When You Have a Warehouse Labor Shortage: Don’t Hire

Instead of adding more warehouse labor, what if you could increase picking efficiency by 100 percent, reduce errors, speed up returns, and reduce training times to fifteen minutes or less? Until you’ve achieved operational efficiency, more labor is not the answer. Less labor is the solution by using tools that allow existing warehouse labor to be maximally productive.

According to the Bureau of Labor Statistics (BLS) the largest single cost component of warehouse total operating cost is labor. Hourly labor rates have increased over the past few years while work productivity remains stagnant. With unemployment rates at four percent or less, there is a great shortage of supply chain workers, driving increased hourly wages and much higher turnover rates. Even good, well-trained employees making an average of $11 – $15 per hour, will jump to work for a 3PL (third-party logistics) or warehouse down the road to garner an additional $2 – $5 per hour (and/or health insurance benefits).

Warehouse operators and 3PL providers are now focusing on decreasing labor costs without sacrificing performance. HOJ Innovations conducts a thorough evaluation process of how labor is utilized to receive and ship product and has found in hundreds of e-commerce operations, reducing warehouse labor costs is often a matter of small adjustments and process improvements to existing operations. Continuous process improvement reduces warehouse labor costs while achieving enhanced productivity goals, increased production, and a significant reduction in warehouse operation expenses.

HOJ Innovations walks through customers’ warehouses (a Gemba walk part of a kaizen event) from one end of the facility to the other. Observing the operation with “fresh eyes” (and fifty years of warehousing experience) allows some of the “obvious” opportunities for improvement to be revealed quickly.

By diagramming existing (and potentially new or revised) processes a documented walk and inspection assessment allows a thorough evaluation for keeping labor cost under control. 3PLs, warehouses, and distribution centers, often ask HOJ Innovations to return twice a year to conduct warehouse evaluations.

Too often the sole focus is productivity and labor standards. While productivity is very important, direct labor, as a percentage of total labor, is generally only 50 to 70 percent of the total production labor spent. When warehouse operators only look at direct labor processes, they fail to see increased productivity savings because efficiencies gained in direct labor end up leaking over into untracked processes.

Many e-commerce retailers will look at the direct labor cost per container. Even when employees improve productivity and the direct labor cost per container drops significantly, indirect labor cost per container often increases dramatically (up to 40 percent, rendering the operation unprofitable). Many warehouse operations use RF scan and WMS systems for job tracking most direct labor processes. Some processes like receiving and cross docking are usually not tracked unless they customize the WMS. The cost of the RF Gun is a huge waste adding to indirect labor costs.

According to DC Velocity, a new survey released in late December 2017, revealed that more than half of warehousing and logistics organizations plan to upgrade their mobile device collections to apply the latest handheld technologies to balance soaring customer service requirements with rising labor costs.

Fifty-six percent of organizations plan to upgrade their existing fleets of mobile devices, as their current devices near end-of-life, according to a study “Taking Advantage of Apps and App Modernization in Warehousing,” conducted by VDC Research Group Inc. Organizations are motivated to upgrade mobile devices because 53 percent of information technology (IT) decision makers supporting warehouse operations viewed mobility deployments as immature.

A fast-pick or forward pick area is one from which it is most efficient to pick, but which must be restocked from a reserve, overflow, or bulk storage area. Experts can guide warehouse operators to follow schematics which shows the flow of material and the economics of a forward-pick area.

The forward-pick area is often the most important because it is the most convenient from which to pick. It often represents considerable capital investment for special equipment, but to optimize this space and gain maximum value it must be stocked with the right SKUs. These calculations are not merely the most popular, because volume-ordered matters as well. A SKU ordered in larger volumes will have to be restocked more frequently than an identically popular SKU ordered in smaller volumes.

To minimize labor costs, it is important to capture both picking and restocking time, so that the metric is accurate.