The next time you're at an industry trade show, ask the logistics executives in the buffet line next to you to list their biggest headaches in running a warehouse.
Some might mention the surge in e-commerce parcel volume or the painful evolution to omnichannel order fulfillment, but chances are you won't have to wait long before someone brings up warehouse labor turnover. Labor is the biggest operational cost in most DCs, and the expenses associated with high turnover—like recruiting, hiring, and training new workers—only add to the pain.
The industry's continuing struggle with employee turnover was underscored by a recent survey of warehouse performance conducted by DC Velocity in conjunction with the Dedham, Mass.-based consultancy ARC Advisory Group. Among other findings, the study showed that the respondents' track record in controlling turnover lagged well behind their performance in other critical areas, like safety and productivity.
The survey's scope went well beyond labor retention, however. The overall purpose of the study, which was part of an ongoing series of research projects by DCV and ARC, was to identify best practices in warehouse management—that is, to determine what high-performing warehouses are doing that is different from other distribution operations.
As a framework for the analysis, the research team chose a "balanced scorecard" approach that looked at a variety of performance dimensions. Based on previous research, ARC selected the following four measures as the basis for its assessments: productivity, safety, customer service, and people. "A well-run warehouse is productive, [is] safe, contributes to high customer service, and develops the skills of its purpose," wrote survey author Steve Banker, vice president of supply chain services at ARC, in his report. As for how the respondents stacked up against those criteria, the results were decidedly mixed. While the majority managed to earn high scores in at least one of the four areas, very few (less than 17 percent) performed well across all of the dimensions studied. (See Exhibit 1.) Overall, the respondents did best when it came to safety, with a full 87.6 percent earning high marks in this area. At the other end of the scale was their performance in what ARC called the "people" dimension (their treatment of employees). Only 39.2 percent excelled against this metric—defined for purposes of the study as having a turnover rate of less than 10 percent per year.
THE SCOPE OF THE PROBLEM
Given the drag that high turnover can have on a warehouse operation, the research team decided to take a closer look at the problem, and what they found was dismal indeed. When respondents were asked about their operation's turnover rate, the majority of the answers were in the double digits. Nearly one-third (29.5 percent) reported turnover of between 10 and 25 percent, and an almost equal proportion (29 percent) reported turnover of between 25 and 100 percent. At the bottom of the scale, 2.3 percent reported turnover of over 100 percent per year. (See Exhibit 2.)
The picture was even gloomier when it came to turnover among temporary workers (temps are considered to have "turned over" if they decide to leave before the end of the full period they could have worked). When asked about their temporary labor "churn," fewer than 30 percent of respondents reported turnover rates of under 10 percent. Some 37 percent reported turnover of between 10 and 50 percent, and 22.5 percent reported turnover of between 50 and 100 percent. And that wasn't even the bottom of the scale: More than 10 percent of respondents reported that turnover among temporary workers exceeded 100 percent per year. (See Exhibit 3.)
The survey also offered some insight into the productivity loss associated with that turnover. When asked how long it took to bring a new employee up to speed, only 28.5 percent of respondents said they could do it in under a month. Another 43 percent said it took one to two months of training, while 20.9 percent said it took two to three months. The remainder said the process required more than three months. (See Exhibit 4.)
It's worth noting that the big DCs have a harder time retaining workers than their smaller counterparts do. Among companies with over 200 employees, only 28 percent of respondents reported employee turnover of less than 10 percent. Among companies with less than 25 employees, by contrast, nearly half of the respondents (46 percent) reported a sub-10-percent turnover rate.
That raises the question of what these "stickier" warehouses are doing that leads to better retention. In an attempt to get some answers, the ARC team examined more than 20 factors that could logically be linked to retention. But that proved to be an unrewarding exercise. Of all the attributes studied, just one turned out to have what the researchers termed "strong explanatory value," or a solid statistical correlation to retention: providing a clean warehouse environment.
The researchers had slightly better luck when they narrowed their focus to temp workers only, finding three factors that correlated with retention. They were: operating a small warehouse (fewer than 25 employees), having a high proportion of full-time employees (more than 90 percent of the total work force), and—counter-intuitively—avoiding employment agencies that specialize in warehousing.
NINE PRACTICES OF TOP PERFORMERS
Although the survey failed to deliver a roadmap to boosting labor retention, the results did provide useful insights into practices that contribute to overall excellence in warehouse operations—in other words, what top-performing operations are doing differently from the rest of the pack.
To identify those practices, the research team homed in on the top-tier operations—the 16.5 percent of respondents whose operations performed well across all four dimensions studied (safety, productivity, customer service, and people). Specifically, the team looked at 45 factors that could possibly help explain that high performance. Of those factors, the researchers found nine practices that were common to high-performing warehouses. They are as follows:
- Maintaining a well-lit warehouse
- Maintaining a clean warehouse
- Paying at least 50 percent more than minimum wage
- Offering non-financial remuneration (food, time off, etc.) for high performance
- Using high-speed conveyors and sortation equipment
- Having managers frequently monitor individuals as they do their jobs and provide on-the-spot positive reinforcement
- Conducting "360-degree" reviews of managers, which include feedback from the manager's subordinates as well as from his/her peers and supervisor
- Training managers in providing effective feedback
- Monitoring workers at least once a month to make sure standard operating procedures and best practices are being followed. While none of these business strategies had a high statistical correlation with a specific dimension of warehouse performance—such as customer service or safety—they were all standard practice at the top one-sixth of warehouses that demonstrated excellence across the board.
As for the practices themselves, Banker noted that there was one common thread among them: top-quality management.
"Management matters! More than half the practices that contribute to excellence are related to management techniques," Banker wrote in the report. "Good management is something that can be learned," he added. "Being trained in giving effective feedback helps. And 360-degree reviews where managers see what their subordinates say about them help managers learn what is working and what is not." In addition to adopting the nine best practices listed above, Banker noted that there was one other simple thing companies could do to up their game: encourage their managers to be diligent. "Diligence counts," he wrote. "A good warehouse manager is not sitting in his office; he is out on the floor observing and interacting with people."
The "Best Practices for Achieving Excellence in Warehouse Operations" survey was conducted by ARC Advisory Group in conjunction with DC Velocity. Steve Banker, vice president of supply chain services at ARC, oversaw the research and compiled the results. The study was conducted via an online poll in the first quarter of 2017, with a total of 176 industry executives completing the 32-question survey. Of those respondents, more than half (51 percent) had a title of director or higher. The majority were from North America.
As for the warehouses profiled in the study, the operations ran the gamut when it came to size. Some 22.3 percent of respondents worked in operations with fewer than 25 employees. At the other end of the spectrum, 21.7 percent said their operations employed more than 200. (See Exhibit 5.)
When asked how orders are picked in their facilities, the majority (50.6 percent) said each-picking was the most common type of picking performed on-site. That was followed by case picking (20.2 percent) and building mixed-case pallets (12.2 percent). (See Exhibit 6.)
When it came to the technologies used in these warehouse operations, forklifts were far and away the most common choice, cited by 97.5 percent of respondents. Other frequently used technologies included bar-code scanners (90.6 percent) and warehouse management systems (84.4 percent). (See Exhibit 7.)
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