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Warehouse labor management is such an evergreen issue, that it should almost have its own scientific plant name in Latin. How do we consistently find sufficient labor? How do we maintain productivity? What approach do we use? What is our cost model?
The labor shortage in logistics and supply chains is not abating. In late 2023, a study by Descartes and SAPIO Research polled 1,000 supply chain and logistics leaders in Europe and the U.S., finding that 37% were experiencing high labor shortages.
The study also highlighted the strong correlation between financial performance and workforce churn. Seventy-four percent of organizations with lower warehouse turnover rates reported above-average to industry-leading financial performance, but only 24% of those with higher churn rates made the same claim.
Investing in warehouse automation is often touted as a way to address labor issues and increase productivity. By 2028, Gartner predicts, there will be more smart robots than frontline workers in manufacturing, retail, and logistics, but they might be a bit ahead of their skis. Regardless, automation doesn’t work in every situation, and the cost can be beyond the means of many SMB companies.
Companies offer flex schedules, signing bonuses, and even health benefits for part-timers to draw in warehouse hires, but many don’t stick around. In highly competitive markets, hourly wage wars drive up costs. Even a 50-cent differential can cause workers to jump ship—especially when Amazon is nearby (pretty much everywhere).
Thus, more companies are opting to outsource workforce management to a specialized provider like Productiv. With its combination of lean processes, technology, and a skilled workforce, Productiv delivers a winning combination of measurable performance gains at low fixed unit labor costs.
Tackling the Issue of Warehouse Labor Management
Let’s take a look at the primary models of warehouse labor management, then explore some alternative strategies that may offer significant advantages over an “we’ve always done it this way” mindset.
The FTE Model
The most common approach is to have a workforce of full-time employees (FTEs). This provides a measure of consistency and reliability, lower churn, and continuous training, and it is easier from a scheduling and HR perspective.
The minuses include higher fixed costs, less flexibility to adjust to demand fluctuations, dealing with regulatory and compliance issues, and the risk of overstaffing.
The Temp/Agency Model
Relying solely on temp workers from a staffing agency offers lower labor costs, less of an administrative burden, quick sourcing and placement, and the potential of temp-to-perm as a performance incentive.
On the downside, it can lead to lower worker engagement and culture buy-in, lower productivity, high turnover rates, contract markup fees, and an over-dependence on the agency.
The Flex Model
This popular approach combines FTEs with temps. Pluses include greater flexibility and scalability, lower costs, access to a wider talent pool, and mitigating FTE absenteeism.
Drawbacks include training and onboarding challenges and less consistency. Like the temp approach, it can also lead to lower engagement, quality concerns, higher overhead (scheduling, management, administrative oversight), and less buy-in on company culture.
A Different Approach to Warehouse Labor Management
Now we’ll turn our attention to an outsourcing approach to warehouse labor management that can be attractive in terms of the cost/benefit ratio, the potential for performance gains, and greater economies of scale.
The Outsourcing Model
Many organizations in retail, e-commerce, and manufacturing are finding it cost-effective to partner with a third-party logistics (3PL) provider. These providers offer many benefits, including a high level of expertise, increased efficiency, lower capital expenses, access to volume discounts on shipping, reduced overhead, and greater flexibility.
There are two main options when working with a 3PL:
Owned facilities: under this model, operations take place at the 3PL’s warehouses or fulfillment centers. The client ships its inventory to the 3PL, which handles all functions, including picking, packing, shipping, light assembly, and kitting.
Clients benefit from the 3PL’s (often significant) investment in infrastructure and systems; greater scalability; the use of specialized technology, workflows, and processes; and a reduction in operational risk. Companies do need to keep close tabs on performance and quality metrics as the work is done off-site.
Client embed program: Under client embed, the 3PL provides a trained workforce and management of operations at the client’s facility.
Benefits include greater oversight of operational performance and quality; the ability to maintain company culture; greater flexibility and customization; and the ability to respond quickly to changing conditions. Close management oversight is needed to ensure that SLAs are being met.
The Holy Grail: Increased Productivity, Reduced Costs
Through its long experience in fulfillment and logistics management, Productiv has created a finely tuned operating model that brings measurable results for leading companies in manufacturing, CPG, and retail. Building from an initial cost per unit (CPU) baseline metric, Productiv employs lean principles and a continuous improvement approach to increase output while lowering CPU.
The results of “the Productiv way” speak for themselves:
- A DTC health and beauty brand shipped 450,000+ orders/month to meet a demand backlog and keep its retail partners happy while achieving 99.999% order accuracy.
- A medical device manufacturer saw production gains of over 30% in throughput, even for complex 65-item kits, while improving quality.
- Average on-time shipping, shipping accuracy, and inventory accuracy across all Productiv clients of 99%
Warehouse Labor Management: Evergreen Issues Require New Thinking
Warehouse labor management presents multifaceted challenges that impact costs, productivity, and your ability to remain competitive. Just fielding a fully staffed logistics and operations team is difficult enough, given tight labor availability and high churn rates. FTE, temp, and flex approaches have their pluses and minuses, and a periodic reexamination of your labor model is a prudent move.
Whatever your current approach, partnering with Productiv can yield significant results in terms of operational performance, quality, and cost efficiency. To learn more about how Productiv can help you reimagine your workforce approach, talk to an expert today.
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