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 "Nine ways to boost warehouse performance (and cut turnover)" 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.
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.)