Many ecommerce fulfillment centers are largely dependent on manual labor. Direct and indirect labor costs generally make up 50% or more of the total cost per order (excluding outbound shipping). In many businesses as hourly wages have increased, overall DC productivity has remained flat resulting in an increased cost per unit produced (orders shipped, units picked, returns processed).
In many markets, even before the COVID crisis, the quality and availability of warehouse workers had decreased. High employee turnover in many distribution centers adds costs and instability to operations. The operations mantra is do more with the resources they have and to reduce cost per order.
Many larger centers are finding return on investment of 24 to 28 months for advanced material handling systems such as automated picking systems, conveyance-sortation and robotics. This reduces the dependence on hourly labor and radically increases productivity. The technology is available and functioning in businesses and will continue to decrease in cost.
Here are 8 considerations we feel are important for managing employees to meet our business goals in this time of great change:
Hourly Wage Rates
Hourly wage rates for fulfillment center employees around the USA varies widely. In 2011 the average minimum wage was $7.25 per hour. In a benchmarking study we did that year involving 21 companies across the USA, the hourly wage rate ranged from $8.11 to $17.12 per hour; the average was $12.15 per hour; the median wax $10.08. Benefit rates for 13 companies which reported data, ranged from 11% to 29%; average 20%; median 21%. The point here is many businesses have had to increase rates for years.
We have seen warehouses in the same market pay as much as $3.00 per hour different for the same types of workers. We find that wage rates are increasing overall, it depends on your region, and company pay structure.
What do you have to pay to be competitive? What changes will automation bring to this Workforce? What salary and wage surveys are you doing to not overpay - or be left with a huge differential? What will this mean to your cost per order and customer service?
Measure Productivity and Process
Do you have productivity measures in all departmental areas (i.e. receiving, put away, replenishment, pick, pack, shipping, returns, inventory and kitting/assembly). Many ecommerce companies do not. Implementing productivity measurement by department and employee is the key forward in so many ways. Learn how one company started its internal benchmarking program.
Where are you spending the most money? Remember the old adage, "You can’t improve something you don’t measure". Turn around the negative productivity trends in your business. Select and reward the most skilled and productive workers. Recognize that you need to have methods and technology for recording time worked, including cross department functions and units of work (e.g. orders, units, cartons shipped). Picking and packing take more than 50% of the labor in most centers. Start there to increase productivity and reduce dollars.
Do you "throw the new employees to the wolves" with inadequate training and then wonder why the turnover rate is so high? The amount of training varies with the position being filled and the complexity of the job. Using a seasoned employee as a “buddy” can help get the employee acclimated. Have you documented each job function with training and performance materials?
Are you simply trying to fill a position in the warehouse, or do you have a developmental program where people can grow in skill level and responsibility? Can they be considered as candidates for other entry level positions in your ecommerce business? We have seen warehouse employees grow and become process improvement and lean certified; be moved into inventory control and become “super WMS users” training personnel. Read what one client company did to help workers.
Give Feedback to Employees
Employees want to feel they are part of the bigger company picture and deserve accurate feedback about their production. Visual presentation of key measures by company, department and employee are key.
Include key metrics such as errors and their costs, plan versus actual order shipped, cost per order shipped, line and unit. What about displaying a banner with name and productivity rate of all time pick rate for example or orders pack with no errors?
More and more companies are using incentives to increase production. Incentives require engineered standards to be fair and to keep productivity increasing. If they are not continually evaluated, chances are that you will end up paying an incentive for production that you have gained over time. Many companies are using non-financial incentives to recognize high productivity.
Report Employee Turnover
It is important to know how well you are doing in your hiring and retention efforts. Set up a system to track and calculate employee turnover monthly. Develop a turnover report showing the number who were hired; started training; left while in training or once they graduated; and were they long-term employees or new hires. Establish an exit interview process to learn more about why people leave. Calculate the cost of recruiting, training and losing an employee. Calculate turnover with and without seasonal hires being included. Communicate reasons and costs to management and establish a plan of action for change.
Developing Line Supervisors
By “line supervisors” we mean the people that manage your departmental operations and the workforce. In assessing warehouse operations in dozens of businesses annually, one thing that stands out as we walk around the floor is the wide range of capabilities of the first line supervisors. In our opinion, one of the biggest things a business can do is to focus on how to improve their training and get more from them as they manage your businesses. In today’s on-line university world every management topic is available. Develop an individualized set of educational objectives and course work. It may be the best “investment” you can make.