The State of the Supply Chain Workforce

The supply chain needs more workers, in every job category

Thursday, May 9, 2013

By Michael Fickes for MHI Solutions

More than 11 million people, 8.6 percent of the nation’s workforce, work in the supply chain, which is currently suffering from a painful labor shortage. Analysts project that the industry will need another 1 million employees by 2030, which will intensify the labor shortage in coming years.

Current demographic trends are adding to the pain. Th e Bureau of Labor Statistics (BLS) says that a demographic shift in the overall U.S. workforce is now underway. Specifically, the number of workers aged 55 or older will increase by 43 percent between 2008 and 2018. As that segment of the workforce ages, the overall workforce will grow by only eight percent.

All categories of jobs in the supply chain – from warehouse and distribution center managers to executives — are feeling the tightening grip of what could become a disastrous labor shortage.

High levels of turnover
“The material handling industry is reaching out for help with its labor force today,” says Bryan D. Edwards, Ph.D., associate professor and Joe Synar Chair in the Department of Management in the Spears School of Business at
Oklahoma State University. “In addition to the growing labor shortage, warehouses and distribution centers are also suffering from a very high rate of turnover,” says Edwards. “Workforces are turning over at an average rate of 25 percent per year, well above the national average turnover for workforces in all industries of 15 percent.”

As a rule of thumb, continues Edwards, hiring a new employee costs about 150 percent of a year’s salary or wages. Replacing highly skilled workers costs even more.

Edwards conducted a workforce study in 2010 for MHI entitled, “The State of the Distribution Workforce and What It Means for the Material Handling Industry.” Researchers conducted focus groups with employees from eight warehouse and distribution centers.

Researchers queried the workers about sources of job satisfaction and dissatisfaction. Answers indicated what you might expect: many workers liked their jobs and many workers didn’t.

“From our focus groups, it was clear that employers who invest in employee well-being can improve satisfaction and commitment while decreasing turnover,” says Edwards. “A changed industry image will naturally follow,” making it easier to recruit new employees. The report recommends improvements that include implementing technology and automation, reducing the physical demands of the job, soliciting and using employee input, improving the physical environment with natural light, air conditioning and adequate work space and facilitating interactions among coworkers and supervisors.

Technical jobs available
More and more warehouses and distribution centers are automating operations in response to the increasing demands for more speed and better accuracy.

This transition to more automation is creating new jobs, for which there are few qualified candidates. Warehouses and distribution centers now need skilled technicians to look after these systems. Even in a time where most sectors are not hiring, many warehouses are struggling to find the workers they need.

To help meet this demand, many are turning to technical career programs. MHI currently supports a joint educational endeavor with the Material Handling Education Foundation, Inc. (MHEFI) called Technical Career Education Program (TCEP). TCEP is a major initiative to build the much needed workforce of the future.

TCEP provides training so that young people entering the workforce, the unemployed, the under-employed, and job changers can begin a career in the manufacturing and supply chain industries. The courses offered give real
life experience in actual, on-campus warehouse facilities.

“Employers are looking for people to walk in the door with a certain level of experience,” explains George W. Prest, MHI’s CEO. “That way they don’t spend the time and money to get their new employee trained. We want our students in the TCEP program to be 75% trained when they graduate and the rest will be learned on the job.”

“Our program is based on input from actual employers, including some of our members. We know programs like this work – we have even seen one of our TCEP students hired right off of our ProMat show floor,” says Prest.

TCEP is currently partnering with 40 established programs nationwide in 17 states.

Trucking industry also experiences shortage
In a study released by the American Trucking Associations (ATA), 90 percent of for-hire truckload carriers reported that they couldn’t find enough drivers capable of meeting Department of Transportation requirements.

According to Bob Costello, chief economist and vice president of ATA, estimates put the current driver shortage in the range of 20,000 to 25,000 in the for-hire truckload market. Costello notes that the current shortage relates
to a base of about 750,000 trucks in the over-the-road truckload market.

While 20,000 to 25,000 is the formal estimate of the current shortage, Costello believes the problem this year could be much worse. “Construction employment is expected to take off this year,” he says. “Construction is an alternative for those looking to get into trucking and for current truck drivers who want to stay home at night. If drivers take construction jobs as they become available, the driver shortage could go as high as 40,000 to 45,000 this year.”

Estimates suggest the driver shortage could balloon to 239,000 drivers by 2022.

Government regulations may worsen the shortage. “If changes to the hours-of-service (HOS) regulations are implemented this year, it will likely reduce motor carrier productivity by as much as three percent,” Costello says. “As a
result, carriers will have to add more trucks and drivers to haul the same amount of freight, thus exacerbating the shortage.”

In addition, the Compliance Safety Accountability (CSA) program will likely add to the driver shortage. “Recent data shows that approximately seven percent of drivers generate a significant portion of the CSA scoring problems
for carriers,” says Costello. “While not all seven percent will be pushed out of the industry overnight, over time, CSA and the related pre-employment driver screening program facilitated by the government will exacerbate the driver shortage.”

Costello states that the combination of industry growth, driver retirements and people leaving the industry means that the trucking industry will need, on average, nearly 100,000 new drivers each year for the next 10 years.

Finding the right people
“There is never a shortage of supply chain jobs in this area for well prepared candidates,” says Brian J. Gibson, Ph.D., Wilson Family Professor of Supply Chain Management at Auburn University. “According to the Bureau of Labor Statistics, employment of logistics professionals will grow by 26 percent between 2010 and 2020.

“That’s a big gap, created partly by retirement and partly by the enhanced role of supply chain professionals within the organization.”

“As companies become more global, supply chain issues have a bigger impact on success,” Gibson says. “For instance, supply chain management can help take cost out of the supply chain and improve margins. Th ink about retail. In the past, buyers had total control over what a retailer buys, who to buy it from, how much to buy and how much to allocate to each store. Today, buyers make the strategic decision of what to buy, but the supply chain figures out how many and how to allocate inventory among stores and distribution centers. This is how the role of supply chain management is being elevated.”

Gibson says the college and university courses of study are expanding as employers ask for these broader capabilities. “For instance, when a transportation manager moves into general management, he or she will probably need strong analytical and financial skills as well as management skills,” he says.

Another organizational challenge for supply chain companies involves finding middle managers experienced enough to promote to senior levels. In many cases, middle managers have not had the experience necessary to develop the broader perspective needed to manage a large corporate supply chain.

Part of that stems from the damage done by the recession. “In the past 10 years, companies have streamlined organizations and done little cross training,” Gibson says. “When you streamline, you can’t send people to professional development and cross training programs, and they don’t learn what they need for the next jump up.”

However, the problem isn’t just lack of experience. The supply chain is growing and demanding more people. At the same time, the Baby Boomer generation, which has 70-plus million people, is retiring and being replaced by Generation X which only totals around 50 million people.

With 20 million fewer people in the workforce, finding the right people will pose challenges over the next few years. The talent pool is too small to fill all the seats being vacated. There are many creative, capable people but not as many as the industry demands.

In the current economy, many people are looking for jobs. With the many positions available in the supply chain industry, we need to better communicate potential job opportunities, and then effectively train these workers to create a more robust supply chain workforce.