Unpacking the Supply Chain: Labor Uncertainty (Part 3)

Performance Improvement

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November 30, 2018

This is the third blog in our series exploring the biggest roadblocks executives are facing in today’s dynamic supply chain. Omnichannel shopping has seen exponential growth due to its convenience and a growing demand for customized delivery channels. Whether it’s delivery or store pickup, click-to-buy trends have put tremendous pressure on the supply chain. In addition to a nimble supply chain supported by technology and robust inventory management, modern warehouses need one crucial commodity: skilled labor.

Labor Shortage

The labor shortage has been primarily driven by the following factors:

  • Changing Workforce: With baby boomers retiring, more than 35 percent of the labor force participants are millennials, making them the largest generation in the U.S. labor force. Unlike previous generations, millennials are likely to switch jobs often. The average tenure for a millennial is 2.8 years. Millennials prefer defined roles and the ability to learn, flexibility of hours, higher pay, and recognition.
  • Evolving Talent Requirements: Historically, a typical warehouse saw workers picking merchandise and managing inventory, but the use of technology and a boom in e-commerce has revolutionized warehouse operations. Today, the ideal employee has both operational expertise and analytical skills. Tomorrow’s talent must also excel at strategic thinking, innovation, and high-level analytic and technological capabilities. With a rise in ship-from-store operations, a store associate’s typical responsibility has increased from just in-store customer service to distribution-focused roles such as picking and packing.
  • Increased Competition for Labor: With the number of unemployed persons per job opening dropping to 0.9 in August 2018 industries are competing for the same labor pool, making it challenging to find skilled labor. In June, the Bureau of Labor Statistics noted a 2.9% year-over-year increase in U.S. wages, while the hourly rate for warehouse workers has increased 6.8% since 2017.
  • Metro Area Concentration: The concentration of warehouse jobs in medium to large metropolitan areas drives up competition as the labor pool is limited. Despite wage increases, companies are finding it hard to find the required labor. Compared to retail employment, for which small metro or rural areas account for 23% of jobs, only 13% of e-commerce work is distributed across small cities and rural regions.

Solutions for the Labor Shortage

Even companies like Amazon and Target are finding it difficult to find skilled labor. During Amazon’s ‘Jobs Day’ in August, the company received 20,000 job applications—which fell drastically short of their goal of 50,000.

Companies are addressing these challenges in a variety of ways:

  • Wage Increases: Amazon recently increased its minimum wage to $15 in response to wage increases by Walmart and Target.
  • Strategic Partnerships: Strategic and more formalized partnerships with various talent and workforce organizations in the local community have allowed retailers to find the right talent with the required skill set.
  • Automation: Gap Inc. has incorporated robots and artificial intelligence to ease the labor shortage concerns and increase sorting efficiency.
  • Labor Incentives: UPS offered retention bonuses of $150 to employees hired in 2017 while Radial is offering an extra dollar for every hour to the employees who exceed the picking rate of 70 items per hour.

As the labor shortage continues to grow, companies need to be strategic and identify ways to build a labor workforce that have the required skillset.

Building a Sustainable Labor Workforce

To build a stable workforce with the right skills and maintain the quality of operations, organizations across industries will need to address the following questions:

  1. How to attract, retain, and build a quality labor force?
  2. How to optimize the labor requirements and efficiency without impacting the operations?

By re-defining the warehouse workforce environment and building technology capabilities, companies can build a sustainable labor pipeline and mitigate the risks associated with labor shortage, minimizing the impact to their supply chains.

Stay tuned for Part 4 of this series on Unpacking the Supply Chain, or check out Part 1 and Part 2.

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