Dec 12, 2019

The ‘Why’ Behind The Labor Shortage

December is here and that means that the holiday shopping season is in full swing! 2019 has shown record breaking online shopping across the globe, which kicked off when China’s Alibaba had its annual “Singles Day”—the equivalent of Amazon Prime Day— setting a record of $30.8 billion in sales. This huge one-day total was up 26% from 2018, illustrating the continued powerful rise of e-commerce. In 2018 Amazon reported record sales for both Black Friday and Cyber Monday, and overall U.S. online sales were up markedly for both days.

According to a recent study, 5 out of 10 open positions for skilled workers remain unoccupied because of the skills gap, leading to many positions taking months to fill. With the national unemployment rate falling to 3.6% in October, 2019 (the lowest since December 1969), there aren’t many people looking for work. And, while the U.S. Labor Market Conditions Index (LMCI) shows a slowed rate of expansion over the past year, America’s need for skilled labor is still growing.

Aside from the reduced unemployment rate, the labor shortage can also be attributed to the surge of retiring Baby Boomers. The younger generation entering the workforce is smaller, and most of them hold college degrees, leading to many labor sectors not being the sector they see in their futures.

The Challenges You May Face

These many transactions equate to the need for more labor on the back end to process and deliver orders. Furthermore, the impact of e-commerce—and Amazon in particular—has conditioned consumers to expect that they can buy almost anything they want and have it delivered to their door in two days or fewer. This shift in expectations is driving an acute labor shortage in the warehousing and distribution industry, as e-commerce players fight for skilled pickers and packers who can keep up with the demand. With the widening skills gap, organizations are feeling the pressure.

There are four major ways the skilled labor shortage is impacting organizations nationwide:

1. Wages - The labor shortage is driving up wages, as well as making it increasingly difficult for warehouse managers to retain their most skilled workers. Retaining the best workers is especially crucial for pickers, where top performers often work at twice the rate of their peers, and with better accuracy. In a RECENT SURVEY conducted by Logistics Management, the inability to attract and retain a qualified hourly workforce was rated as the #1 issue facing the industry by more than 55% of respondents.

2. Lower-Quality Applicants - Due to the low unemployment rate, the applicant pool is small. HR departments are working harder to find qualified candidates, and likely paying more to attract skilled workers. Because there are so many organizations looking for skilled help, the competition is high and can force organizations to hire people without the specific skills they need and train them to do the work needed. The current demand-to-supply ratio of jobs to qualified individuals is 6:1 but, in a few years, that could be as high as 9:1. Most of the openings exist in middle management positions, in which there is a current shortage of 54%. This is a significant problem, but thankfully there is a solution.

3. Higher Turnover and Frequent Retraining - With organizations competing for skilled workers, the candidates they initially attract are likely to float from employer to employer, looking for the highest wage offer. Once organizations put in the time and bear the expense to train someone new, this new employee may find a better offer elsewhere and leave your organization. Constantly asking current employees to work longer hours takes its toll quickly, and organizations risk losing employees to more competitive employers. This constant turnover strains the employees who train new hires, and it doesn’t solve the organizations problem of being understaffed. It can also force organizations to increase wages or benefits just to retain employees.  

4. Capacity Suffers - When organizations are understaffed long enough, they’re forced to stop taking on new jobs or increase lead times. There are only so many overtime hours the staff can work, and only so many customers willing to wait longer for the product.  

Your Possible Solution

These problems are best resolved by investing strategically in automation solutions. Although the automation trend is partly responsible for creating a need for more skilled labor, it plays an invaluable role in solving labor shortage challenges. But first, what exactly is automation? Automation is the use of electronics, computer-controlled devices, and sometimes robots to take over the control of processes. The goal of automation is to reduce human intervention in certain parts of the process, thus saving time, money and manpower. With the labor shortage, many organizations are turning toward automation to supplement the low-skilled jobs they cannot fill, which allows employers to focus their time on training existing workers on jobs that are either higher skilled or require uniquely human skills. By making strategic investments in automation solutions that offer a short return on investment, organizations can use these cost savings to invest in initiatives that help mitigate their long-term skills shortage.

Technology facilitates innovation, which drives business growth, and it can lead to better efficiency and a competitive advantage. Whether you implement automation technologies on a piecemeal basis, or decide to create an end-to-end automated line, it's important to remember the processes of evaluating how automation can benefit your operations and that it requires a commitment of time and the expert counsel that a trusted partner like HEARTLAND can deliver. By utilizing Heartland's network of partners, project engineers and analysts, we can assist and support you through your organizations automation evaluation and implementation process from start to finish.

Fill out the form below if you're interested in an automation evaluation or contact us today via phone at 815-271-9400.