Automation is Key to Solving Labor Challenges - Fortna

    Automation is Key to Solving Labour Challenges

    by Ted Dunham

    Until recently, companies invested in technology primarily because it improved productivity and reduced costs. With demand for labour outpacing supply, companies are implementing automation as a requirement for business continuity.

    Today’s distribution automation projects are almost all driven on some level by the need to optimise fulfilment using the workers already on the payroll. As the industry shifts from just-in-time to just-in-case, more warehouses, and warehouse jobs, are needed more than ever. The labour gap continues to grow at the same time as the shift to eCommerce is requiring more labour to support demand. In today’s tight labour market, simply sustaining profitable fulfilment operations will require more automation support. Additionally, supply chain executives will need help building a strong, independent point of view on the implicit trade-offs of higher automation versus traditional modes of distribution optimisation.

    The Labor Challenge in Numbers

    According to the Bureau of Labour Statistics:

    • There are over 10 million open jobs in the US.
    • Numbers of warehouse and transportation jobs have increased 57% in the last five years. It is currently the second highest growth job sector.
    • The average turnover rate for workers in this industry is 33%.
    • The turnover rate is closer to 100% in locations where Amazon has fulfilment centres, according to a study by the National Employment Law Project.

    Labour at a Pivot Point

    Distribution managers are struggling to fill the labour gap in a highly competitive market where workforce participation is at its lowest level since 1976. Despite a 21% increase in average hourly wages for logistics employees over the last decade, Millennials show little desire to work in warehouse jobs. They bring a different set of values to their career choice.  Warehouse work just doesn’t tick the right boxes for them. With alternative labour pools tapped and earnings adjustments addressed, labour elasticity has been stretched to its virtual limit. Demand for labour has simply outpaced supply.

    Seasonal hiring ahead of the 2021 holidays is shaping up to be more difficult than ever and a massive disappointment for employers, with many vying for the same workers as:

    Seasonal Workers

    In their fulfilment centres and warehouses, retailers are also looking for record numbers:

    Retail Workers

    Investments in Technology Are Needed

    The bottom line: Distribution is a labour-intensive industry and the shift to eCommerce is increasing the burden on companies to hire and retain more workers at a time when workers are scarce, and turnover is high. Compounding the problem, eCommerce fulfilment operations require 2-3 times more labour than traditional warehouse operations. Companies must look to automation technology alternatives to meet the operational requirements. The time for transformational change is now. Supply chain leaders must pivot quickly to future proof their organisations, making them robust and resilient to the next disruption.

    What they do next and how quickly they act could make or break the future of their organisations. Supply chain resiliency has emerged as a true differentiator in business performance and long-term viability.

    When you translate growth projections into the number of people needed, it doesn’t take long to realise you can’t get there from here.  Investments in technology are required to reduce the risk to the enterprise.

    A MAJOR RETAILER INCREASED PRODUCTIVITY BY 39% AND REDUCED SEASONAL LABOUR BY 33% BY AUTOMATING AND STREAMLINING PROCESSES FOR FEWER TOUCHES AND REDUCED TRAVEL.

    New Rules for Technology Justification

    Investment decisions that used to be based solely on ROI and payback period, now include the opportunity cost of not being able to secure labour and fulfil orders quickly. The value of resilience and future proofing the business must be factored into the business case.

    Automation can still be justified by the savings in labour costs (wages, recruiting, training, safety) and accuracy. However, there are now new levers to consider. Today’s supply chain is no longer a cost centre to be managed, but rather a key enabler of the business, responsible for revenue lift and business growth. Automation unlocks the value of delivering on the brand promises and competitive advantage. Additionally, certain technologies lend themselves to capital savings as they reduce the space required for storage and order processing.

    As part of a holistic business case, consider, and seek to quantify, the value of:

    • Competitive advantage that comes from increasing fulfilment speed, expanding the offering or opening new markets.
    • Customer loyalty that comes from improved service levels and additional value-added services.
    • Flexibility to react or scale quickly in response to changing market dynamics.
    • Orchestration and optimisation of resources by intelligent software using real-time data.
    • Working capital reduction that comes from sharing inventory across channels, centralising inventory and/or fulfiling smaller orders, more frequently.
    • Human-centered Savings. Automated buildings don’t require large breakrooms or restrooms, gyms, childcare, cafeterias. Automation doesn’t need performance reviews, sick days, culture enhancements, team meetings, PPE equipment, sanitation stations, or physical distancing to operate.

    THE NEED TO HIRE 600 WORKERS TO SUPPORT FORECASTED GROWTH DROVE THE DECISION TO INVEST IN GOODS-TO-PERSON TECHNOLOGY.

    Determining the Right Automation for Your Business

    Making the decision to automate is only half the battle. With so many new technology suppliers in the market – it can be hard to know where to begin. Begin with the end in mind. Holistically define the business outcomes at the forefront of the operating calendar and strategic plan. Start with the business requirements which should always drive the solution. Next, look at a range of solutions. Don’t be seduced by technology because it is new and shiny. Consider viable alternative technologies, including more mature, proven technologies that have been tested and exposed to the rigors of peak demand. Look for the solution that meets the goals with the lowest investment possible.  Higher investment options might deliver negligible returns.

    Next, look hard at the flexibility of each technology option. The last couple of years have taught us that we can expect disruption to continue into an unknown future. Change the parameters of the business case and see if your design is flexible enough to adapt to a different set of business conditions. Change the throughput rates, labour costs, growth projections, order profiles, channel mix – and see how sensitive each technology is to changing conditions.

    Consider what it will take to successfully adopt each new technology.  How much change is required of the business to achieve the intended results, and are your people prepared to make the type of changes required?  This should also include looking at changes needed to IT infrastructure and any re-skilling or technical skills required to run and maintain the new systems.

    Finally, don’t over-invest when the future is still so uncertain. Focus on resilience. The goal should be to “no regrets” investments in automation that allow you to pivot as circumstances change.

    40% OF COMPANIES WORLD-WIDE ARE INCREASING THEIR USE OF AUTOMATION.

    Fortna Can Help

    Fortna helps companies design and implement warehouse automation solutions and labour strategies overcome the challenges that stand in the way of growth and profitability. Advanced technologies including robotics, goods-to-person and other automation tools are easier to justify than ever in a tight labour market. Are you looking for new ways to address labour challenges? The Distribution Experts at Fortna can help. Contact us today.

    Click for more insights on:
    Automation SolutionseCommerce Fulfilment  |  Warehouse Robots

    ABOUT THE AUTHOR

    photo-of-ted-dunham-chief-revenue-officer

    Ted Dunham

    Chief Revenue Officer

    Ted is responsible for global sales, marketing, and business development at Fortna. He leads commercial initiatives that include innovative solutioning with robotics, intelligent software, and advanced technologies. With a proven record in driving successful business outcomes, he helps business leaders translate strategy into action.