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Hidden Costs of Warehouse Labor

Hidden Costs of Warehouse Labor

Oct. 25, 2022
New IDC report says that warehouses should look at Robots-as-a-Service to help empower human workers, improve resiliency, and drive cost efficiencies.

A recent report from IDC and Vecna Robotics, Marking the Business Case for Supply Chain Automation,  concludes that warehouses are undercounting the cost of human labor.  And this is impacting productivity by as much as 50%.

The report examines how labor availability, turnover rates, training, and employee qualifications hamper an already tight labor market. The findings suggest that a labor-first approach can affect overall warehouse productivity by 30-50% - and that fails to account for safety and illness concerns, which cost businesses $170 billion per year.

IDC supply chain strategies analyst Roderick Gaines makes a clear case that automation is a crucial component in building an agile supply chain, and warehouses should look at Robots-as-a-Service options to help empower human workers, improve resiliency, and drive cost efficiencies.

The report notes that unprecedented challenges to the global supply chains have injected enormous uncertainty into supply chains, leaving over 573,000 warehousing positions currently available in the United States alone resulting in an estimated worldwide economic toll of $30 trillion.

The workforce issues include lack of skills, cost of labor and performance. In IDC's 2022 Talent Survey, over 44% of warehouses stated that they were not able to find adequate workers to meet their operational needs, with a further 30% saying that the workers they can find lack the skills necessary to do the jobs. Another issue is the cost of labor. According to a recent IDC supply chain survey, warehouse operators have been dealing with elevated labor rates/costs as well as limited staff availability and experience, leading to capacity and throughput shortfalls. In a related IDC survey, 33% of supply chains linked staffing shortages directly to an inability to meet their operational performance. Supply chain leaders have not yet adopted automation at scale. 

The report delves into these believing that the "full cost of labor has not been fully factored into the business case for automation by companies taking a labor-first approach to their operational facilities. In the current labor-constrained supply chain environment, in addition to supply issues driving up the cost of manual labor though hourly wage rate increases, the hidden cost of that labor, and its impact on productivity, has often been undercounted by as much as 50%.

"Companies in manufacturing and wholesale distribution have a general understanding of the trade-off between labor and automation, but often the business case fails to account for important "hidden" factors."

The report summarizes the following issues. 

Labor availability

The difficulty of finding enough people to fill existing and potential positions continues to plague warehouses, despite the willingness of many companies to dramatically raise wage rates. There are currently 425,000 vacant warehousing and transportation positions, according to the U.S. Bureau of Labor Statistics, with an expected 5 million positions needed over the next five years. According to a recent IDC talent management survey, over 44% of companies listed talent/labor as a top issue, with 33% stating that shortages are negatively impacting operational performance. In effect, labor shortages reduce productivity by 10–15%

 Turnover rate

 The rate of employee turnover is an underappreciated cost of a labor-first approach to the warehouse, particularly in an environment where rehiring is a challenge. Given the high demand for warehouse operations, employees must work long hours and under extreme stress to meet increased demands. The physical toll and stress of warehouse jobs combined with an aging and retiring workforce lead to higher turnover rates. The latest figures from the U.S. Bureau of Labor Statistics put annual warehouse turnover rates at 43%. IDC estimates that turnover results in lost productivity of 10–15%

 Employee training

When new employees are hired, they require significant training. According to IDC research, less than a quarter of warehouses can train new employees in under a month. That means one to two months of less than full productivity from the new employees. Furthermore, the experienced employees who are training the new team members will have to alter their own priorities to do the training, which will affect their productivity. IDC estimates that higher levels of required training impact overall productivity by 5–10%

 Employee qualifications

 Productivity and efficiency can vary among team members. IDC has had frequent discussions with manufacturers that have had to lower their hiring requirements for new employees. In addition to impacting retention, lower hiring requirements can lead to increased truancy and absenteeism from less qualified employees and will mean lower productivity. Indeed, there is a high correlation between employee quality and greater callout rates. Factors that must be considered are unplanned activities such as a higher incidence of sick days, excessive paid time off, injury resulting in days away from work, and employees' idle time. IDC estimates less qualified workers result in a 5–10% loss in productivity.

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