by Cory Koch
Labor Factors Influence Decisions
Labor has worked its way to the top of the priority list when it comes to selecting a new warehouse site. Over the past few years, IKEA, Sears and Target have purchased or leased distribution centers where the local work force has demonstrated a proven and successful track record of performance. Labor availability, cost and quality were critical in these site-selection decisions.
Labor Costs Are Warehouses’ Largest Line Item
On average, labor makes up almost 65 percent of total warehouse operating costs. In the meantime, warehouses continue to experience pressures to improve services, reduce cycle times and reduce costs. When an area provides a labor-cost advantage, the ears of the Operations and Logistics executives stand at attention. In most cases, site-selection decisions are made because of significant labor-cost savings. Some companies have seen savings of $2 million annually by making this selection. Other reports I have seen estimate labor-cost savings of $1.2 million annually when companies chose a smaller rural community only 30 miles away from a major metropolitan area.
Warehouse Clusters Deplete Local Labor Pools
Some industrial areas across our country have been too successful at attracting major warehousing operations. They have created huge clusters or concentrations of warehouses which all compete for the same labor pool, especially in metropolitan areas such as Memphis , Atlanta , Indianapolis and Chicago . These cities find they are competing more and more vigorously to attract and keep their people. Higher costs and increasing turnover rates have resulted. In some cases, companies have had to limit staff hiring because of inflated wages.
In these cluster areas, serious increases in logistical pressures have also caused interface clashes with the residential areas surrounding warehouse districts. This clash with residential districts can be serious, especially when warehouse operations are being pressured to be more flexible and frequently operate on a 24-hour, 7-days-per-week basis to meet consumer demands and expectations.
Secondary Warehouse Locations Offer Benefits
Companies are increasingly turning to outlying areas to solve labor challenges and avoid potential for residential and logistics interface clashes. For example, the southern Central Valley of California has become a region where several large retailers have implemented a better warehouse solution. West Coast Logistics analyzed the region and its warehousing operations, learning that the area’s available labor pool exhibits a strong work ethic and employee loyalty very similar to that of the Midwestern United States.
A high percentage of those workers grew up toiling in the local agricultural fields. These workers appreciate the opportunities that a warehouse position brings. Attendance is excellent. Employees are dedicated and work with intensity. They give 110 percent as an expression of their appreciation for having a satisfying job.
Two companies have benefited handsomely by locating in this region. Sears’ 1.3 million-square-foot regional distribution center in Delano , California , is currently being expanded by another 1.5 million square feet. It has consistently ranked at or near the top as the company’s most productive operation in North America . Similarly, IKEA, the world’s largest and most profitable furniture company, operates a 1.7 million-square-foot regional distribution center at the Tejon Industrial Complex. IKEA boasts that it consistently meets or exceeds forecasted productivity and performance goals.
Clearly in today’s world of warehouse site-location decisions, the key is labor–cost, quality and availability. With the demands on corporate supply chains to move products faster, cheaper and better, labor components will continue to be critical. Be sure that the site you’re considering has the labor resources to meet this vital challenge.