What all we'll address in this article:
It's hard to imagine that amid a global pandemic — the unstoppable force that caused widespread business closures and layoffs — so many industries are still experiencing the pressures of a tight labor market.
Yet, conversations around the worker shortage are not new to certain industries. There has been a skilled labor shortage affecting hands-on trades for years. There have not been enough workers for general contractors to hire electricians, supply chain leaders trying to fill warehouse job openings, companies keeping solid retention within manufacturing jobs, and various other scenarios. Even before COVID-19 became a household name, a 2019 story in the Wall Street Journal revealed the following:
The job market doesn't get much better than this. The U.S. economy has added jobs for 100 consecutive months. Unemployment recently touched its lowest level in 49 years (3.7%). Workers are so scarce that, in many parts of the country, low-skill jobs are being handed out to pretty much anyone willing to take them – and high-skilled workers are in even shorter supply.
That's not friendly data for supply chain leaders looking to fill open jobs with new workers quickly. And since this article will focus on the supply chain field, it's essential to note how the pandemic has impacted the supply chain labor force. And the data is interesting.
Although there were significant employment decreases within certain fields, such as government education, mining, and the construction industry, the same cannot be said about logistics. As of February 2021, the Bureau of Labor and Statistics reported that employment changed very little in the transportation and warehousing industries. That means there is equally a small labor pool available to supply chain leaders and warehouse managers that need staffing, which still leaves the question: how can we solve it?
We worked alongside NC State Poole College of Management to help figure that out. In February 2019, the Supply Chain Resource Cooperative faculty and staff convened a group of supply chain executives for a one-day workshop to discuss a spectrum of issues associated with the current state of this challenging job market within warehouse and DC operations. Companies like Advanced Auto Parts, John Deere, Hanes Brands, UPS, Lenovo, GSK, Altria, UNC Healthcare, and leaders from our very own FHI team were eager to share what they were experiencing.
This article is a condensed version of what we found. If you'd like to see a more comprehensive deep dive, we encourage you to download the full white paper. Otherwise, we want to provide some of the solution-focused insights we've gathered that can help you make efficient and effective labor decisions for your supply chain.
Supply chain and logistic leaders currently face new challenges presented in various forms — the impact from Amazon, aggressive push for automation, increasing pressure to provide higher wages, expensive training programs for younger workers, etc. But such challenges will always be there; they may just look different depending on the economy and culture. And as nice as it would be for those dilemmas to go away, they won't. To thrive, you need a strategy aligned with today's ecosystem.
The built-in assumption to labor-intensive operations is that "low cost wins." But in a competitive market, low wages can too often cause symptoms of high turnover, untrained workers, and absenteeism. These inevitably inflict more overall costs on the operation and negatively affect the bottom line, possibly more so than upfront labor cost. To properly overcome the worker shortage, organizations must consider newer hiring models to ensure their strategies are aligned to compete for today's workers.
"The quality of the associate is the single most important component of evaluating such services."
Interviews showed an overwhelming agreement that the associate's quality is the most critical component of evaluating such services, followed by the value of the service, meeting FTE targets, reducing Total Cost of Ownership, reducing turnover, and improving inventory accuracy and SLA's.
When the unemployment rate is so low, the benefit of a reliable and trained workforce — even if that means a bit higher cost on the front end — may result in an overall reduction in operational cost when viewed beyond a line-item cost.
Take the cost of healthcare, for example. Mathematically, it makes less fiscal sense to purchase more expensive or expansive coverage for employees. However, with low unemployment rates, better healthcare can help you attract better talent and secure more skilled employees. These individuals will ultimately help your organization become more efficient and cost you less in the long run.
Many are also exploring new hiring policies, new technologies, and different screening approaches to ensure they get the right people. Some noted that taking extra care to get good workers coming in on the front end is critical to ensuring retention. They are also experimenting with new work policies to increase both the participation rate in candidates and employee engagement on the job site. This could include promoting a healthier work-life balance, which younger demographics (many who've recently obtained college degrees or graduated high school) tend to hold in high regard.
Every organization must find its ideal solution. And it starts by evaluating current practices and aligning them with an ever-changing labor environment in three key areas.
Survey respondents overwhelmingly emphasized how important it is to get the right quality of associate and to pre-screen upfront to find them. But what are the characteristics of a quality associate? What is the right type of person, who is the right fit, and where do you find such individuals? Supply chain leaders in the group were asked those very questions, and their responses provided invaluable insight.
