Logistics News: Labor Reduction and Automation can be a Very Touchy Subject

It’s interesting, actually, that in many companies it seems easier to close an entire plant or distribution center and put everyone out of a job than it is to say we are implementing this new process/technology and, frankly, we will need 10% fewer workers, or whatever.

Obviously, this makes getting an ROI from new investments a lot more difficult.

That got me thinking about a project I worked on a few years ago with a well-known home shopping-type retailer, which wanted to automate its returns center. Its normal rate for returns was about 35%, which could go even higher during promotions. This level of returns was, in part, just the way that business works and, in part, due to its liberal no-cost-no-questions-asked returns policy, and the practice of accepting apparel orders in an array of colors and sizes, knowing some would be returned.

As a consequence, every day the company received a mountain of returns packages that had to be opened, inspected, sorted, credited, repackaged for re-stocking, or disposed of - a very labor-intensive process. Even though warehousing and distribution operations had been continuously upgraded to near state-of-the-art levels of automation, the returns operations had been left behind (as usual!) and was, as with most companies, a very manual process.

After several weeks of study and analysis, we developed a cost-effective material handling system solution to receive the packages and then transport and distribute them to an array of inspection stations, and then onto an automatic item sorter for consolidation and putaway.

This was a multimillion dollar project that had the potential to dramatically increase throughput capacity and reduced labor in the returns process. But not so fast – the company, like many, did not like to lay people off when it made process or technology improvements.

I soon learned from the company engineering manager that before the project could be accepted, the HR Department had to approve new labor standards for workers in that area and, more importantly, find positions elsewhere in the company for every full-time position that would be eliminated by the implementation of the automation project.

Fortunately for all concerned, at the time the company enjoyed a double-digit growth rate. Therefore, satisfying this latter requirement turned out not to be that big of a challenge and the project was approved.

So, in a sense, the projected ROI was based on future labor avoidance, not immediate cost savings per se – a scenario I have seen many times in my career. 

But this whole area gives rise to a number of interesting questions:

1. How many companies look at the situation in a similar way?
   
2. If you just move the people around, do you really get the ROI?
   
3. What if a company is not fast growing – do you wind up passing on many potentially good projects/programs that would, in the end, require layoffs to generate the ROI?
   
4. And the most important one to me: Can avoiding improvements in some areas that may mean a reduction in head count over time eventually lead to the case where the entire plant/DC is no longer competitive, and risk that the operation will be shut down entirely in favor of a new facility or going to an outsourced model?

I understand and applaud the employee-centric approach, but worry that sometimes in the effort to protect a few, we really wind up putting a lot of risk on the many.

I would love to have your thoughts on this.

Agree or disgree with Holste's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.