July 27, 2017
strategy | Workforce Management

For DCs, the (hiring) heat is on

For DCs, the (hiring) heat is on

Amazon's explosive expansion in fulfillment center operations will drive up demand for warehouse labor. The question is to what degree.

By Mark B. Solomon

Amazon.com Inc. never arrives in towns empty-handed. Whether it be pre-payment of 95 percent of employee tuition to pursue careers in high-growth industries, classroom training within its fulfillment centers, benefits that start on the first day of employment, or 20 weeks of paid maternity leave, the Seattle-based e-tailing giant will do whatever's needed to grab qualified DC labor.

This "PacMan" gobble-up strategy is a necessity given Amazon's fulfillment center growth. It plans to add 45 distribution or fulfillment centers in the U.S. alone over the next two years, according to estimates from MWPVL Inc., a consultancy that tracks Amazon. As of June, Amazon operated 244 U.S. facilities, 105 of those being DCs or fulfillment centers, MWPVL said.

Amazon said in January it planned to hire 100,000 full-time employees by mid-2018, a goal it expects to achieve given what it sees as strong and sustainable application activity. According to MWPVL, Amazon currently employs an estimated 127,000 full-time and at least 54,000 seasonal workers, although the consultancy believes the seasonal labor force may be much higher than that. Notoriously tight-lipped Amazon declined an interview request for this story.

Amazon's wage rates will vary depending on conditions in specific markets. It has said that while it believes it pays competitive wages, the true value of its compensation package lies in the numerous ancillary benefits. It is consistently in the top quartile of payers, according to ProLogistix, a division of Atlanta-based EmployBridge that specializes in warehouse and DC staffing.

Amazon's expansion, combined with a pickup in fulfillment demand from the growth of e-commerce and a multidecade low in overall U.S. unemployment, has been responsible for a $1.70-an-hour jump in DC worker wages since 2011 to $12.13 an hour, according to ProLogistix. (Wages during the peak fulfillment month of December have risen at a faster clip.) While that may not seem like much, it should be noted that worker wages increased a puny 15 cents an hour from 2002 to 2012, according to ProLogistix data. In some markets, Amazon will pay up to $2 an hour more than other warehouse and DC employers.

In an annual warehouse employee opinion poll conducted among DC workers who are ProLogistix employees, 59 percent said they are now making $12 an hour or more, up from 26 percent in 2014. Of employees who changed jobs for higher pay, around 30 percent said their new job paid more than $2 an hour above their previous one. In some cases, hourly increases are approaching $3, according to Brian Devine, ProLogistix's president.

Amazon's facilities are often clustered near competitors' locations, which can put pressure on labor cost and availability because multiple companies are drawing from the same labor pool, Devine said. Michael Mikitka, chief executive officer of the Warehousing Education and Research Council (WERC), said some members have told him of shrinking labor availability in the markets where Amazon opens a facility.

Amazon's growth has created a ripple effect as well. The Raymond Corp., a Greene, N.Y.-based forklift manufacturer and a big Amazon supplier, is increasingly relying on its dealership network to support busy in-house technicians in providing repair and maintenance services, according to Jim O'Brien, Raymond's vice president of telematics. Part of that can be attributed to Amazon's growth and the demands it puts on fulfillment center vendors like Raymond, O'Brien said. Overall, however, Raymond's labor challenges have been moderate but not severe.

WHAT'S THE PROBLEM?

It's a given that Amazon influences the ebb and flow of warehouse and DC labor. The question is to what degree. While the official U.S. unemployment rate hovers around 4.2 percent, there are still around 95 million people over the age of 16 who, for one reason or another, are not in the work force, said Devine of ProLogistix, citing U.S. Department of Labor data. Being able to utilize even a fraction of that number could alleviate labor strains in the warehouse, he said.

The key would be for warehouse managers to adjust their time-honored practices, whether it means relaxing time-off requirements, staggering worker schedules, or, in the case of older workers, accepting the reality that they move a little slower, Devine said. "There is enough labor out there. Just not in the traditional sense," he said.

Mikitka of WERC said the same people who described wage and availability concerns when Amazon builds a facility also said that, if a market is tight enough, any company can alter the supply-demand balance simply by entering it.

The consensus is that current labor conditions would be tight even if Amazon didn't exist. That's because as big as Amazon has become, it does not dominate an $18 trillion economy. O'Brien of Raymond posits that if Amazon weren't around to capitalize on e-commerce's potential, another company would have done so, noting that U.S. consumer trends were ripe for the type of revolution under way today.

At the same time, however, there is a sense that Amazon isn't doling out any pain that it isn't bringing on itself through its rapid growth. "Right now, finding labor is the single biggest challenge across the board for everyone, and especially [for] Amazon," said Marc Wulfraat, president of MWPVL.

If a labor shortage and the higher costs that accompany it persist, folks shouldn't count on a shift to automation to provide substantial relief. Amazon itself has said that its objective is not to use automation to replace its work force, but to supplement it by freeing humans to handle more value-added functions. Devine of ProLogistix, who has long held the view that it would be virtually impossible for technology to substitute for the aggregate value of so many workers, echoed that sentiment. "What we will see automation do is make people more accurate and productive in their work," he said.

Devine said he doesn't foresee any time within the next decade where warehouse automation will make a dent in the continued need for human labor.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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