What is Employee Turnover Costing Your DTC Fulfillment Operations?

I was in a client facility last week working on a plan for a new warehouse. As we were discussing the outbound shipping history and its projected growth, we noted that it was erratic. The senior director commented that absenteeism and turnover were major problems for his center. Absenteeism caused as much as a 30% variation in units scheduled for shipment and employee turnover is 44%. This center has 105 hourly workers and seven managers. The turnover is 49 employees annually.

Let me give you a little background. Like much of the country this summer, the internal temperature of the facility has been over 90 degrees with high humidity. Coupled with this center supplying 300+ stores with products which are very heavy, the physical nature of the job is exhausting. Automation has been in place for 10 years but it’s still a tough work environment and many jobs require lifting. The company pays on average $12.80 per hour with excellent benefits.

ecommerce fulfillment, direct-to-customer fulfillment, distribution center, ecommerce fulfillment center, operations and fulfillment

But before we get judgmental, let me ask you, how much does absenteeism and employee turnover cost your DTC fulfillment operations? Most businesses have some level of turnover – that’s to be expected. Call centers might be much higher than fulfillment centers. From our industry experience in talking with companies, turnover can cost between $3,000 and $10,000 per lost employee.

[Looking for ways to cut employee turnover costs in your operations? Attend Operations Summit for new ideas and perspectives!]

How do you stack up? To identify the problems, do you have formalized reporting statistically of employee absenteeism and turnover? Have you analyzed the cost to the business and regularly updated line and senior management?

As you research your turnover rate, here are some points to take into consideration. Data you’ll want to collect includes:

  • Number of employees hired
  • Number of employees that started training
  • Number of employees that leave during training
  • Number of employees that leave once they are part of production staff 

Analysis you’ll want to make:

  • Amount of time and associated costs of human resources, supervisors and managers to recruit and hire new employees
  • Reasons for leaving collected at exit interviews
  • Length of training classes and its costs (are they being under or over trained?)
  • Costs of testing, background checks, drug testing and skills testing
  • Coaching and mentoring new employees
  • Length of time and cost to get new person up to speed 

Ok, so maybe you can’t easily put dollars and cents on each of these. But I think you’ll agree that turnover is expensive. Using our figures, the 44% turnover rate of our client, at $3,000 per employee lost, adds up to a total cost of $147,000 annually; at $10,000 per employee, it’s $490,000.

While the administrative and operational costs are important, turnover could very well be hurting your customer service, staffing and creating fulfillment errors which cost $35 to $50 per error to correct.

As some companies seek to understand turnover, seasonal hires that are terminated at the end of peak are often left out of the turnover calculation. We think it makes sense to calculate turnover with and without the seasonal hires. It still has a cost which is significant to the organization.

Here’s a suggested plan of action to consider:

  1. Set up a manual spreadsheet system to track employee turnover monthly;
  2. Spent the time to research the turnover issues raised and those affecting your business;
  3. Establish an exit interview process to learn why people leave;
  4. Look at the turnover with regard to months and years of service. What does it say about new hires vs. long-term employees?
  5. Calculate the turnover costs and understand what management’s perspective is;
  6. Develop a spreadsheet to calculate the annual cost of turnover from your monthly data;
  7. Develop a plan of action based on your situation and conclusions. 

Turnover is expensive, but unfortunately some will always occur. Understanding the reasons and taking action where we can is a way to provide improved customer service while reducing expenses.

Curt Barry is Founder & Partner of F. Curtis Barry & Company

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