Bright Ideas for the workplace

Technology getting cheaper for ways to boost efficiency and worker productivity

October 29, 2006|By Jay Hancock | Jay Hancock,Sun Columnist

Doesn't seem to be much that the Sephora beauty-product distribution center in Belcamp could do to become more efficient.

Everything gets barcoded and scanned with hardware from Baltimore's Barcoding Inc. Store computers tell the warehouse when they're running low on goods.

When "pickers" scan an order for a particular store, the Belcamp computer tells what to pack and where to find it, and confirms that they're selecting the right things. Computers and conveyors weigh each box, calculate postage, print a shipping label and move it to the right truck.

But Marty Flaherty knows better.

As Sephora's vice president of logistics, Flaherty's job is to reduce the time that Sephora products sit on shelves in Belcamp, speed shipments of products that are most likely to sell and do it all without hiring hundreds of extra workers.

"I do not believe we are at a dead end in securing added productivity improvements," he says. "This facility, as well as it is performing, has not seen its best days."

If he's right, that's good news for Sephora. It's also good news for the U.S. economy.

Strong productivity growth - getting more output from each employee - has been an essential economic factor for more than a decade. Productivity expansion was one of the first things former Fed Chairman Alan Greenspan gauged when taking the economic pulse.

It was the main driver of the "new economy." It is the only way the economy can grow except through increases in the population and work force.

Productivity growth fuels corporate profits, but in the long run it also raises standards of living. The more workers produce, the more money they tend to make.

Diminishing gains

When productivity flags, it breeds inflation, hurts economic expansion and jeopardizes the country's ability to pay for Medicare, Social Security and other commitments.

For a while, economists have worried that the technology-fired productivity improvements that picked up in 1995 were about to run out.

By now almost everybody has cell phones and e-mail, enabling them to stay in touch with customers, vendors and bosses. Most employees type correspondence on a computer, reducing the need for secretaries. Everybody from pizza-delivery dispatchers to real estate agents to financial analysts has become much more efficient using online tools.

Have we reached the end of the line for productivity gains? Especially since investments in information technology plunged after the stock market bubble deflated a few years ago?

Not yet, say some experts.

"It's certainly not an IT story anymore, like it was from 1995 to 2000," says Harvard's Dale W. Jorgenson, a top authority on productivity growth.

Rather, he says, companies are gaining efficiencies through non-tech investments that are complementary with existing technology or with new, smaller tech projects.

"We really didn't expect that," he says of continuing efficiency growth despite weaker technology investment. He projects that productivity will continue expanding 2.4 percent a year, about a percentage point above its pre-1995 growth.

During this year's second quarter, the most recent for which figures are available, U.S. productivity expanded at an annual rate of only 1.6 percent, according to the Labor Department. That prompted worry that the slowdown had finally arrived.

But what's going on at Sephora suggests that the productivity boom isn't over.

The company, owned by France's LVMH Group, is the fastest-growing cosmetics brand in the United States. Its Belcamp facility sorts 20,000 products from 250 suppliers and ships them to more than 100 stores across the country and thousands of people buying beauty products directly online.

In keeping with Jorgenson's model of technology investments combining with non-technology assets to boost productivity higher than either could alone, Sephora is buying new logistics software but is also reorganizing the warehouse.

It's upgrading the entire product-intake system, shifting incoming trucks to a different side of the building and paying more attention to forklift traffic and storage.

The new software will shift lower-volume products to the back of the building, so they won't get in the way, Flaherty says.

It'll know which high-value products to store on upper shelves to avoid damage or theft. It'll improve safety by sensing when shelf contents are too heavy. It'll plan forklift routes so drivers maximize time and fuel efficiency. And it'll eliminate a step in filling Web orders.

Such software "is at the heart of" many recent efficiency improvements, especially at Wal-Mart, says Stanford economist Robert Hall, who is chairman of the National Bureau of Economic Research committee that determines recessions. He is another productivity optimist: "I think we have just begun to harness modern IT."

Some distribution centers don't even have basic barcoding technology yet, says Jay Steinmetz, president of Barcoding Inc.

Cost going down

New systems such as computer-voice instruction for filling shipments or radio-wave-emitting chips to identify cartons may make the ones that do even more productive.

At the same time, such technology is becoming cheaper and cheaper. "What's happening right now in the marketplace is unprecedented," Steinmetz says.

Flaherty declines to say how much in efficiency gains Sephora and its 340 Belcamp employees should reap from the upgrades or how much they'll cost.

Companies generally guard productivity enhancements as trade secrets, and I had to approach several before one agreed to partly peel off the lid.

But it won't take much to equal Jorgenson's national projection of a 2.4 percent annual increase in output per employee, and Sephora can probably do much better. If the nation as a whole can keep doing something similar, the future looks brighter than it would otherwise.

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