Even with technology advancements and headlines alluding to robot-operated warehouses, most fulfillment centers and warehouses rely on manual labor. In fact, only the largest companies employ and justify advanced automation. Despite the cost prohibitiveness of automation for many companies, manual labor is not cheap, either.
The total 4-walls cost of fulfillment is comprised of direct and indirect labor, total occupancy including amortization and depreciation, and shipping supplies. In our proprietary studies, more than 50% of total 4-walls cost is labor plus a benefit rate of 20% or more. We excluded outbound shipping costs in this comparison because it is larger than the 4-walls cost in some businesses.
In 2000, the minimum wage was $5.15 per hour and some clients paid $6.50 to $7.00. Hourly wages are now $12.00 to $13.00 in many many fulfillment centers and warehouses today. On top of wage increases, benefits are now upwards of 25% in some companies. More than half of states have plans in place for a $15 minimum wage and Congress is considering expanding that rate nationally. With low unemployment, wage rates in some major markets are $15.00 to $17.00 per hour plus benefits.
Overall productivity in many fulfillment and warehousing operations remained flat over the years in many companies. After factoring in the increasing labor rates, productivity in terms of labor dollars has declined.
If labor and benefits are more than 60% of your fulfillment costs, are you spending 60% of your time trying to improve employee productivity? Or are all of your efforts spent getting your orders out?
Are you using the same methods and systems year after year to manage labor while your labor costs go up? Stop doing the same old thing and try our 10 ways to improve productivity:
1. Measure productivity
There is an old industrial engineering axiom, "You can’t improve something you haven’t measured." Do you collect, report, and manage to key productivity metrics for all departments? Many companies are reporting the units of productivity for the warehouse departments of receiving, put away, replenishment, picking, packing, shipping, returns, and inventory control.
If you don’t today, make this a priority to improving productivity and before trying to apply automation. In the table below are 20 companies’ results:
|Less efficient companies||More efficient companies|
|Picking||60-65 units per hour||140-150 units per hour|
|Packing||18-22 boxes per hour||35-40 boxes per hour|
*This chart is for illustrative purpose only and not for actual benchmarking. As you can see, the companies we consult experience a wide range of productivity. Results will differ based on the order profile (number of lines per order), processes used, use of automation (e.g. voice picking) and WMS employed.
Top line metrics are important. But, measuring detail department productivity at a lower level, such as receiving carton by pallets per hour or number of returns and units processed per hour, is where you begin to improve productivity.
2. Streamline functions
Performing a formal assessment of your departments will help to determine how processes can be improved. With your assessment in mind, consider where you should spend your time in process change. In some operations, picking and packing account for more than 50% of the labor cost. Look at these areas first to determine how to reduce the work required.
In picking, upwards of 60% of a picker’s time is spent walking. Some internal studies have shown pickers walk 12 to 14 miles per day. Can you reduce the amount of walking and time to pick by slotting fast-moving product, which is often 20%-30% of the product and can be more than 70% of the dollar sales (Pareto's Law 80/20 rule), to “hot pick” zones in closer proximity?
READ: How to Improve Your E-Commerce Slotting Strategies
Are you using the best picking method for your operation? Methods such as batch, cart/bin, pick to light or voice pick may increase productivity. You can also improve picking by improving replenishment.
We find many times pack stations are cobbled together without a consistent design or purpose. The desk surface is too small. The stations are too tall or too short for workers and lack sufficient temporary storage space for inserts. Stations may also lack an appropriate amount of surface to accommodate tapers and other equipment. Oftentimes, an ergonomically engineered pack station can increase production.
Consider the supply of cartons and their proximity to pack stations. In high transaction businesses, having a dedicated person replenish supplies of cartons instead of packers maximizes packing time.
3. Improve your hiring
Have you ever had a new employee quit because they didn’t understand what the job entailed or didn’t like it once they tried it? No matter how competent the applicant comes across in an interview, you can’t tell how well you’ve hired until they start working.
Here are three ways you can help your new hires start on the right path:
- Some companies experience good results giving prospective employees some limited instruction and then letting them try the work. Determine if there are tests that you can give to assess whether people can perform the work or are a good fit for your culture.
- Use a “buddy system” or mentor program with a seasoned employee in the department to get the new employee off to the best start.
- Look at whether you have an effective training program by function. Will cross training improve production and give you flexibility in staff utilization?
4. Reduce employee turnoverEmployee turnover in warehousing and distribution is 15%-25% or higher. Turnover costs can range from $3,000 to $10,000 in time, training, testing, and the ramp-up to full production. This does not include recruiting expenses such as costs for hiring agencies or employment ads.
Set up a system to track and calculate employee turnover monthly. Establish an exit interview process and monitor insights on why people leave for trends.
5. Improved management of workforceEven with automation, employees are key to controlling costs and keeping customer service high. Review your managerial capabilities and answer these questions:
- Are your fulfillment center managers skillful in managing personnel to increase productivity?
- Are you delegating and empowering your staff to achieve success?
- Do your fulfillment center employees have career paths or opportunity to grow within the company?
- Do you effectively and objectively evaluate the performance and development of your team members?
Better management is the #1 key to improving labor productivity. How are you updating the skills of your department managers? There are almost endless possibilities when you consider the catalog of courses and certifications offered through local and online universities and community colleges.
Do you teach employees about how you make and lose money? Our experience is that warehouse workers that understand these principles become good stakeholders in the future growth and profits of the company.
It doesn't mean you give them your P&L. Help them understand how reducing expenses for the company leads to increased wages and benefits - something everybody wants!
READ: Challenge Employees to Help Make You More Money
6. Give employees feedback
In a common area, display monthly graphs showing performance for the past year in metrics such as cost per order, total error rate, and reported savings. If possible, show the actual performance against forecasted performance.
7. Develop labor budgets by function
Many companies have a total payroll expense by month. Do you have the metrics by function to budget labor dollars based on the orders and returns expected by week and month? The budget should be planned by month, week, and day if possible.
Take your expense planning to a lower level. The key here is to convert the transaction volumes expected to units of work. For example, in picking what are the number of orders, units per order, and units planned by week?
8. Provide incentives
If you have the basics in place, consider using incentives to increase production. Look at your picking, are there superstars hitting high numbers? It is likely that a small group of employees are responsible for 50% of the productivity. Are you paying them the same? If so, consider adding incentive pay to your strategy.
READ: 7 Considerations in Establishing Incentive Pay Plans
9. Improve peak season performance
For businesses with holiday peak, those last six weeks make or break the year. Several ways clients increase the likelihood of a successful peak season include:
- Stay in contact and maintain a relationship with part timers that worked through a peak season.
- Consider using smart bonuses, including a rehiring bonus, stay the season bonus, and referral bonus.
- Use a temp agency to assist with staffing and meet the peak season requirements.
10. Apply automationThe very best long-term solution to improving labor productivity is to apply more automation and technology. The most productive way to start is employing full use of barcode technology to all aspects of warehouse processes. The more advanced technologies like voice picking, robotics, and automated sortation systems will all require barcode as a foundational technology.
Labor costs will continue to rise dramatically. Evaluating these methods and applying them, where applicable, can make big differences in labor use and cost reduction.