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Supply Chain News: Detailed Recap of Outstanding MHI Conference Panel - Focus on Workforce


Need to Give DC Workers Path for Growth, Jonathon Rader of FedEx Says, while Mike Regan Says Driver Shortage Could Hit Big in Next Couple of Years

Nov. 7, 2016
SCDigest Editorial Staff

A few weeks ago, SCDigest editor Dan Gilmore moderated an outstanding panel discussion at the annual conference of MHI, held for 2016 in the Hilton el Conquistador hotel near Tucson, AZ.

You can find Gilmore's overall review of the conference here: Trip Report - MHI 2016 Conference: Time to Cross the Chasm?

The panel discussion moderated by Gilmore was loosely connected to MHI's upcoming Materials Handling Roadmap, scheduled to be released in 2017. The first Roadmap was released in 2014, and was a solid piece of work, presenting a broad overview of the issues and technologies that will be central to logistics in coming years.

To produce the new report, MHI once again is holding a series of conclaves across the US (four in total) where 40-50 practitioners of all sorts gather for a day and a half to talk through a variety of issues, and that feedback then becomes core content to the final Roadmap.

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An audience member chimed in, saying that he is seeing turnover rates in DC associates of 35-60%, depending on the geography.

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This year, those discussions are oriented around four main themes: workforce issues, technology, the consumer, and infrastructure - all obviously very big and broad topics.

The conference panel moderated by Gilmore was then also organized along those same four themes. The discussion by the panel was so excellent, SCDigest wanted to report on the conversation in more detail. Given that the full session lasted 90 minutes, we are going to break our summary up, with one article each on the four themes over coming weeks, starting this week with the discussion around workforce issues.

The panelists at the MHI were: Jonathon Rader, FedEx; Mike Regan, TranzAct Technologies; Bill Ferrell, Clemson University; Fab Brasca, JDA Software; and Mike Kotecki, Dematic, and Gary Forger, MHI.

On workforce. Gilmore started by noting that there are a number of aspects to this, starting with a white and blue collar split. The often cited supply chain "talent crisis" is more of a white collar issue, Gilmore said, with companies struggling to find the supply chain managers they need.

Gilmore noted how at a supply chain conference last Spring at the University of Tennessee, the head of supply chain for successful medical devices maker Stryker was almost begging students in attendance to send their resumes when graduation nears, such was the company's need for supply chain talent.

There of course is also a blue collar angle, with many companies struggling to find and retain workers in their distribution centers, a well-publicized shortage of truck drivers and more.

Gilmore also noted that there were major demographic issues in play. He presented a chart that showed that by 2050, most major developed economies will have 21-28% of their population 65 years old or higher, while areas of Europe plus Japan will see elderly populations over 28%. This will have many supply chain and broader social ramifications.

That trend is also of course related to slowing population growth. The population is actually declining in many developed economies, and has even flatlined in some developing countries in Asia – only parts of Africa and the Middle East are seeing strong population growth.

This not only impacts the availability of workers, but serves to slow economic growth, Gilmore said, noting research from McKinsey that projects average annual global GDP growth will slow to 2.1% over the next 50 years, from 3.8% from 1950 through 2014. The prime factor in the decline: slowing population growth globally.

MHI's Forger next summarized some of the input from the first two Roadmap meetings. That included input that businesses and universities need to work more closely to develop supply chain and logistics curriculums that better prepare students for the jobs of today.

There was also feedback that DC workers will leave for another opportunity for as little as 25 cents more per hour, and that wages for DC associates needed to rise above $15.00 per hour to improve retention.

"Are these workforce issues real or a bit exaggerated in some ways?" Gilmore asked the panel.

"Absolutely they are real," said Rader, noting FedEx is really feeling it. While a bit more focused on the blue collar side and distribution center labor, Rader said that "a lot of people just don't want to work in the logistics industry anymore," and that there is even some of that on the white collar side. The industry needs to work to bolster its overall reputation and attractiveness, he said.

Rader added that while the issue may be at the entry level primarily right now, that will expand over time. "It will move further up the supply chain ranks in the future" if not addressed now, he said.

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Though he agreed that often now DC workers will leave for small increases in wages, Rader said "That's not the whole story…. We need to make changes to the work environment, make it more of a place where workers want to stay. That means changing the culture, showing people that there are some opportunities."

Gilmore than asked, "Are we just fooling ourselves, trying to pretend the role of DC worker is a good job when maybe it just really isn't?" That drew a good laugh from the audience.

"There has to be a path for growth in the job if you want to improve retention," Rader agreed.

An audience member chimed in, saying that he is seeing turnover rates in DC associates of 35-60%, depending on the geography, and that it takes 6-8 temporary workers to find one permanent one, quantifying the scope of the challenge as many in the room nodded their heads in agreement.

Another audience member said he is seeing a growing number of companies bussing in workers from long distances away for distribution centers to make it through the peak season.

Gilmore wondered why wages aren't rising for DC workers to bring more people into the labor pool, as they should in a normally functioning market. He noted that during a panel discussion at the CSCMP conference in Orlando in September, Steve DeNunzio of Ohio State University said he was seeing adds for DC job in the Columbus area (where there is low unemployment) offering wages of more than $18.00 per hour already, so maybe it is happening.

Gilmore then turned to the driver shortage issue, with the same question for TranzAact's Regan relative to the truck driver shortage: is it real?

Regan's answer: "It is as significant and serious as you could imagine," with a shortage of perhaps 300,000 drivers over the next few years, according to estimates from the ATA.

He noted how changes, such as the coming 2017 mandate that all truckers use Electronic Logging Devices (ELDs), will exacerbate the current situation. The ELD requirements will make it virtually impossible for smaller carriers and independents to cheat on their driving logs relative to hours of service requirements. The impact may be a reduction in total truckload productivity may be as much as 5%, he said.

He added that by eliminating cheating, the ELD mandate will have the effect of reducing take home pay for many drivers, by some estimates as much as 8-10%. That will likely push more drivers out of the industry, Regan said.

He added there was a mini-crisis in the US trucking sector relative to capacity in Q4 2013 and Q1-2 2014, which then abated as the freight market slowed.

However, Regan believes that if economic growth gets anywhere around 2.5%, that capacity issue will quickly arise again, and that if we hit 3%, we will see "the motherlode" of capacities crises.

Many carriers have increased driver pay 20% or so over the past two years, but that's not enough, Regan says. Wages need to go higher, and shippers are going to have to pay for it.

He also said that drivers also need to be treated better by shippers across multiple dimensions. Drivers are treated as if they barely exist at many DCs, and many shippers still have excessive waiting times, among other issues - which some driver studies find are as big a factor as the level of pay in terms of drivers leaving the industry.

Regan ended by noting that logistics managers should be preparing their senior management now for the potential impacts of this driver shortage, in terms of looming service issues due to a lack of capacity and rapidly rising rates.

That's our summary of the excellent workforce-related discussion on the MHI panel. Next week: thoughts from the panel on changes in supply chain technology.

What strikes you relative to this discussion of supply chain workforce isues? What was left out? Let us know your thoughts at the Feedback section below or the link above to send an email.


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