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Supply Chain Challenges, Logistics Labor Management

The Dangerous Ripple Effects of High Warehouse Employee Turnover

Aaron Towns | February 25, 2021

Manufacturers and retailers who outsource distribution activities to third-party logistics companies (3PLs) understand that there is a certain amount of churn among warehouse workers. But just how much churn is something they should be paying far more attention to. When you work with a 3PL with high warehouse employee turnover, it drags down your business in ways far beyond what you might think.

These days it’s harder to hold on to warehouse employees

warehouse-employee-turnover-407069738The US Bureau of Labor Statistics reports a turnover rate of 46.1% for Transportation, Warehousing, & Utilities. Amazon is one reason why this number is so high. The company operates 233 large-scale fulfillment centers in the US today, with 76 more being planned or constructed. If you add in terminals, sorting centers and Whole Foods facilities, the total number of Amazon distribution facilities is 815 – all with workers recruited from the same labor pool used for 3PL hiring.

Another factor that increases warehouse employee turnover rates is that distribution centers are often concentrated in specific industrial areas of a region. Warehouse employees will change jobs to get a signing bonus or a slight uptick in hourly pay. Their commute and the type or work they do remain essentially the same after the change. This creates a “revolving door workforce” at 3PLs who have not given associates a good reason to stay.

This revolving door is not the norm at all 3PLs. Kane Logistics’ turnover rate, for instance, is below the industry average. Here, associate retention is a priority – and for good reason. Longer tenured associates are more productive, more reliable, and more accurate than newer or temporary staff. That means lower costs and less headaches for you.

Despite this, when evaluating 3PLs for a logistics outsourcing contract, shippers rarely ask about turnover rates. That’s a huge mistake.

 

The ripple effect of high warehouse employee turnover

The impact of warehouse employee turnover is similar to what happens when you throw a rock in water. It creates negative ripple effects that extend far beyond the cause.

If you work with a 3PL with high turnover, here are some of the things that will likely happen:

  • You’ll pay more. It costs a 3PL at least $7,000 to replace a single warehouse worker. That money goes to things like recruitment, training, background checks, and hiring temporary workers. To cover these costs, the 3PL may ask for more money, arguing that they don’t have a high enough wage to retain staff. In reality, hourly labor rates at most warehouses in a region are in a very tight range. The labor rate argument is often used to hide the fact that the company hasn’t established a culture that breeds happy workers that want to stay.
  • Your productivity will decrease. It takes months before new warehouse associates are fully productive. To make up for that, more staff must be added to meet daily throughput requirements. Also, there is a direct correlation between high warehouse employee turnover and higher callout rates. More daily callouts jeopardize a 3PL’s ability to process that day’s orders.
  • Your reputation among carriers will suffer. Poor productivity can impact the DC’s ability to load trucks on time. When that doesn’t happen, carriers may levy detention charges. Over time, if the facility becomes known as a slow loader among drivers (who are not shy about airing complaints on social media!), carriers may choose not to service that location.
  • Your standing with customers will suffer. Newer associates make more mistakes. In retail distribution, that means on-time, in-full (OTIF) percentages will fall, along with your scorecard ratings with retailers. In B2C distribution, an inaccurate order creates added costs for customer service and returns processing – not to mention the potential loss of a customer.

To reduce warehouse turnover, culture makes the difference

As we’ve said, the hourly rate at 3PLs in a region is within a pretty tight band. But 3PLs still must give associates a reason not to chase the few cents more an hour being offered down the block. That reason comes down to culture.

Every logistics company will talk culture. Few practice it to the degree that culture leads to a marked increase in retention rates. At KANE, it has.

A key principle of the KANE Code is to “treat customers and associates like family.” That means genuinely caring for the associates’ welfare, being completely transparent, overcommunicating, and doing the little things, like a “thank you” for a job well done or the occasional free team lunch or other incentive.

You know you’ve created a strong culture when customers buy in.

When KANE’s Traeger Grill team went above and beyond to meet skyrocketing consumer demand for Traeger products during the pandemic, Traeger gave each member of the team a free grill as a thank you. That’s treating associates like family.

In another example, I was giving a tour of a KANE warehouse to a prospective customer. An existing customer happened to be on site at the time and the two were introduced. Our current customer said: “We look forward to having you join the family.” Hearing that from me, a salesperson, is one thing. But hearing it from an existing customer is a pretty good indication that the culture here is a living, breathing thing, and not just a slide in a PowerPoint deck.

 

What can you do to mitigate the negative impact of high warehouse employee turnover?

Given the dangerous domino impact of high warehouse employee turnover on costs and operational performance, you should make turnover a discussion point when evaluating 3PLs for future outsourcing projects. Consider talking to the 3PL’s human resources head to discuss labor management issues. After all, labor will account for about 80% of your costs and HR can share what is being done to attract and keep the best, most productive people.

Whether you insource or outsource your distribution operations, you want to improve continuously to reduce costs and increase quality. When productivity or quality KPIs are moving in the wrong direction, don’t overlook high turnover rates as a root cause.

The role of culture in the 3PL outsourcing process is significant. If you’re looking for a 3PL with excellent labor management practices and retention rates, contact KANE to start a conversation.  

 

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