Addressing the Labor Shortage in Logistics & Supply Chain

 

What is the Impact of the Labor Shortage on Supply Chain?

 

From hospitality to aerospace, the labor shortage pinch is being felt across all industries. Combine that with the aforementioned labor-intensive supply chain operations and a rise in demand for logistics personnel, and supply chain is clearly amongst the worst disciplines hit.

In the UK, there is a shortage of 100,000 lorry drivers; in Turkey, the shortage is approaching 25%; Germany currently faces a shortage of 60,000-80,000 truck drivers. The immediate impact of such a labor shortage is obvious. Simply put, there are not enough drivers to fulfill the delivery requirements. Shipments are delayed and the backlog mounts; meanwhile, supply chain management is busy fighting off competitors to secure precious haulage space, their strategic work set to one side so they can deliver on time. And this situation isn’t constrained to drivers. The same can be said for warehouse workers, dockworkers, the list goes on...

But what are the wider impacts of the labor shortage on supply chain?

 

Product Shortages

An understaffed supply chain creates inefficiencies, which can snowball into full product shortages.

Take perishable food items, for instance. If a delivery of fresh food is delayed due to a shortage in truck drivers, it may fail to meet cold-chain criteria and health and safety requirements. The whole consignment will have to be disposed of. This not only affects the supplier, but the consumer too, who may find their supermarket shelves suddenly empty.

Similar can be said for complex electrical goods. The delay of one component delays the product from reaching the consumer. The delay of ten components can close the assembly plant. That new smartphone or laptop is suddenly in short supply.

 

Inflation

While product shortages can lead to short-term price spikes, the labor shortage may also cause long-term price increases. High demand and short supply in the labor market will lead to increased labor costs, which will have to be passed on to the consumer. Combined with other inflationary pressures, such as the energy price-hike, this inflation can reduce sales and, more generally, push the economy towards recession. Without a doubt, this is concerning for companies big and small.

 

The Hindrance of Growth

In 2022, 64% of IT executives in the US surveyed by Gartner listed labor shortage as the most significant barrier to the growth of emerging technologies, compared to just 4% in 2020.

With the uptick in e-commerce and the development of new technologies, the sky really is the limit for supply chain. But, like any industry, to benefit from the growth on offer, it requires people. Whether it’s a local food distributor struggling to put boots on the ground in the warehouse or a multinational failing to attract enough talent to develop its robotic automation systems, the supply chain labor shortage will lead to missed growth opportunities.

This is one of the gravest impacts of the labor shortage. The failure to grow, or perhaps even the reversal of growth, will severely impact the future prospects of the company and the economy.

 

How to Combat the Supply Chain Labor Shortage

 

The labor shortage is not going away any time soon. So what can a company do to combat the shortage in the short, mid and long term?

 

 

Short Term Solutions

 

Communication

One of the greatest missteps of the post-covid recovery was the lack of communication between management and employees both during and after the pandemic. Management teams did not adequately reassure those that were furloughed or put on reduced hours that there was still a future for them at the company. This resulted in the mass exodus witnessed by so many companies. Those companies that communicated clearly and honestly have witnessed much better results. It’s not too late to start communicating now. Tell your employees where they are going, and go there.

 

Secure the remaining workers

Just because the worst of the ‘The Great Resignation’ is (hopefully) behind us, it doesn’t mean workforce attrition is over. Companies must work hard to secure the remaining workforce. If this means offering additional remuneration or one-off financial rewards, then it’s a price worth paying – the cost of replacing skilled, trained employees will be even higher in most cases.

 

Improve HR Processes

Surprising as it may seem, even in the midst of a labor shortage, clunky recruitment processes still exist. By streamlining HR processes or setting up one-off, project-style recruitment drives, you can circumnavigate the slowdowns and get ahead of the competition.

 

Increase/Flex Storage

The labor shortage is exposing the fragility of just-in-time delivery across the entire supply chain. One way to maintain the operability of the supply chain with a smaller workforce is to increase the amount of storage available. Then, the delivery SLAs can be fulfilled with less frequent stock replenishments. Of course, extra warehousing comes at a cost, but it must be balanced against the reputational and actual cost of the missed or late deliveries caused by stock outages. 

 

Manage Customer Expectations

Needless to say, customer expectations have sky-rocketed in recent times. Next-day delivery has become standard throughout the supply chain. In the current economic climate, however, sometimes it’s just not feasible, and disappointment reigns. An open and frank conversation with the customer is key. If you’re a B2B enterprise, your customer is probably suffering similar issues and at the very least will be understanding. The last thing they want in a difficult situation is added complications by missed delivery SLAs. Be prepared for the conversation: come with solutions and workarounds. If you are targeting the end customer and individual conversations are not possible, it’s important not to over-promise and under-deliver. Breaching customer trust has long-term consequences. Leave that to your competitors.

