10 Things You Should Know About Labor Factors in Warehouse Operations & Site Selection Decisions

As corporations increasingly use their supply chain strategies to help gain a competitive advantage, we noticed a trend toward more in-depth site selection analysis. The traditional factors analyzed, including transportation inbound and outbound costs, labor pool profiles, distance to major transportation nodes, proximity to major markets, community pro-business assessments, specialized training, state and local incentives, and highway infrastructure are carefully analyzed in order to select the location that supports a company’s business model and supply chain strategy. In our experience, labor seems to be one of the most misunderstood factors.

Below are 10 things you should know about labor factors in warehouse operations and site selection decisions.

1.) Labor Tops the List.
Area Development magazine conducts an Annual Manufacturing and Warehouse/Distribution Operations Site Selection Survey to determine how the site selection components rank in level of importance. The 2008 survey confirmed that labor costs and availability of skilled labor are in the Top 10 most important site selection factors.

2.) It’s Not Your Fathers’ Warehouse — More associates needed.
In the past, warehouses typically handled bulk shipments of goods in and out with the warehouse providing little value-added work. The number of workers inside the “four-walls” of a 250,000-square-foot warehouse would total 12 to 15. Today, warehouses are frequently referred to as “customization-centers” and/or “mini-manufacturing operations.” Their focus is to prepare floor-ready merchandise so retail store associates don’t have to spend valuable time in back rooms preparing products for shelves rather than assisting customers. It is not uncommon today to find a 250,000-squre-foot warehouse operating with 60 to 75 workers performing value-added services.

3.) Evolution of Automated, High-Tech Warehouse Operations.
Warehouse tenants continue to focus on improving supply chain velocity and quality of customer service while reducing supply chain costs. In many cases, corporations have implemented more automation and technology in their warehouse operations to achieve these objectives. For example, Walgreen’s 700,000-square-foot facility in Perris, Calif., has more than $100 million invested in automation and technology within the “four walls.” A quality, trainable work force is essential in order for Walgreen’s to achieve a good return on its investment.

4.) Mass Retailers’ Vendor (Warehouse Tenants) Compliance Rules.
There is good news and some challenging news when mass retailers select vendors. The mass retailers issue a Vendor Compliance book (see example below) that vendors are expected to know and follow. Violations of a chargeback item can result in costly deductions from a vendor’s invoice. If warehouses do not have access to a good, low-turnover, trainable work force in the area, the cost impact can be significant.

5.) An Area’s Specialized Training.
Economic development agencies in cooperation with local community colleges have established specialized training programs for warehouse workers so local warehouse operators can find good workers. This can provide a key advantage in one location competing with another.

6.) Rooftops Can be Too Close.
We frequently we hear supply chain executives say, “In order to be in my comfort zone I want to be able to see the rooftops of where my potential warehouse labor force lives from my warehouse location.” Today, we are seeing increasing situations nationwide where residential developments located adjacent to industrial parks are pressuring local politicians to place serious operating moratoriums on warehouse and truck operations.

7.) Agricultural Labor Shed Leads to Exceptional Warehouse Workers.
Numerous demographic studies have confirmed that an area with a good size agricultural labor shed provides excellent, loyal, hard-working workers for a warehouse operation. For example, a large retailer’s regional distribution center located in the Central Valley of California consistently wins the company’s warehouse network annual challenge as the most productive and highest quality warehouse operation in the U.S.

8.) Amenities.
We have conducted more than 75 warehouse location operations studies across the U.S. and have found a majority of operations executives are putting a higher level of importance on an area with good amenities (public transportation to/from the site, nearby restaurants, etc.) for warehouse workers.

9.) Warehouse Operations Challenges.
As part of WCL Consulting’s warehouse site selection studies, we frequently interview current warehouse operations workers in an area. Over the last six to seven years, a consistent pattern has emerged: The most important challenges include labor quality, including skill levels and labor turnover.

10.) Developing a More Compelling Warehouse Site Location Story.
Demographic studies range from very detailed or high-level overviews. It is recommended that industrial real estate developers/landlords provide some level of demographic information that will help communicate a more compelling story of why their location is better than competitors.

Labor will continue to play a critical role in successful warehouse site selection and operations decisions. It pays to do one’s homework. Corporations cannot rest on a “build-it-and-they-will-come” model.


JoC TENs Essayist Jon DeCesare is president of World Class Logistics Consulting in Long Beach, Calif. He can be contacted at jondecesare@wclconsulting.com

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