For distribution organizations, like many other enterprises, labor is one of the top areas of “controllable” spend. For US distribution-related organizations, labor costs as a percentage of revenue are typically second only to logistics costs—and our recent work in the market validates this theory. As a result, we have seen sustained focus on efficiency, lean principles, and continuous improvement as a means of optimizing workforce performance.
A variety of factors—ranging from advances in automation to regulation and wage rates to the evolving trend toward working beyond typical retirement age—are challenging the workforce optimization landscape and creating new complexity for employers.
This was the topic of conversation at a recent breakfast panel hosted by West Monroe and The Supply and Value Chain Center of the Quinlan School of Business of Loyola University Chicago, which brings together supply chain practitioners and executives from Chicago-area companies for networking and thought leadership around leading-edge strategies and practical approaches for managing the end-to-end supply chain. A member of this organization for past two years, West Monroe Partners participated in the panel, along with representatives from Amazon, Oberweis Dairy, US Foods, and Loyola faculty.
While the panelists prepared topics, the engaged audience came with its own agenda—and a stimulating discussion followed. These are some of the key themes that emerged. Each of these holds implications and opportunities for distribution enterprises—and, frankly, for organizations in many other sectors as well.
Increasing automation. The drive toward greater and greater efficiency as a means of controlling labor cost more often than not leads to the topic of automation. It doesn’t help that technology companies are knocking on doors, selling the “magic pill,” whether that is fancy new conveyors or driverless truck technology. But these emerging technologies are expensive—and many are largely unproven or prohibited by regulation.
Technology does, of course, offer great potential for distribution environments. But it is important to keep in mind that acquiring technology to increase automation doesn’t eliminate the need for labor; it merely transfers the need for skills to people who can design and run automated systems.
The leading reason for new technology “failure” is insufficient investment in and execution of training and change initiatives. Therefore, it is important to approach automation initiatives with the perspective that they are still a “people thing.” Investments in new technology must be coupled with decisions about how the company will take care of its people, train them and manage the change associated with new technology. Better yet, technology investment decisions should be preceded by a healthy understanding of current degree of workforce optimization and by thorough consideration of other strategies, such as wage incentives, that can improve it.
Attracting and retaining workers. Real estate costs are driving distribution facilities farther out into the suburbs—but at a time when many Americans are moving back to the city. The importance of location will vary based on the business and necessary skill sets. But location can be a key factor in attracting and retaining people, so it is critical to make decisions based on all relevant factors and not solely based on real estate costs. This requires access to good data.
People want to work for organizations that care about employees—so employers need to find ways to demonstrate this. For example, organizations operate dozens of different shifts in its distribution centers to suit an array of employee needs. This is challenging for the company operationally but a key way of demonstrating its “people friendliness.” Likewise, a company that makes a point of showcasing its air-conditioned distribution centers is showing concern and care for its workers.
Another evolving consideration is the use of social media to attract and engage employees and actively manage reputation. For example, the audience heard how some companies use Facebook to support recruiting efforts and how others pre-emptively buy Internet domains in order to control messaging from them. For organizations and cultures not familiar with social media, the panel examined strategies such as engaging millennial workers in social media production and execution.
Managing a multigenerational workforce. While a lot of focus is on millennials, which now comprise the largest segment of the US labor force, a growing number of workers are remaining in the workforce at or even well past typical retirement age. This requires consideration for the physical demands of work on older employees, as well as potential safety implications. The panel discussed ideas for addressing the needs of older workers, such as transitioning them to less taxing positions (shuttle drivers rather than local delivery drivers). For example, some companies have offered some older workers training roles when they no longer can perform functions physically.