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Supply Chain News: In Surprising News, Amazon Says It Now has too Many Fulfillment Center Workers

 

Big Jump In Hiring Followed by Slowdown in PPE, Overall Sales Volumes

 
May 10, 2022

 

SCDigest Editorial Staff

For several years now, stretching before the start of the pandemic in 2020, the extreme shortage of labor in distribution has been regular news. It has only before come more prominent since the pandemic, as demand for ecommerce fulfillment exploded in a stay at home economy.

Supply Chain Digest Says...

Our guess is it’s pretty simple: Amazon got caught with a large number of FC workers when volumes suddenly slowed. Given a fixed pool of orders, productivity per worker would have to decline.


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Perhaps most famously, in September 2021 FedEx said in its recently ended fiscal quarter it incurred $450 million extra costs due to the on-going labor shortage. The company said the lack of labor led to increased overtime, higher wages to attract workers and extra spending on expedited transportation. The company cited the specific example of a sorting hub in Portland, OR, that had 65% of the workers needed to handle the normal number of packages that go through that facility.

Amazon has certainly played a key role in this, continuing to open hundreds of fulfillment centers, postal sortation facilities, and other types of logistics buildings, often employing several thousand workers. It pushed wages up and added attractive signing bonuses, all combining to make it tough for other distributors to find enough labor.

Then something funny happened. Amazon is saying it now has too many logistics workers.

That surprising news from a story in the Washington Post last week, based on comments from company executives during Amazon’s Q1 earnings call.

Amazon now says that it hired too quickly in its fulfillment centers during the pandemic in an effort to keep up with soaring demand for hand sanitizer and masks, and to have back-up workers for others that caught the omicron COVID variant.

But now sales of masks and other protective gear is slowing, while COVID cases have been way down. Add to that, Amazon’s own overall sales have been slowing, actually falling 3% in the first quarter.

The result: a surplus of workers in its FCs.

“As the variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity,” Chief Financial Officer Brian Olsavsky said on the earnings call.



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Amazon hired 270,000 new workers just in the second half of 2021.

The company will not have to lay off any FC workers to get back in balance, according to spokeswoman Kelly Nantel. That’s because turnover remains very high, as much as 100% or more at some facilities, so attrition should take care of the problem quickly.

As a note, sites with 100% turnover do not indicate all employees leave the job in a given year. Rather, it is reflected in a significant number of new workers remaining on the job for just a few weeks or months.

Amazon did not explain on its earnings call exactly how it plans to increase productivity.

Our guess is it’s pretty simple: Amazon got caught with a large number of FC workers when volumes suddenly slowed. Given a fixed pool of orders, productivity per worker would have to decline.

Attrition will kick in until ratios for something like order lines per employee or similar metrics are reached.


What are your thoughts on too many Amazon FC workers? Let us know your thoughts at the Feedback button below ( email) or in the Feedback section.



 
 
   

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