To say 2020 was a curveball most businesses would be a gross understatement. While Americans suffered and many small businesses closed permanently, multichannel businesses as a whole saw significantly higher volumes, largely from direct-to-customer orders. The difficulty was in trying to keep workers safe and have enough labor to ship customer orders without falling more than a few days behind. For some clients, the goal was to merely not fall more than 10-14 days behind.
The start of 2021 brings more questions. Will the order demand continue at the same volumes? Or, how will it change? For businesses, the questions we have continually fielded from clients is how to meet the customer demand without continually dealing with labor challenges? For many clients this means moving towards automation in order to decrease the amount of labor and the increasing cost of labor. Below are two examples of how client companies are dealing with the increased demands, and order throughput through cost justified automation.
Automation comes in many forms, for some this is implementing fairly straight forward conveyor and sortation. For others, this means evaluating goods to person picking automation or robotics. In either case, businesses are moving at a rapid pace to reduce their dependence on labor. Distribution companies in the US will be faced with multiple challenges in the coming years from increased minimum wage rates to challenges to right to work laws. Amazon is in the middle of a contentious vote with workers to unionize. This will, without a doubt, dramatically increase operating costs.
Outdoor Products Client
The client saw a major uptick in demand as spring hit and people were “social distancing” with outdoor sports. Product demand for all items related to hiking, fishing and paddling were in unpredictably high demand. Demand was 50% higher than the forecast; the labor market (including staffing agencies) was already strained; and this led to a 14-day backlog of orders. The existing workforce was calling out at a rate of about 30%. Temp workers failing to last longer than a day or two under the pressure.
After the data analysis, solutions being presented include utilizing conveyors for inbound, zone picking, as well as outbound shipments to eliminate worker travel times. In addition, to facilitate picking efficiencies, a multi-tier pick module and goods to person picking will be implemented. The projected labor savings are expected to be a reduction in about 30-35% and complete the forecasted order volume in a single shift.
This client found themselves amid a labor war in their market. Amazon was going to “buy” the labor they needed to meet increased demand – and they had the money to do so. Distribution companies in the surrounding area were forced to pay much higher rates to try and retain and attract the workforce needed to fulfill orders.
The picking was reasonably efficient. With a few tweaks and some changes to the packing and shipping lines, the client experienced decreased bottlenecks, and headcount, on the outbound side. Roughly 65% of the orders could be picked to the shipping carton directly, bypassing traditional pack stations. The solutions being presented support cartonization routines for picking directly into the ship carton, bypassing packing and flowing directly to a carton sealer. In addition, functions such as weighing a box, printing a shipping label and applying it to a box are being replaced by a weigh-in-motion scale and automated print and apply. Another benefit is that the warehouse can now perform a secondary weight check on the order to catch potential errors.
It’s important to note that neither of these companies are large scale multichannel retailers. The smaller of the two is roughly $35-$40 million in gross sales. In both examples, the payback on these significant investments will be roughly 36 months. However, at the end of the 36 months, these investments will continue saving upwards of $1 million plus annually. In addition, each company will be able to dramatically increase its throughput before needing to reinvest in technology and equipment.
As part of the analysis, FCBCO stresses the need to look at future labor costs, as well as Human Resource recruiting and training costs. With high employee turnover rates, companies are investing significant dollars in trying to train workers only to have them leave prior to becoming fully productive. Many companies look at the lost payroll and benefits such as healthcare etc., tied to this turnover, but it’s not uncommon to see some of the following costs:
- Training costs – Typically 3-5% of payroll
- Unemployment/Workers Comp – Typically 7-9% of payroll
- Hiring, Recruitment and HR – Typically 23-25% of payroll
Companies must evaluate the impact and risk that labor presents within their operations. They must also determine how this labor cost, and ROI, will look 3-5 years out. With further capital and lending costs, many companies are choosing to invest in ways that will pay off for many years to come.