"We are testing a technology called Outmatch, that uses behavioral questions or assessments to determine the best fit. The app allows you to create a profile for every job we have for the company (e.g., order picker, truck driver), and then create a survey that applicants can complete."
"It is critical to invest in HR resources that are able to find the right person. This means hiring people in HR that really know how to interview and find the best people."
"We have two ladies who really know what they are looking for when they interview people. It is almost like they have a sixth sense, and they know what will make for a good worker. We don't know exactly how they do it – maybe we should study them and build an A.I. tool to capture what they are doing!"
"We like to interview potential candidates during a shift, which starts at 4 AM. If they show up at 3:30, we know they are prompt. We also check to see if they can keep up with us when we walk the floor. We would prefer that candidates speak up and tell us they are not interested upfront, as it saves us problems later."
As mentioned earlier, a key to creating a reliable workforce may not be through increasing wages but offering a new benefit to workers: flexibility.
"We need to break the culture that ‘we are different and it won't work here.’ We are incented to be siloed and have no metrics for change."
"We are starting to pilot these technologies. We think the target market will be Millennials who are looking for a growth position and must manage their own costs. These individuals want a job that will allow them to adjust their schedules. We think that has potential, so long as we are able to keep this to a fixed number of times per month."
Survey data by Intuit suggests that 72% of contingent workers choose to remain contingent and that only 42% are contingent because they feel they have to. It is clear the ‘gig’ economy and technology are enabling a trend encouraging people where and when they want to work.
These changes in labor preferences are newer than those of Baby Boomers and Generation X, so we must adapt. And adapting to concepts like flexibility requires questioning barriers to hiring as appropriate within each organization.
There is a lot of complexity and unique requirements within an organization. The same is true of the workforce population. No one-size solution fits all. To attract and retain quality associates, organizations must understand and adapt to candidates' needs and values, which can go a long way towards hiring and retention. Supply chain leaders commented with some ideas to accomplish this:
"We have debated putting phone charging islands in the break rooms or free Wi-Fi. Perhaps we could offer cell phone plans, which some may view as more valuable than a 50-cent raise. We need to come to terms with how we are going to differentiate ourselves as an employer, compared to every other DC you walk into."
"Hiring two family members like a husband and wife and working to accommodate their schedules for childcare or care of older family members has paid for itself many times over in terms of retention. Helping them with their personal schedules is a big deal for these workers."
What supply chain leaders ultimately want is not only thoughtful strategies to 'test,' but reliable solutions they can put to work quickly. Because if things shift quickly (and they usually do), supply chain leaders need to fill gaps rapidly. Below, we've listed some solutions we believe provide a clear path for warehouses and distribution centers navigating the tight labor market.
Several new models are emerging to help distribution centers and warehouse managers run their operations. The goal is to eliminate problems associated with the constant churn of finding, training, managing, and retaining new workers. Additionally, ensuring that people show up for work.
Outsourcing is growing in acceptance because it is the core competency of third-party providers. The section below outlines the two most outsourced models today: the Managed Workforce Model and the Contingency Labor Model.
With a managed workforce model, the provider owns the SOPs and it becomes a fully outsourced model. Cost and productivity SLAs are defined, and this has proven to be successful with a complex product mix situation where flexibility and being nimble is key.
Executives noted that this model was appealing for certain geographies. For example, in California, the facility pays based on contractual rates and manages spikes and valleys through a piece rate based on every piece picked.
"We know what we will pay based on what we sell, and there is a fixed rate."
This is the essence of a true "fixed variable" rate, which may cost more, but will likely yield an improved total cost.
This company notes that they are running this on a three-to-five-year pilot and will assess at the end of that period. A risk with this model is there is a fixed cost, which is not guaranteed. There is general agreement the rate may be adjusted in the event of a major drop in sales. In tough labor markets such as Los Angeles, using such an 'overflow' model on a transaction basis may make sense. A variable-rate can also be used to unload trucks, pick parts, or any other activity.
At FHI, we know you want to better compete in your market. To do that, you need an efficient and reliable distribution operation. The problem is labor challenges will weaken your operation, making you feel overwhelmed and distracted. We believe a quality workforce should be the strongest link in your supply chain.
We understand the struggles you are facing, which is why for nearly 30 years, many of the nation's most respected companies trust us to provide managed labor solutions that make operations safer, leaner, and more productive. Our data-driven approach will guide your operational performance forward along with our highly trained workforce so you can stop worrying about labor challenges and start enjoying a safe, lean, and rock-solid supply chain.
In any market, your supply chain can make or break your ability to compete well. Don't leave that to chance. We can help you create a strong operation, so you never fall behind the competition.