Identifying the Right Labor Market For Your E-Commerce Distribution Center

The planning and execution of an ecommerce fulfillment center relocation is a massive undertaking. The budgeting of one-time costs, startup costs and ongoing expenses alone involves a rigorous process (read more about budgeting for a warehouse move here).

Identifying the right labor market for a new DC is highly dependent on performing a three pronged analysis. The analysis must:

  1. Identify the best Metropolitan Statistical Areas (MSAs) that can deliver the time to customer and inbound and outbound freight savings and goals desired;
  2. Locate facilities that meet your building’s current and future requirements;
  3. Have the quality and availability of workforce at an hourly wage rate and benefits structure which are competitive but affordable.

More: Read “Developing a Warehouse Move Plan”

This blog outlines the data and process for identifying the right labor market.

As we have commented on recently, the country is approaching full employment. Yet 38% of the potential workforce is sitting on the sidelines, waiting for full time positions. Moving into a new labor market means accurately determining the wages and benefits that give you the desired workforce.

Sources of Labor Data

Bureau of Labor Statistics (BLS) compiles and publishes a comprehensive set of labor statistics about all MSAs on a monthly basis. This data should only be a starting point. It is the best data available but it has limitations. In performing these studies, we often find BLS data understates the hourly wage rates. As comprehensive as BLS statistics are, we have found that their salary data can be 20% too low for some job positions.

Also, the BLS definitions of the types of workers and description will not exactly line up with position descriptions in your DC.

Senior positions of fulfillment centers can be defined differently by title and responsibilities, and therefore the salary can vary widely.

BLS does not address company benefits, either, which can be 5% to 25%+ or more of the hourly rate.

County or regional development agencies will have an analysis of your target county and the sites they are promoting, along with demographic data, including BLS data. Find ways to validate what they are telling you. Remember their job is to sell you on moving to their area. It doesn’t mean they are deceptive, but we have seen agencies continue to promote regional development even after the area was reaching full employment. The right building may be there, but is the labor at the hour wage rate and benefits you are willing to pay?

Boots on the ground. This isn’t just a data analysis exercise. It’s going to mean traveling to regional sites to truly get an accurate analysis of the labor market. Our recommendation is to talk to other warehouse employers and exchange wage and benefit data. Follow local ads and recruiting websites.

Most markets are at an unemployment rate of around 5% or less. What will you have to pay to attract the right complement of people? Use the public data as a starting point.

Further reading: Warehouse Planning: How Much Space Is Needed in a Distribution Center?

Recommended Process To Research the Labor Market For Your E-commerce Distribution Center

Here is an outline of the process for identifying the right market:

  1. Form a team. Gather representatives from operations, finance, human resources, real estate or legal (for contracts). Broaden the team as the project proceeds to include IT and merchandising (for inbound freight analysis). Moving a DC or opening in a new market is one of the biggest, most expensive decisions e-commerce companies make. Get your team’s agreement and insight, and formulate a detailed planning process for the project.
  2. Select a commercial real estate company. Most firms have subscriptions to a national database of available warehouse properties and will make it available to you. You may want them to do some of the number crunching for you. But we strongly recommend you do the analysis yourself. If they do the analysis, you need to be able to have access to the database so you can see what MSAs and facilities they included and excluded. Don’t simply accept a realtor’s list of facility candidates.
  3. Form a market and facility short list. The process should be to perform a broad search of MSAs in the general region; then winnow it down to a short list of the best candidates (city and facilities). Remember, it’s a three pronged analysis along with the total cost of the facility and move-in costs. The finalists have to meet your time to customer, inbound and outbound shipping cost and delivery goals and have the current building characteristics and expansion required.
  4. Get boots on the ground. Travel to see the short list of MSAs and facility sites and build relationships with other warehouse operators to strengthen your analysis.

Read: 3 Imperatives for Labor In Your Warehouse Operations

Be methodical in the process and data analysis; but use site visits to validate and improve your analysis and conclusions.

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