I am in the process of updating ARC Advisory Group’s research studies on the global warehouse management systems (WMS) market and the global warehouse automation & control market. I hear two interrelated and repeated themes as I speak with suppliers in these industries. 1. Warehouse automation companies are having difficulties finding qualified personnel to fill open positions, and this is hindering growth, and 2. WMS and warehouse automation customers are having difficulty recruiting and retaining staff in their warehouses. The extent of these concerns led me to take a step back and review some of the relevant macroeconomic data surrounding the market.
The overall labor market is extremely tight in the US and in parts of Europe. The US Bureau of Labor Statistics (BLS) reported a February unemployment rate of 3.8 percent. This statistic remains at a historic low. Unemployment is higher in many European countries, but Germany and Netherlands have unemployment rates below that of the US. Meanwhile, e-commerce is growing rapidly, and this growth is placing high demands on warehouse throughput and labor requirements. How fast is e-commerce growing? How fast is warehouse labor demand growing? What are the sources of labor? And are these transient or secular trends?
Follow the Data
The US Census Bureau reports quarterly US retail e-commerce sales. The 2018 estimate (non-adjusted) is $513.6 billion, representing 9.7 percent of total retail sales for the year. Furthermore, the $513.6 billion e-commerce figure represents 14 percent growth over 2017 and is a full 32 percent greater than the estimate for 2016. Of course, this is US data, and ARC’s research on the WMS market is global. However, it shows that e-commerce growth continues at a rapid pace and shows no substantive signs of slowing. it also illustrates the magnitude of the growth and provides an idea of the throughput increases and warehouse retooling required to meet this growth. The growth of e-commerce is clearly a secular trend with no signs of abating.
The US Bureau of Labor Statistics (BLS) does not publish an occupation category that aligns well with warehouse and fulfillment jobs (material moving workers is the closest match I could find). However, the BLS does provide employment data on industries, with warehousing and storage being the closest measure to warehousing as a function. These statistics show nationwide warehousing and storage industry (3PL) employment growing from 779 million in January 2015 to 1.2 billion in December 2018, amounting to a compound annual growth rate of 11 percent from 2015 through 2018. The low national unemployment rate and the fast growth in the warehousing and storage industry suggest that the warehousing and storage industry must source workers from other industries to maintain its resource demands. But even these data represent the warehousing industry (3PLs), not retailer warehouses or manufacturer warehouses, etc.
To better understand the dynamics within warehouses, one needs to look at private data or anecdotal evidence. Trade organizations such as The Conference Board conduct research, as do organizations such as WERC and ARC Advisory Group. But sometimes anecdotal evidence, like case studies, provide the best feel for the situation on the ground. Overall, the anecdotal evidence for warehousing paints a picture of high demand for labor, low availability, and high turnover rates. Something has to “give”. In fact, I believe a number of factors must “give” for warehouse operations to continue meeting fulfillment demand.
Automation, Employee Engagement…. and Pay
My colleagues and I listed “Logistics Labor Shortages and Automation” as a key Supply Chain Trend to Watch in 2019. Peter Schnorbach, Product Manager for Manhattan Associates Labor Management, is quoted in that article as saying that the labor shortage cannot be solved with automation in the short-run. I agree wholeheartedly. E-commerce fulfillment demands are not causing a simple increase in volume requirements. it is also creating greater variability in order profiles and picking types. So automation is partially the answer, but the increased variability and unstructured environment of e-commerce fulfillment doesn’t lend itself well to a “lights-out” warehouse environment. Warehouse automation does enable a higher volume of packages to be fulfilled by a smaller number of workers. It can also change the day-to-day routine of workers, shifting human resources to more productive tasks. Modern goods-to-man automation such as shuttle systems are scalable and adaptable, allowing operations to meet changing requirements. Demand for these systems is experiencing rapid growth. At the same time, autonomous mobile robots are allowing existing manual picking operations to double worker productivity. But even with these automation enhancements, I believe that warehouses are going to need increased workers for years to come. Investments in automation and software systems will continue to increase worker productivity but demands will continue to growth and warehouses will continue to compete with other functions for labor. I also believe that competitive pressures will likely result in better work environments and labor rate increases at warehouses across the US and parts of Europe.