Other Voices: Blame ecommerce for declining warehouse productivity

Editor’s note: The following column by Ryan Birtwell, chief operating officer, Lucas Systems, is part of Modern’s Other Voices column, a series featuring ideas, opinions and insights from end-users, analysts, systems integrators and OEMs. Click here to learn about submitting a column for consideration.

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Productivity dropped by 7.6% in the warehousing and storage industry last year, according to a recent release from the Bureau of Labor Statistics. Digging deeper into the numbers shows that government figures don’t paint an accurate picture of what is happening in the warehousing and distribution space. In fact, the apparent decline in productivity is a function of the increasing share of ecommerce orders flowing out of warehouses and DCs, rather than a true reflection of labor productivity rates. Here’s why.

Everyone involved in distribution understands that it takes more labor to pick and ship 25 pieces for individual consumers than it does to pick one case of 25 for a single store. So as ecommerce increases as a percent of total retail sales, each picking is increasing as a percent of DC activity. Therefore, the number of labor hours required to ship the same value of goods is increasing. And that’s exactly how the BLS measures productivity: output per labor hour.

In contrast to the BLS measure of productivity, warehouse productivity measured in lines picked per hour is steadily rising as DCs adapt their processes and invest in new technologies to address the ecommerce transition. For example, voice picking usage has increased to 25 percent over the last decade, according to last year’s WERC DC Measures Survey.

Beyond the tried and true technologies, warehouses and DCs are starting to benefit from a raft of new technologies including automated mobile robots (AMRs) and other digital automation solutions such as machine learning and math-based work optimization engines and planning tools. These new technology investments are dramatically increasing warehouse productivity in lines per hour. But they will not be enough to make up for the growing demand for workers to pick, pack and ship orders.

By our estimates, the growth in ecommerce sales - from roughly 5.8% of total retail sales in 2013 to 10.2% today - is driving a 10% annual increase in demand for warehouse labor (this is consistent with the BLS figures). Through 2021, ecommerce is expected to account for 13.7% of retail sales, further driving demand for workers.

Even if AMRs reduce total labor requirements by 10% (as predicted by Gartner), the industry will still need 20% more workers in 2021 than it employs today. At most, automation (robotic and digital) is providing a brake on employment growth. Warehouse and DC operators will continue to add jobs at a steady clip for the foreseeable future, even as they adopt technology to make every worker (and manager) more productive.

Author’s note:
The BLS labor and productivity data is for companies whose primary activity is listed as warehousing and storage services, NAICS industry code 493 (and sub-categories), essentially third party logistics companies. Although the data do not cover the warehousing and distribution operations of companies whose primary business activity is retail, ecommerce, or wholesale distribution, the 3PL industry is a good representation for the wider warehousing and distribution space. The ecommerce effect outlined here is being experienced across virtually every industry that distributes goods, including retail, manufacturing and traditional B2B distribution.