Friday, October 21, 2011

Running a Warehouse—What We Should Not Learn From Amazon - by Brian Crounse

A couple weeks ago, I wrote about Amazon’s impressive growth over the past decade, and what it means for the motor vehicle service parts industry (quick summary: “Even if we can’t see the money yet with digital service customers, maybe we need to take the long view and be confident in our efforts”).

There are a number of other aspects of Amazon’s business that I think provide insights for service parts. But for this post, I want to talk about how not to run a warehouse.

You may have seen news in the past month (originally in the Lehigh Valley Morning Call) about some problems Amazon has been having at its warehouses in Breinigsville, PA. Among other things, it seems that the heat index inside the Amazon warehouses often rose above 100 degrees this past summer, which resulted in situations where workers reported seeing “paramedics bring people out of the warehouse in wheelchairs and on stretchers.” In particular, on June 3, 2011, Amazon acknowledged in a letter to OSHA that “15 out of 1,600 employees experienced heat-related symptoms.” And on June 10th, a doctor at the Lehigh Valley Hospital called OSHA to report that “several patients have come in the last couple days with heat related injuries” from Amazon.

Let’s put a few things in context. In our database of North American service parts warehouses, 65 of 225 warehouses that provided us with CY2010 safety data had zero recordable incidents over the entire year. Having one percent of your workforce suffering from overheating on a single day is simply unacceptable.

If you have ambulances on-call outside your workplace, you’ve got problems.

Such problems are unusual, even in warehouses in hotter climates. I asked a couple clients, folks who have spent considerable time in warehouse environments, what they thought. Here’s what one said:
I had seen some of the original reports on that incident and found it odd … our PA warehouse is fairly cool even in warm weather, so its not really an issue there.

What I found odd is that I have worked in warehouses in locations prone to extreme temperatures. … but processes are in place to handle it. Also, when I was at [a] warehouse in … California, [we] often saw temps over 100 F for 10+ days in a row. The key to ensuring employee safety and reasonable comfort were always the same… The issues appear to all be with how Amazon handled it, and not warehousing in general.
So, what exactly happened here?
  1. Amazon’s Breinigsville warehouses are “activity-dense.” It’s possible to estimate Amazon’s warehouse space productivity from their annual reports; the amount of dollars shipped per square foot per year are fairly high relative to the service parts warehouses we know best here at Carlisle & Company.
  2. These warehouses are also “people-dense.” 1,600 workers (more during peak seasons) in 1.6 million square feet of warehouse space is a lot. I suspect the prior tenants of these warehouses (the buildings date back to 2000, but Amazon’s only been in them since 2010) didn’t have this many people packed in them. By itself, space efficiency is a good thing, but when you have a lot of people, with a lot of machines, moving a lot of product, it going to generate a lot of heat.
  3. These buildings may not have very good thermal performance. It’s hard to say much without getting in the building and doing an energy audit, but the one thing that’s apparent from the aerial view is that these warehouses have black roofs. That’s not unusual for warehouses in the northeast, but it sure doesn’t help keep the building cool in the summer. For a contrast, if you look north a few hundred yards, you’ll find a very bright, white roof on the Nestlé® Pure Life® water bottling facility at 305 Nestle Way. This building was certified as LEED Gold in 2009. Or, go take a look at the warehouses near the Ontario, CA airport: all light-colored roofs.
  4. Amazon doesn’t seem to care very much about its warehouse workers. Is that provocative enough? I am basing that statement on 3 pieces of evidence: The Morning Call story, a recent WSJ article by Richard Brandt, and a recent accidental public Google+ post (key quote: “Amazon does everything wrong, and Google does everything right”). The following is an excerpt from the Brandt article.

    During the first few weeks, everyone at the company was working until two or three in the morning to get the books packed, addressed and shipped. Mr. Bezos had neglected to order packing tables, so people ended up on their knees on the concrete floor to package the books. He later recalled in a speech that, after hours of doing this, he commented to one of the employees that they had to get knee pads. The employee, Nicholas Lovejoy, "looked at me like I was a Martian," Mr. Bezos said. Mr. Lovejoy suggested the obvious: Buy some tables. "I thought that was the most brilliant idea I had ever heard in my life," he said.
It appears to me that Bezos and Amazon have a laser focus on their core strategic priorities, but don’t pay as much attention to the details as they should. Yes, I know that Bezos spent a week working at an Amazon warehouse in 2009. And that he applied the five whys in response to a safety incident in 2004. But, again, if you have ambulances parked outside your warehouse in 2011, something’s amiss.

In summary: Amazon:
  1. Pushes a lot of volume through its warehouses
  2. Does so with a lot of people
  3. In warehouses with black roofs
  4. Doesn’t always place a premium on workplace safety
Maybe these problems, at least #3 and #4, are isolated to these particular warehouses. I hope so, because fixing a couple warehouses is easier than fixing the whole company. But if these issues are Amazon-wide, Amazon needs to make some changes. Here are two suggestions:
  1. Amazon should focus more on sustainability, making it a core part of corporate culture. Why is this relevant? Because high-performance, sustainable buildings promote safety and productivity.

    Amazon is not completely remiss in this area; here’s a page that lists of a number of energy-saving kaizen projects, describes Amazon’s LEED Gold HQ buildings, and notes that four Amazon warehouses were LEED-CI (Commercial Interior) certified in 2009. These are all good things. But Amazon should and could do more—clearly, not all warehouses are high performing. In contrast, Google focuses enormous amounts of attention and resources on energy efficiency and renewable energy.
  2. Take care of its people, for real. Amazon clearly has morale and rentention problems, at least at its Breinigsville warehouses. Amazon can probably get away with this in the current labor market, but 1) it’s not a sustainable long-term strategy and 2) it’s not the right way to treat people. I am reminded of Paul O'Neill’s strategy when he arrived at Alcoa as an outsider CEO in 1987. He choose safety as his number one key performance indicator because 1) it won him support of the unions, 2) trained the organization to focus on, and achieve, specific targets, and 3) it was the right thing to do. O'Neill was able to then extend his success with improving workplace safety to improve all aspects of the business, resulting in a very successful tenure at Alcoa through 2000.
These are things that all of us can be doing, if we’re not already.

In the next post in this series, I’ll get back to something Amazon does well – retain its customers, and what it means for service parts.

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