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Logistics Labor Management, 3PL Outsourcing

Key 3PL Vetting Question: What’s Your Turnover Rate?

Amy Wren, Chief People Officer | October 25, 2021

Choosing a third-party logistics provider is a critically important strategic decision, made only after evaluating answers to hundreds of questions related to operational processes, systems integration and other key solution elements.

But one question – rarely asked – could actually be the most important question of all in the current labor market: What is your warehouse turnover rate?

Why don’t shippers press harder on this issue?

warehouse-turnover-rate-bigstock-378461008-2In the warehouse setting, no statistic is more indicative of a 3PL’s ability to master SOPs and provide perfect-order performance. Perhaps it’s a matter of “out of sight, out of mind.” Shippers outsource the work and then leave it to the 3PL to manage its own workforce.

But when outsourcing, that workforce becomes your workforce. In the current difficult warehouse labor market, there is no guarantee you’ll have the number and quality of associates you need – unless the 3PLs you work with demonstrate a superior ability to keep workers happy so they stay.

The downside of a high warehouse turnover rate

The US Bureau of Labor Statistics reports that the turnover rate in the transportation, warehousing, and utilities sector was an alarming 59.5% for 2020. When warehouse turnover rates rise, you see worsening performance in all the key metrics shippers rely on 3PLs to deliver.

  • Accuracy rates decline. This leads to angry customers and higher costs for returns and re-shipments
  • Productivity falls. As inexperienced workers are hired to replace those leaving, it takes around 8 weeks for them to get trained and hit the same productivity levels as their predecessors.
  • Stress levels rise. More turnover increases pressure on the remaining associates, who must work overtime to process the orders.
  • Costs rise. It costs about $7,000 to replace a warehouse worker when you consider recruiting, training and other costs. 3PLs bear these added expenses but, ultimately, they get passed to you as the ultimate customer.
  • 3PL leadership gets distracted. You want these key team members looking for ways to innovate and improve your operations, not worrying about how to staff the next shift. But that’s what they MUST do in a high-turnover environment.

It’s a vicious cycle. Higher warehouse turnover rates increase the strain on existing staff, which then leads to more turnover. Once the cycle takes hold, it’s hard to reverse. 3PLs need to stay ahead of it. Those that can’t have no choice but to keep coming back to you for more money to fund inflated operating costs.

High retention rates = high-performance operations

An International Association of Refrigerated Warehouses report noted that on average, employee turnover was 32.5% in 2018. A New York Times investigation of Amazon, as reported in Marketplace reported a turnover among the retailer’s hourly warehouse associates at around 150% a year, even before the pandemic.

KANE’s warehouse turnover rate is currently 22%. We’ve kept it low because of some bold actions that we’ve taken before, and particularly during, the COVID-19 pandemic.

First, we overhauled our compensation for hourly workers. We increased our hourly wage relative to market rates. More importantly, new hires receive 4 guaranteed wage increases during their first 24 months with KANE, providing a path to a strong monetary incentive to stay. At the same time, existing KANE associates received a pay increase to match the increases given to new hires, which further improves retention.

We also doubled down on our commitment to create the logistics industry’s safest work environment. At the outset of the pandemic, KANE invested heavily in warehouse worker protection, including high-volume thermal temperature scanners, bio-sprayers for sanitizing facilities and equipment, plexiglass barriers and other PPE/sanitation supplies. As a result, KANE’s overall COVID positivity rate has been significantly less than the average rate of the counties in which we operate.

We know from associate interviews that workplace safety is hugely important. Now, more than ever, people want to feel safe on the job. When they do, they are much more likely to stay.

What’s your warehouse turnover rate?

This is a question you absolutely must ask when vetting 3PL partners.

Avoid 3PLs whose front doors have become revolving doors for transitory workers chasing the next signing bonus. Do your due diligence and find a 3PL partner with a culture and policies that keep staff happy and stable.

With the current shortage of reliable warehouse workers, even the most aggressive recruiting strategies won’t solve the labor problem. The best solution is not to lose them in the first place.