In 2000, the minimum wage was $5.15 per hour and some clients paid $6.50 to $7. Hourly wages are now $12 to $13 in many fulfillment centers and warehouses. On top of wage increases, benefits are now upwards of 25% in some companies.
More than half of states have plans in place for a $15 minimum wage and Congress is considering expanding that rate nationally. With low unemployment, wage rates in some major markets are $15-$17 per hour plus benefits. All of this is putting a squeeze on ecommerce fulfillment operations and their labor costs.
Overall productivity in many ecommerce fulfillment centers has remained flat over the years in many companies. After factoring in the increasing labor rates, productivity in terms of labor dollars has declined. To help you out, here are 10 ways to improve productivity:
Do you collect, report, and manage to key productivity metrics for all departments? Many companies are reporting units of productivity for the fulfillment center functions of receiving, put away, replenishment, picking, packing, shipping, returns and inventory control.
In the table below are 20 companies’ results:
|Less Efficient Companies
|More Efficient Companies
|60-65 units per hour
|140-150 units per hour
|18-22 boxes per hour
|35-40 boxes per hour
This chart is for illustrative purpose only and not for actual benchmarking. As you can see, the companies we consult experience a wide range of productivity. Results will differ based on the order profile (number of lines per order), processes used, use of automation such as voice picking and type of WMS employed.
Performing a formal assessment of your departments will help to determine how processes can be improved. With your assessment in mind, consider where you should spend your time in process change. In some ecommerce fulfillment operations, picking and packing account for more than 50% of the labor cost. Look at these areas first to determine how to reduce the work required.
Picking: In picking, upwards of 60% of a picker’s time is spent walking. Some internal studies have shown pickers walk 12 to 14 miles per day. Can you reduce the amount of walking and time to pick by slotting fast-moving product, which is often 20%-30% of your inventory, to hot pick zones in closer proximity? Are you using the right picking methods for your ecommerce business?
Packing: We find many times pack stations are cobbled together without a consistent design or purpose. The desk surface is too small, or the stations are too tall or too short for workers and lack sufficient temporary storage space for inserts. Here are 7 considerations as you review packing.
Improve Your Hiring
Have you ever had a new employee quit because they didn’t understand what the job entailed or didn’t like it once they tried it? No matter how competent the applicant comes across in an interview, you can’t tell how well you’ve hired until they start working.
Here are 4 ways to get new hires on the right path:
- Some companies experience good results giving prospective employees some limited instruction and then letting them try the work.
- Are there tests to help you assess prospective candidates?
- Use a “buddy system” or mentor program (seasoned employee) to get the new employee off to the best start.
- Look at your training program is it effective?
Reduce Employee Turnover
Employee turnover in warehousing and distribution is 15%-25% or higher. Turnover costs can range from $3,000 to $10,000 in time, training, testing, and the ramp-up to full production. What is employee turnover costing your DTC fulfillment operations?
Improved Workforce Management
Even with automation, employees are key to controlling costs and keeping customer service high. Review your managerial capabilities and answer these questions:
- Are your fulfillment center managers skillful in identifying ways to increase productivity?
- Are you delegating and empowering your staff?
- Do your fulfillment center employees have a career paths or opportunity to grow within the company? Are you creating career paths for your DTC ecommerce fulfillment employees?
- Do you effectively, objectively evaluate the performance and development of your team members?
- How are you updating the skills of your department managers? Local and online universities and community colleges offer endless possibilities.
Give Employees Feedback
Most people want to feel they’re part of the bigger company picture. They also deserve to hear accurate feedback about their production. If possible, show the actual performance vs. forecast.
Develop Labor Budgets by Function
Many companies have a total payroll expense by month. Take your expense planning to a lower level. Do you have the metrics by function to budget labor dollars based on the orders and returns expected by week and month? The budget should be planned by month, week and day if possible.
If you have the basics in place, consider using incentives to increase production. Look at your picking, are there superstars hitting high numbers? It is likely that a small group of employees are responsible for 50% of the productivity. Are you paying them the same? If so, consider adding incentive pay to your strategy.
The very best long-term solution to improving labor productivity is to apply more automation and technology. The most productive way to start is employing full use of barcode technology to all aspects of warehouse processes.
Finally, here is our resource, “38 Ways to Improve Your Fulfillment Operations,” which many DTC have found to be helpful.
Labor costs will continue to rise dramatically. Evaluating these methods and applying them, where applicable, can make big differences in labor use and cost reduction in your ecommerce fulfillment operations.
Brian Barry is President of F. Curtis Barry & Company