In athletics, successful teams are built on experienced, skilled players and bench strength. The same is true for retail fulfillment. Having a strong team of knowledgeable distribution center (DC) associates backed up by a dependable supplemental workforce is essential for serving consumers with same day and next-day fulfillment.
Unfortunately, it is not easy to build rapid fulfillment capabilities in the current labor market. Citing historically low unemployment rates and challenging DC working conditions, executives interviewed for Auburn University's 2019 State of Retail Supply Chain study are straining to maintain the hourly labor staffing levels needed to handle peak demand. Overcoming this labor availability challenge—along with leveraging disruptive technology and digitizing the supply chain—is cited by retail supply chain executives as a top priority this year.
"We are genuinely concerned about the labor supply," noted the chief supply chain officer of a national discount store chain. "I have been in this business for 30 years and have never seen anything like it. In an environment with a 3.7-percent unemployment rate, the last thing people want to do is work in a hot warehouse and lift heavy boxes all day long."
These concerns were echoed by multiple interviewees who also cited night and weekend shifts, physically demanding and repetitive work, and low wages as key contributors to their labor shortage situation. While the problem begins with attracting and hiring applicants, retaining hourly associates is proving to be even more problematic. Turnover can be extremely high; one retailer suffers from an average of 64 percent turnover among hourly workers with some DCs exceeding 200 percent.
"The amount of churn that we see in the first month to two months or three months of somebody coming onboard is incredible," said another senior vice president. "Our DC turnover rate is probably 50 or 60 percent."
High turnover creates a number of retail DC challenges. First and foremost is a shortage of resources needed to meet fulfillment schedules. Low productivity of new associates is another chronic issue. Also, because DC supervisors have to focus their energies on onboarding and training new associates, they have less time to promote operational excellence. But the protracted turnover problem extends further.
There are also fatigue and morale factors at work. "Quite frankly, my supervisors are tired of training the next group of new hires," an executive conceded. "Especially when they have no confidence that many new hires will be there for more than four weeks."
Safety is another turnover casualty. "When we look at who's being injured in our buildings, it's not the worker who's been there for five years," acknowledged a senior vice president. "It's typically the worker who's been there for two months or less."
Finally, expertise wanes when longtime DC associates quit for other opportunities. The loss of operational experience means that new hires are not working alongside skilled, productive trainers. Tribal knowledge regarding best practices and time-saving methods is lost.
Time to get proactive
When these DC labor challenges becoming chronic, traditional talent management practices are futile. Supply chain executives realize that being proactive is essential to maintain proper staffing levels. Our research uncovered six creative strategies being adopted by leading retailers to find and retain quality DC associates.
Increase wages. With Amazon and others offering US$15 per hour, competitive pay is a necessity. Some retailers are making market adjustments to hourly wages for DC associates. Others are increasing wage differentials for night and weekend shifts. Incentive rates are being offered more frequently.
One retailer has modified its pay scale to boost retention. "If an associate succeeds in the probationary period and we offer a full-time role, we don't want to lose out on that investment and capacity," said a grocery chain vice president. "We take them directly to max pay after 90 days instead of a series of increases over two years."
Provide benefits.Compensation considerations must go beyond hourly rate increases. To attract desirable candidates, retailers are increasing the use of full-time roles with benefits. One retailer is offering benefits to associates who work at least 30 hours per week. Some allow associates to choose from a flexible "benefits menu" to align with their individual needs.
A hard goods retail executive thinks that the additional cost is worth it. He indicated that benefits add 30 percent to the hourly wage rate, "but we believe full-time associates are twice as productive as part-timers."
Use technology.While many retailers cannot afford total DC automation, they are deploying assistive technologies to ease workloads and boost peak capacity throughput. Retailers are using collaborative robots to engage associates and keep them on task. Goods-to-person systems reduce travel time in large retail DCs. Product lifting and handling technologies improve ergonomics and cut down on costly injuries.
These investments are necessary and provide tangible payoffs. "When I have to pay US$15.00 an hour but still don't have enough people in some locations to meet my volume goals, goods-to-person and robotics are enticing," said a soft goods retail executive. "Plus, investing in better technologies achieves double the throughput and double the productivity in our new fulfillment centers."
Create culture.Technology will only go so far in retaining hourly talent. Supply chain leaders are taking steps to create a positive DC environment. Executives stressed the importance of creating better onboarding and training processes, treating associates with respect, providing safe working conditions, and offering on-site amenities like updated breakrooms, air-conditioned facilities, and a wellness center.
Collectively, these efforts create a positive environment. "Differentiate the culture so that people won't go down the road for fifty cents more per hour," a hard goods retail executive suggested. "We play up our culture, profit-sharing plan, and stock purchase program to show folks that it isn't just about your paycheck every two weeks."
Rethink schedules.The 24/7 nature of DC operations makes it difficult to attract younger workers who desire gig-style employment and flexible scheduling options.
"There's a percentage of the workforce that we need locked into normal shift schedules, but we're entertaining more flexible shifts," said an apparel retail senior vice president of supply chain. "In order to do that, we need to reengineer the way we lead. We have to reimagine how we train and supervise folks when they're in our DCs."
One way that retailers are trying to increase schedule flexibility is by giving associates greater control through mobile apps that allow individuals to swap their shifts, message their team members, and manage their schedules. Those with facilities in close proximity are cross-training associates to work at multiple locations and have more scheduling flexibility.
Pursue nontraditionals.With the country reportedly at near full employment, retailers are looking beyond traditional labor pools to find people. DCs located near college campuses have a built-in pool of candidates for evening shifts. Walgreens and other retailers have found a strong and dependable workforce in hiring people with disabilities.
One soft goods retailer has found nomadic retirees to be a valuable labor source. "Workampers.com is a very effective program that we tapped into at two e-commerce operations this past peak season," explained the senior operations director. "Workampers connects us to retirees who live in motorhomes full time. We provide them a place to park, and they do a month's work at the DC. They show up on time, have great attitudes, and don't miss work. Their commitment is far superior to just about any other source of temporary or seasonal labor that we've been able to tap."
While these six strategies may seem expensive and time-consuming, retailers realize that traditional low-cost newspaper ads and "now hiring" signs in front of facilities are no longer effective. The historically tight labor market requires creative approaches to recruiting, hiring, and retaining DC talent.
Editor's Note: This is the first in a series of four online articles looking at the results from the "Ninth Annual State of Retail Supply Chain Study."