Labor is one of the toughest variables to manage in the supply chain. It’s a constantly moving target that is prone to fluctuating demographics, politics, economics, laws and regulations. U.S. manufacturers’ attempts to chase down cheap labor overseas and in developing markets is not a sustainable strategy...low-cost workers are guaranteed to alter the game plan over time.
China is a textbook example. For years, U.S. and European manufacturers, in particular, shifted production to China’s eastern coasts, primarily the Pearl and Yangtze River deltas, to take advantage of low-cost labor. That cost savings started drying up quickly these past few years as better wages in China’s hinterland kept workers there closer to home. A dwindling supply of workers coupled with rising demand meant factory workers in the coastal industrial hubs could insist on higher wages. In some cases, labor has become so expensive in China that U.S. manufacturers, and even some Chinese companies themselves, are sourcing production in Mexico.
For the U.S. farm sector, immigration adds a unique twist to procuring labor. Congress is currently getting plenty of heat for their inaction regarding immigration reform. A survey by the California Farm Bureau two years ago found that 71 percent of tree fruit growers and almost 80 percent of raisin and berry growers throughout the state could not find enough workers. Meanwhile, thousands of acres of farmland once used to grow vegetables are being scaled back and operations moved to foreign countries. The story is the same for other states and for livestock ranchers as well.
Meanwhile, the ongoing shortage of truck drivers is getting worse. Signing bonuses and other perks cannot attract enough labor to the profession and the steady, albeit slow, improvement in the economy is only exacerbating the problem.
In the warehouse, there are similar challenges. An aging and retiring workforce, difficulties in attracting young workers to manual, blue-collar jobs, compounded by rising wages and insurance costs make it more difficult for warehouse operators to manage their operations. At the same time, marketplace requirements for same-day delivery and compliance with the Food Safety Modernization Act (FSMA) and other regulations add to the squeeze.
Regional differences can skew labor costs even more. According to research conducted by The Boyd Company, the total annual operating costs for a 500,000-square-foot warehouse in Los Angeles is $20,737,988 compared to just $14,057,361 in Quincy, Wash. Worker wages were just one of the operating costs analyzed in the survey (benefits, real estate, property taxes, utilities, and shipping costs were also considered), but it’s fair to say there are significant pay discrepancies between the two cities.
This special edition of Food Logistics focuses on “The Modern Food Warehouse—Automation and More.” Inside we examine a variety of ways warehouse operators are keeping labor costs in check while meeting the evolving demands of omnichannel sales, proliferating SKUs, tighter regulations and other requirements unique to our industry.
Enjoy the read.