What’s the right ratio of temporary warehouse staff vs. full time staff?
It’s an age-old question with an age-old answer: it depends.
An 80/20 mix of full-time to temporary staff is a good baseline. You always want at least some degree of flex.
That mix should shift to a heavier proportion of temporary warehouse labor when you have seasonality, new product launches and other events that result in regular volume fluctuations. In these cases, a 70/30 or 60/40 mix makes more sense.
The PROs and CONs of temporary warehouse staff
The primary benefit for shippers and 3PLs from the use of temporary labor is that you pay only for the labor you need. With temp labor, you avoid the overhead costs associated with:
- Worker’s comp
- Unemployment claims
- Vacation days
- Retirement funds
A reliable pool of temporary workers supports a flexible fulfillment model that can handle unexpected volume surges. It gives the business more freedom to capitalize on opportunistic marketing and sales initiatives, with the confidence that the fulfillment operation can handle it.
Another advantage of using temporary staff is that you can identify the best-fit candidates for full-time employment before making an offer.
The money-saving advantages of temporary labor could be misleading, however. Quality might suffer versus what you would get from trained, full-time associates. Temporary staff will turn over frequently, requiring constant retraining. Also, they don’t have the same connection to the brand.
Full-time staff at Amware Fulfillment, for instance, get to know not only their clients’ products and packaging requirements; they get to know the clients themselves and develop a strong sense of ownership in their work output.
Quality problems – inaccurate orders, late deliveries, improper packaging – lead to disgruntled customers who may choose to buy elsewhere. Acquiring a new customer costs you five times more than retaining an existing one. Investing in quality fulfillment is part of that cost of retention.
The Pandemic changes things
It’s hard to talk generally about the PROs and CONs of temporary warehouse workers without recognizing the current state of the post-Pandemic labor market. Right now, it’s more difficult to hire direct employees than to get temps in the door. The significant shortage of warehouse workers relative to demand has led to a sharp increase in labor rates for new hires. With temporary staff, the wage rate has not risen as dramatically, so many shippers and 3PLs are leaning more on temps and then converting the best candidates to full time.
Three options for labor management
The 3 options shippers have for labor management are heavy use of temporary staff, heavy use of full-time staff and heavy investment in automation to reduce the number of required workers. Which one works best as a dominant strategy will depend on your business.
A HIGH-TEMP MODEL makes sense if:
- Business is highly seasonal
- Accurate forecasts are difficult
- The business is growing fast and in ways that are hard to predict
- The brand is just gaining traction in the market and you are still learning about demand volumes and which products are most popular
A HIGH-FTE MODEL makes sense if:
- The business is mature and has a documented history of order volumes over time
- Volume is predictable
- Quality execution in order processing is a priority
A more AUTOMATED MODEL makes sense if:
- Required fulfillment tasks are consistent and lend themselves to having a machine replace a person
- The business is more static than changeable, so automated solutions could be used over a long time period.
With automation, you don’t want to make 6- and 7-figure investments to automate processes that may change, therefore making that equipment irrelevant. A pick-to-light system, for instance, could work if there was not regular changeover of SKUs, requiring frequent re-slotting. There is relatively less risk with low-cost automation solutions for eCommerce fulfillment like tape machines, box erectors and carton sealers – all of which deliver a solid ROI for high-volume B2C brands.
Case Study: A modular approach to labor management
The best approach to labor may be to examine your needs along a continuum. Amware helped a maker of drinkware products scale from under 50,000 orders per year to more than 400,000 per year and growing. Initially, we relied heavily on temporary warehouse staff as volumes fluctuated wildly. This ensured that labor costs paralleled revenue as the brand gained traction. Over time the volumes, while still growing, became more predictable and we moved to a more direct FTE model for labor. This has resulted in greater productivity, higher order accuracy levels and a lower fulfillment cost per unit. The next stage in the continuum will be to work on creative ways to leverage automation to get more throughput with less people.
Advice to online retailers on the use of temporary warehouse staff
Your dominant strategy for labor management will depend on your situation. If you work with a third-party fulfillment company, choose one that is equally adept at managing each of the 3 models outlined. Your ratio of investments – from temporary labor to full-time FTEs to automated solutions – should be dynamic and always evolving with your business model.
To discuss how a third-party fulfillment company can help you navigate today’s difficult labor market in warehouse fulfillment, contact the B2C fulfillment specialists at Amware.