For four decades, inventory has been enemy No. 1 for supply chain organizations. While inventory will always be important, a growing threat to supply chain organizations is the dwindling pool of operational labor.
The Bureau of Labor Statistics projected that employment in logistics and transportation would grow 7% and 6%, respectively, between 2016 and 2026. This is leading to more demand than people, so competition for operational workers is growing. Many less-appealing jobs, such as long haul trucking or picking hard-to-handle items in non-climate-controlled warehouses, will be increasingly difficult, if not impossible, to fill.
Regrettably, operational labor, often referred to as blue-collar labor, has long been treated as a fungible asset. Economists define fungibility as “the property of a good or a commodity whose individual units are essentially interchangeable.” Simply put, one unit has no greater value than another unit, so the units can be substitutable. In regards to operational labor, too many still feel they are an easily replaceable commodity, so they are treated and paid as such.
Organizations placed little value on operational labor when capacity was great and demand low. Pay was low, pressure to perform was high and fear of losing one’s job was used to “keep workers in line.” Tools, if used, were aimed at measuring granular-level performance with an eye toward punitive actions. Sally performed well so she gets to stay, but Joe performed poorly so he is put on an improvement plan, while Sam had a few bad weeks so he is fired. According to this belief, this helped drive performance improvements through productivity gains because — as a fungible asset — people saw themselves as replaceable so they would theoretically work harder to keep their jobs.
Managing with a big stick might have worked in the past, but it won’t today. To quote a Gartner customer from Germany, “No kid grows up wanting to drive a lift truck in a warehouse.” Another example is there has been a long-established understanding that there is an inverse relationship between the strength in the construction industry and the availability of long haul truck drivers. When construction is down, workers will reluctantly drive a truck. However, the minute construction picks up, workers return to construction, where they can be home at 4 p.m. drinking a beer instead of on the road driving for another six hours and away from home all week.
Bottom line: Operational labor is no longer fungible.
Recently, another Gartner client told the story of panicking upon learning that Amazon planned to open a warehouse nearby. The client worried about how the company would be able to compete with Amazon for people and how it could keep the e-commerce giant from cherry picking their best people. Today, smart companies recognize the importance of engaging with employees to find and keep good talent. Consequently, operational labor management is evolving and technologies to support it are evolving as well. Companies need to take a holistic approach to capturing the hearts and minds of operational labor. To find and keep and advance their best people, companies need to expand their view of labor and workforce management considering the following.
Manage — Managing operational labor has to evolve away from a “punitive” (i.e., punishment) mindset to an “encourage” philosophy. Things like training, education and coaching become more important than simply penalizing bad behavior. The onus for process improvement shifts from the worker to management, where supervisors are measured on employee engagement and improvement over time, not just point-in-time metrics.
Attract — If labor is not a fungible asset, then each unit is not interchangeable and companies must compete for good people. Leaders must answer the following: What can we do to make our company an attractive employer? What are others doing that might be more attractive to prospective workers? Are employees asking for things that we aren’t providing? Are our work environment and the tools employees have competitive? Companies must recognize that while important, pay is not the only thing influencing where people want to work so they need to understand how their company compares to what employees want and other companies offer.
Engage — An engaged workforce is a satisfied and higher performing workforce. Note I didn’t necessarily mean a “happy” workforce, though a happier workforce is better than an unhappy workforce. Anyone who has participated in a fitness challenge might be actively engaged competing with their peers for performance gold stars, but they might not be happy slogging out another 4,000 steps that day. So companies need to look for ways to get employees engaged. Some will consider incentive pay, which has a place, but there are many ways to engage employees at the individual and team level. Things as simple as making day-by-day performance transparent can avoid complacency and often introduce a bit of healthy competition.
Retain — Do the above well and retention will take care of itself. In general, most people resist change, so if they love where they work they will stay, even if there are things encouraging them to move on such as slightly higher pay down the road. While the focus should not revert to a punitive attitude, good employees will often be the first to applaud when bad apples are let go. If part of engagement is to form high-performance teams, the team will often collaborate to boost performance, but it can also be the first to identify and recommend action to problems.
Labor and workforce management applications are not new, but for most of their existence the focus has been on reporting labor performance retroactively. This remains meaningful, but leading vendors are beginning to focus on how their software can address the above. Can the learning management system (LMS) provide the “Fitbit”-like data that encourages employee engagement? Are there tools that support coaching more than punishing? The answer is “yes” and several vendors are focusing more in these areas, which bodes well for operational labor in companies that adopt these tools.
Dwight Klappich, VP Analyst, Supply Chain Technology, Gartner