Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
Distribution center managers often feel like they're caught between two inexorable forces: rising demand for fast, accurate order fulfillment and a shrinking labor pool that makes it hard to find employees to do the work.
While there's no shortage of vendors who claim to have the perfect solution to the problem—whether it's smartphone apps, mobile robots, or the Internet of Things—those fixes are still a ways off. In the meantime, DCs must rely on human employees to provide the lightning-fast fulfillment services that e-tailers like Amazon.com have conditioned consumers to expect.
As any DC manager can attest, finding, keeping, and getting the most from those workers can be a serious challenge. So to uncover the best practices in warehouse labor management, DC Velocity teamed up with the Dedham, Mass.-based consultancy ARC Advisory Group to conduct a survey that tracks which labor management strategies are the most popular with DC managers and how they're being applied in day-to-day operations.
The study, which is part of an ongoing series of research projects by DCV and ARC, follows a similar survey we conducted last year [see
in our July 2017 issue]. That survey revealed that most DC managers struggled to keep worker turnover below 10 percent. And the results showed that while there is no silver bullet for labor retention, there were certain management practices that were common to the top-performing warehouse operations. So in 2018, we returned to this topic and dug deep into best practices in warehouse management to identify strategies that could help you cut turnover and boost DC performance. (See "About the study" sidebar for details and demographic information on the survey respondents.)
A GOOD EMPLOYEE IS HARD TO FIND
Our survey results showed that it's not your imagination—it really is harder to find employees than it was five years ago. When respondents were asked how many applicants they got per open job, the most common response was two to five people. That represented a significant drop from 2013, when respondents said they typically had six to 10 applicants for every job. (See Exhibit 1.)
In response to that dearth of applicants, employers are lowering their standards for the warehouse workers they hire. For example, many warehouse managers have eased back on their requirement for previous warehouse experience. Nearly half (49.5 percent) of respondents said they are more likely to hire a worker with no prior experience today than they were five years ago, while just 17.2 percent said they are less likely to do so. (See Exhibit 2.) As for the level of experience of workers currently on the DC floor, 61.2 percent of respondents said less than half their new hires had warehouse experience. (See Exhibit 3.)
Another measure of how hiring standards in the DC are changing is the rising proportion of warehouses that are willing to hire workers with a criminal record. While only 37.7 percent of respondents said they hire workers with a record, it's clear that attitudes are starting to change. Fully half of respondents said they were more likely to hire an employee with a record today than they were five years ago, while just 3.8 percent said they were less likely to do so.
FOUR TECHNIQUES USED IN LOW-TURNOVER DCs
Keeping a warehouse running smoothly in a tight labor market is a challenging task, so employers are looking for the best way to retain their top workers. Our previous research has shown that there is no "secret sauce" for labor retention, but that warehouses with low turnover rates often share some common business management practices.
"What we found last year is that management matters, whether it's for safety, labor retention, being productive, or doing accurate work," said survey author Steve Banker, vice president of supply chain services at ARC, in an interview."People who are good at those things tended to also do things like conduct 360-degree reviews and run continuous improvement programs. Those efforts to manage and engage people were what made them successful."
For this year's survey, the researchers returned to that central point, digging deeper to identify how closely those common management practices are followed and to highlight differences in how they are applied. Specifically, they examined four management strategies and asked respondents whether they deployed those techniques. (While the survey did not tie specific management practices to improvements in labor retention, it did find a statistical correlation between organizations that follow the practices and those that reported lower turnover.) Those practices are as follows:
1. The 360-degree review. Unlike a traditional performance review, which relies almost exclusively on feedback from the worker's supervisor, the 360-degree review includes input not just from the worker's boss but from his or her colleagues and their assistants as well.
More than 51 percent of respondents to our survey said they practice 360-degree reviews, soliciting feedback from a variety of sources on an employee's performance in areas like communication (92.5 percent), teamwork (90.6 percent), leadership (83 percent), collaboration (81.1 percent), and decision-making (67.9 percent).
One of the keys to conducting a successful 360-degree review is promising anonymity to floor-level employees when asking them to evaluate their superiors. "Without keeping it anonymous, you're probably not going to get as much out of it as if you did," Banker said. And indeed, 92.3 percent of respondents who conducted such reviews said they kept the responses confidential.
2. Training managers on effective coaching techniques.
While there may be no one right way to coach employees, there are plenty of wrong ways—failing to provide timely feedback, yelling, and offering vague (or unhelpful) criticism, to name a few. To help keep coaching sessions from going off track, nearly three-quarters (73.5 percent) of respondents said they provide training to managers on how to give effective performance feedback. In fact, they consider this training so important that most companies provide it repeatedly, offering instruction to managers when they are hired or promoted (44.6 percent), through a refresher course every year (42.2 percent), and after a performance review if necessary (30.1 percent).
As for what's typically covered in the training, topics range from the timing of the feedback to the clarity of the content to the method of presentation. In many cases, the sessions also included a rundown on the facility's standard operating procedures (SOPs). (See Exhibit 4.)
3. Developing objective performance measures. While it's common practice in DCs to measure employees' performance, the researchers found there is no clear agreement on the best way to do it.
For instance, when it came to the basis for the feedback, the survey found a wide variety of industry practices. Nearly 51 percent of respondents said they based their feedback on whether employees were following "fully documented" SOPs. But plenty of others were forced to rely on murkier standards: The remaining 49 percent said their assessments were based on SOPs they described as "mostly" or "poorly" documented.
Likewise, while 46.8 percent of respondents based employment feedback on labor standards set through engineered standards, 41.5 percent said they set labor standards "we think are fair," and 11.7 percent had no labor standards whatsoever. Companies also varied in their ability to document the feedback they gave employees, with 51.1 percent saying the feedback is not consistently recorded.
4. Continuous improvement.
Sometimes known as Lean or Kaizen initiatives, continuous improvement programs are ongoing efforts to streamline workflows and eliminate inefficiencies. They typically follow a four-step process, where teams identify opportunities, plan improvements, execute changes, and review their impact—then start over again.
While the practice is common in corporate America, our survey found that it is applied sporadically in warehouse logistics. When we asked respondents how many of their floor-level employees engaged in continuous improvement projects, the answers were all over the map. At the high end of the range were the 27 percent who said more than 20 percent of their employees participated in this type of program. At the other end of the spectrum, 25.3 percent reported that less than 5 percent of their workers were involved in continuous improvement efforts, and 13.5 percent said they didn't practice continuous improvement at all. (See Exhibit 5.)
The results of the 2018 ARC and DCV labor management survey provide a yardstick on how the industry is applying common management practices in the face of growing labor recruitment and retention challenges.
The study documented specific management practices and provided a measure of where logistics industry leaders are applying them well and where they could use improvement. The results revealed that some practices—such as the 360-degree review and training managers on proper coaching techniques—are widely followed, while other techniques—including developing objective performance standards and continuous improvement—are deployed only occasionally. Further study will be required to track the impact of these trends on companies' success in reducing turnover.
About the study
The "Best Practices in Warehouse Labor Management" 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 January and February of 2018, with a total of 134 industry executives completing the 21-question survey.
Of those respondents, 54 percent had a title of director, vice president, or higher. The majority were from North America. The warehouses profiled in the study were operated by businesses in a variety of industries, with more than half coming from the retail, third-party logistics, or distribution sectors. (See Exhibit 7.)
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.