team members discussed with colleagues what were the appropriate areas for measurement by functional area. The employees included what they considered to be the most important job tasks and assigned them point values. (Exhibit 3 shows the key initiatives by functional areas.) For example, trucks loaded merited 80 points per occurrence. By comparison, no unloading of returned goods resulted in a deduction of 100 points and 25 points would be deducted for each keying error in customer service. "Initially I though they would give me the tasks they considered important, then I would put them into an equation and develop weights for each area," says Ed. "That wasn't the case. Every month there was a different exception to the rule."

Initial weights such as inventory zones would be scaled at 0.4, 0.5, 0.7, and 1.0 per line, depending on the size of the items (1.0 for furniture vs. 0.4 for small individual items). Those numbers could be compared to order lines taken by customer service (set at 0.25) and shortage deliveries found (set at 100). In all, over 50 metrics were set. Sixteen months after the program's launch, most of the employees were satisfied with the rewards program.

Still, Ed and the steering team felt something was missing. One of the customer-service employees suggested including a "special consideration" metric to award those going "above and beyond the call of duty." Ed describes it as "employee civic virtue"—that is, behavior that indicates that a person responsibly participates in, or is concerned about the life of the organization. Examples of such behavior include providing constructive suggestions about how the team can improve its effectiveness and being willing to risk disapproval to express beliefs about what's best for the unit.

Staffers demonstrating civic virtue could be given a bulk total of points by their peers for doing something out of the ordinary. The new metric became the answer Ed was looking for. "Eventually, my biggest problem was how to handle rewarding multiple people each month for doing special work that improved the lives of everyone," he says. Ed and the steering team were diligent about reporting the results of the previous day's performance the following morning. That way the employees knew where they were slipping and where they could focus to win awards.

Key activities:

—Get employees to think about "why," not "what."

—Look for causes, not symptoms.

—Examine the impact of all actions.

Early on in Ed's new role, the performance of the Dallas facility dipped as employees spent time in new meetings and in creating and implementing the new quality programs. Its performance fell to fifth out of six facilities in GenFlow's lowest performing Southwest region. But soon after, the facility's performance surged. Three months after Ed became general manager, Dallas tied for first in the region and then went on to win 15 consecutive company-wide awards.

The reason for the consistency was a focus on improving quality by changing processes, not by attacking problems. For instance, when a route scheduled for 6 p.m. loading was consistently late, the employees didn't simply put other activities on hold. Instead they examined the process. They found that matching of orders was the bottleneck. They developed a gravity slide that would allow for easy mixing of orders between the light bulk zone and individual item zone. If, for example, a wrap-and-pack order was coming through EDI to the warehouse, up to four packing tickets (four zones) would print for the order selectors. Before the gravity slide was installed, the order selectors would pull the items from their zones and place them in totes on the floor in a designated area. Smaller items would be placed on the main conveyor with all the standard delivery items. Later, a packaging employee would spend quite a while matching all of the orders and running them through the shrink-wrap machine. But with the new gravity slide installed, all the like-item orders stayed together. The item would hit the first zone, the order selector would fill her part of the order, and then slide the order down to the next zone.

The process became streamlined to the point that Pearson eventually had to purchase an additional shrink-wrap machine as more companies were attracted to the timeliness of the DC's "direct to customer" delivery. This quality improvement tool fixed the process for the entire flow rather than for just the one route. Exhibit 4 lists some of the performance improvements resulting from the formalization program. Importantly, all of the solutions were developed and implemented by employees.

By getting the right people involved and by focusing on the process, Ed and his staff were able to improve many of the problems that were driving down quality. As the employees learned to look past simple symptoms to root causes, improvements were possible on multiple levels, often in several functional areas at once. Ed points to a focus on continuous improvement as one of the key success factors. "Many of our initial solutions were suboptimal," he says. "Some were failures, but we never quit on any one improvement. After we put an idea in place, someone would come up with an adjustment or improvement. To this day those changes continue. We add new members to our teams monthly and encourage them to develop new ideas and express them regardless of how crazy they might seem. It will continue; it's part of our culture."

Ed Pearson's experience at GenFlow's Dallas distribution center demonstrates the practicality of formalizing a broad-based quality program without abundant resources. The program, which resulted in the DC winning 16 of 18 possible quality awards from the parent company over 18 months, was no cakewalk; as related here, the new general manager met many obstacles on the way.

But by developing a formalized quality program that fostered a sense of "civic virtue" among employees and by focusing firmly on root causes of problems and the processes to fix them, Ed Pearson was able to transform the Dallas facility in a fairly short time. The accomplishments of Ed and his teams over the 18-month period resulted in a 15-percent reduction in turnover and a series of record sales months accompanied by a three-point improvement in profits. The facility regularly exceeds the goals expressed in its vision statement. And when it falls short, the quality teams continue to address the reasons why and to set corrective action plans in motion for the long term. Today, several other GenFlow DCs have adopted this formal, customized approach to quality management and are now experiencing similar results.

Clearly, Ed did not adhere to every principle or every practice cited in the works of leading quality authors such as Deming and Juran. Nor did he strive for Baldrige Award or ISO 9000 plaques. Instead, he excerpted five basic quality-implementation steps—infused with the notion of civic virtue—to customize an approach for his facility's challenges, constraints, and resources. His successes show what is possible for many other managers without the explicit oversight of the company's most senior executives.

Authors' note: Although not employed or retained by the company, we are colleagues of "Ed Pearson" and were impressed by the quality techniques implemented at his DC. Ed's story coincides with our research on supply chain management quality initiatives and on the effective use of supply chain management resources. For additional information on supply chain management quality issues, please contact us at the e-mail address on the Author's Contact page (page 64).