 

Mid to Long-Term Solutions

 

Rebuild the Employee Value Proposition

In a demand-dominated labor market, it takes more than good pay to attract the right employees. A major reason why employees have left or continue to avoid supply chain roles is a perceived lack of future. By providing room for training and opportunities for personal growth, you can extend the value proposition beyond the transactional and retain skilled employees in the long-term. Of course, this is harder than it sounds. It not only requires finance and effort to set up attractive training programs but also the ongoing commitment to allow employees room to grow, even when times are tough. It also comes with the risk of investing in employees only for them to move on. Although this is sometimes unavoidable – for example if they need to relocate to an area where you don’t operate – remember, the main reason an employee will move to a competitor is if they are dissatisfied in their current role or have been offered better terms. You can control this, at least, by trusting that, when you offer genuine prosperity, your employees will remain.

 

Market the Discipline

The misconception that supply chain is not an exciting place to work needs to be addressed. This requires a consistent communication effort across numerous channels – from in-person events to social media – to market supply chain and logistics as an engaging place to have a rewarding career. In this respect, we all have our part to play.

 

Digitalisation and Automation

From route optimisation to warehouse robotics, a whole host of technologies can improve the labor efficiency of the supply chain. By adopting a considered digitalisation strategy, you can move towards a more resilient operation, capable of navigating current and future labor issues. Naturally, this requires skilled technologists, which, as mentioned earlier, is an issue in and of itself. But it’s worth remembering that technology is becoming less of a luxury and more of a requirement. A failure to act now will cause you to fall behind, as your operations become more costly relative to the competition and your supply chain department’s technology skillset, an enabler for future success, remains immature.

 

Use Workforce Analytics

Workforce analytics can help identify which employees are most likely to leave the company so you can employ targeted interventions to increase the chances of their retention. Such analytics can be something as simple as anonymous satisfaction surveys or, in larger organizations, advanced data analysis to identify statistically ‘at-risk’ employees. Another technological solution capable of increasing worker satisfaction is the use of handheld devices for employees on the road. This allows live feedback from, for example, delivery drivers, so their dissatisfaction can be quickly addressed. Such technologies also generally enhance communication between managers and staff, giving the drivers an improved sense of identity within the company.

 

Consider Outsourcing

Do you want to divest your company of the risk and management costs of a labor shortage? Then outsourcing might be the solution. By agreeing the required labor levels or the fulfilment of prescribed duties with a labor agency, you can transfer the burden of workforce management onto a third party. Measurable KPIs and enforceable penalties are what make the agreement function.

Remember, the third-party provider will price in risk, which could be high during a labor shortage if the expectation is that they have to pay more to attract sufficient workers. Additionally, during extreme labor market disruptions, the agency may also struggle to attract talent altogether. As much as you might threaten with contractual fines and legal action, you will still be short staffed. Outsourcing is not necessarily a silver bullet, more a preference of where you want the risk and responsibility – and effort! – of recruitment to lie.

 

Strategic Sourcing Levers

In the case where late or missed incoming deliveries are disrupting your operations, it makes sense to consider whether you want to purchase the product at all. A full Cost-Benefit Analysis can be undertaken to evaluate various procurement levers: e.g. Make vs Buy decisions, possible product respecifications, reducing complexity of the product components, partnership with suppliers, and a lot more. (Read more about strategic sourcing and its levers here) Generally, you can try to reduce the risk that comes with reliance on others and as a result gain more control over your supply chain and ensure uninterrupted supply. While potentially exposing you to similar issues regarding the receipt of precursor products, as well as an additional labor requirement in your own operation, being less reliant on other, more poorly managed supply chains may give you the certainty you need to fulfill customer expectations.

 

Remain Vigilant – don't make the same mistakes again

While with 20-20 hindsight, it’s simple to trace the cause and effect of the current labor shortage with regard to Covid-19, it’s worth remembering that, at the time, when the future was uncertain, it was difficult to know what path to take. Should you retain employees at significant cost and risk sinking the business? Or should you cut back to protect your business in the hope of scaling up when the pandemic stabilizes? Certainly, many companies have learnt a great deal through their actions and experiences in the pandemic. The key is to use those learnings in future challenges so that you not only weather the storm but are ready to pick up where you left off when the skies clear.

 

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Tackling the Labour Shortage in the Supply Chain: Final Thoughts

 

From generational shifts to Covid-19 and the war in Ukraine, a cataclysmic confluence of economic forces has led to the current labor shortage. With supply chain suffering particularly acute troubles, it’s important to address the challenge with strategy and intelligence.

Working hard to retain workers in the short term; utilizing technology and strategic sourcing levers; and reimagining the employee-employer value proposition are all key to ensuring a company can not only survive but take advantage of a difficult market place. Simply put, in a labor market that is heavily weighted towards the worker, rewarding employees with financial and personal growth is the best way to ensure a prosperous future for all.

OCM Consulting has years of experience in supply chain transformation. We have employed a variety of technical and organizational solutions to improve supply chain labor efficiency, such as introducing handheld devices for drivers in a large pharmaceutical wholesaler; outsourcing transport functions to third party providers; procurement transformation; and reformatting program management practices to give voice to those working closer to ground level. In short, we can provide the know-how and the working capacity to implement solutions that improve both efficiency and employee retention.

If you need advice on how to handle the supply chain labor shortage in your organization or would like to discuss our service offerings, product modules, and expertise, then please don’t hesitate to get in touch.