The ‘Real’ Cost of a Warehouse Associate

Other than inventory, labor is your biggest warehousing expense.  And that warehouse labor… well, it's costing you a lot more than you may think. 

According to salary.com, the average warehouse associate's salary is about $28,000.  But many related expenses combine to make the total cost to your company for that full time employee much higher.  Let's take a look at these additional warehouse labor expenses.

• Health benefits are about 35% of salary for a warehouse associate.  New provisions of the Affordable Care Act have added to this expense.  For instance, plans now need to cover dependents up to age 26. 
• Unemployment tax and workman's comp insurance add another 8% or so of salary.
• For hiring and recruitment, add another 25%.  This represents the cost of advertising, interviewing and pre-employment tests.  More and more companies are doing personality profiles as part of the assessment process, and these could cost $600, depending on the type of test.
• Training will run you about $1,200, or 4% of salary.  That's the total cost for a supervisor and other managers to train the warehouse associate on equipment use and company and customer-specific SOPs.
• Equipment, uniforms and supplies represent additional expense.  

Total costs for warehouse labor could be around $50,000 per associate when you add up all the direct and indirect costs.  Multiply that by the number of warehouse associates, and you are looking at a huge expense for execution of a function that, if you are a manufacturer or retailer, is probably not a core competency.  

Think about it this way: Who handles security at your office buildings?  Who cleans those offices?  Who runs your corporate cafeteria, if you have one?  The vast majority of companies outsource these functions to experts in that field.  Why?  Because they cannot execute as well, or as efficiently, as the providers who focus solely on that discipline.   

The same applies to warehousing and distribution.  P&G and many other leading companies choose to focus their available capital and resources on developing their core businesses.  To drive peak performance in their distribution network, they partner with top third party logistics providers (3PLs). 

A 3PL can provide not only the labor, but the warehouses and the systems required to manage logistics.  Increasingly, however, companies are choosing to outsource labor only, managing the assets but not the people.  This frees them from the staggering time and dollar cost of logistics workforce management. 

The decision to outsource distribution is dependent largely on a promised reduction in direct labor costs.  Often the 3PL can reengineer processes and apply automation to work more efficiently.  But the biggest advantage of outsourcing may be the reduction in indirect costs and the increased freedom it affords to focus on your customer, while an experienced 3PL handles to the day-to-day business of product distribution.      

What should you look for in a logistics workforce management partner? 

First and foremost, you want to make sure they are investing to make their people as good and as efficient as possible.  These investments relate to labor management systems, orientation and ongoing training programs, incentive programs… the list goes on. 

These investments are vital, and they make sense.  For a 3PL like KANE, our logistics workforce IS our product.  Our associates are our most important assets.  If you are a manufacturer in the businesses of designing, manufacturing and marketing a product line, would you say the same about your logistics workforce? 

If not, perhaps it's time to explore a warehouse labor management solution.