The supply chain industry faces extraordinary pressure to deliver products faster than ever before while also holding down costs. To do both of those things simultaneously will require relentless innovation and major improvements in efficiency. And we have to achieve all that in one of the tightest labor markets in history.
The workforce is changing
In America, one in five workers is over the age of 65. The U.S. unemployment rate sits just above a 20-year low at 4%, and economists at the Federal Reserve project the rate will stay between 3.7% and 4.8% through 2020. Given the pending retirements of the aging Baby Boomer generation and stagnant U.S. birth rates, we won’t likely see an increase in labor force participation.
As a result, businesses simply do not have access to the human capital—on reasonable economic terms—required to operate our tactical supply chain systems. You’ll have a hard time finding anybody in the logistics business that isn’t facing labor shortages, and the workers today need more specialized skills to make use of the technology and data-driven innovation that is transforming our industry.
Automating operations and workflow impacts personnel
We also have to implement automated processes wherever possible, to free up workers from managing relatively mundane, inefficient, and repeatable tasks like warehouse order fulfillment and box construction.
That means rethinking our traditional “man-to-goods” approach to material handling, which was appropriate in an era when warehouses had a prolific mix of stock keeping units (SKUs), seasonality was highly volatile, and demand forecasting tools were primitive. Today, we must embrace more “goods-to-man” solutions, which reduce our dependence on relatively stagnant local workforces. Goods-to-man solutions involve robots, conveyors, put walls, palletizing stations, sortation lanes, etc. And “goods to man” eliminates all the lost time with employees moving from location to location to pick inventory which is highly inefficient and a non-value added activity within the warehouse.
This includes using workforce management tools to build and deploy a deep bench of trained employees, who may prefer flexible or non-traditional work schedules. Companies can now use social media to attract and communicate with seasonal or contingent workers. Prime age employees (between the ages of 25-54) often prefer different communication methods than previous generations. And given this group’s labor force participation rate of more than 80%, it’s worth going the extra mile to connect with them.
Creating a worthwhile footprint
Technology is dramatically increasing the efficiency of previously underutilized assets. Half-empty buildings during seasonal lulls are wasteful and expensive. There’s a trend toward building larger industrial facilities, with more dock doors and expansive drop lots to accommodate omnichannel distribution and eCommerce fulfillment at higher utilization rates.
My peers in the industry tell me that they plan for a warehouse vacancy rate of 5-10% in their budgets. For a typical third-party logistics provider (3PL) with thirty million square feet of space, that means they have as much as three million vacant square feet at any given time. At the average lease rate for Class A U.S. industrial space built since 1995, that vacancy represents as much as $18 million of wasted space each year for every 3PL.
Leveraging data and technology boosts efficiency
The advent of big data has brought much needed clarity and discipline to logistics planning. We now have much more quantitative and reliable information after decades of constantly adjusting to fickle consumer demand signals. Our ability to analyze large amounts of data including sales information by SKU, SKU affinity, customer order trends, and client service level agreements (SLAs), has led to dramatic improvements in labor, shipping, and storage expense. We are much more likely to have the right product, in the right place, at the right time.
Today, eCommerce customers are much more analytical about the unit cost of order fulfillment and shipping costs, which leads directly to improvement in the bottom line. Internet retailers are now more willing to “run a tail” on their open orders than they were in years past when the edict was “ship clean today regardless of cost.”
Also, since most small parcel carriers have gone to dimension/density rate matrices, minimizing the shipping container size and eliminating as much void fill as possible reduces the container size and provides the customer with the least amount of material to recycle.
Supply chain transformation
The supply chain industry today faces major challenges. Consumers increasingly expect fast, convenient, low-cost shopping experiences, and merchants require logistics excellence that would have seemed unthinkable a few years back. To meet those demands, the supply chain industry will need to work harder to attract new employees and invest in the technology and training to help them succeed. And it’s here—echoing many of the insights from the authors presented in this publication—where the opportunities for continued innovation in the supply chain industry reside. Better utilization of all of our assets—human, industrial, and digital—will help drive the improved service and reduced costs required to be a successful business today and tomorrow.