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Addressing the Labor Shortage in Logistics & Supply Chain
Waiting at airport security. Waiting for that package to arrive. Waiting in an hours-long telephone queue for customer support. It is quickly becoming one big waiting game. The cause? A global labor shortage.
Amazon has reported difficulties in retaining and hiring enough personnel to deliver goods; the UK's National Pig Association was forced to cull hundreds of pigs due to a shortage in abattoir staff; and 44% of German companies say they are being held back by a lack of workers. Needless to say, the labor shortage is being felt around the world and throughout the economy.
One function suffering acute pain during this crisis is the supply chain and logistics. Whether it be a shortfall in delivery drivers, a lack of warehouse operatives, or an inability to hire skilled professionals to manage processes, technology, and personnel, supply chains the world over have struggled to maintain pace. With a recent study by Korn Ferry estimating that by 2030, there will be a shortage of 85.3 million skilled workers worldwide, costing the global economy $8.5 trillion – the GDP of Germany and Japan combined – this problem isn’t going away any time soon.
In this article, we examine the causes and the impact of supply chain labor shortage, and offer several solutions that can be implement to solve short-term problems and mitigate long-term risks.
What is Causing the Supply Chain Labor Shortage?
It would be difficult to have avoided the news regarding the global events of the last few years. Covid-19, the war in Ukraine – the world’s economy has experienced its fair share of shocks. But how exactly have these events contributed to the current labor shortage? More specifically, how have these events caused a labor shortage in supply chain and logistics?
As the global economy reeled from the spread of Covid-19 and its associated lockdowns, many industries had to cut costs just to survive. Airlines lay off stewards and support staff, construction companies down-sized their workforce, and hospitality businesses reduced their roster to a bare minimum or failed to survive altogether. Unemployment rose across the board. What followed was a long period of furloughs and under-utility. But that is not to say the workforce sat idle. Many sought employment in industries less affected by lockdowns and in the process developed new skillsets. When the lockdowns ended and companies tried to lure their workers back, they found many were not willing to return, having embarked on new career paths.
Covid-19 also greatly disrupted immigration. Many economic immigrants returned to their home countries during the pandemic and are yet to return, while the Covid travel restrictions put a drastic stop to the inflow of new migrant workers.
Finally, and most seriously, Covid-19 is responsible for changes in the workforce itself. Latest estimates suggest that the pandemic has caused over 6 million deaths worldwide, which, in the bleakest terms, has reduced the size of the workforce. On top of that, months of lockdown, uncertainty, and bereavement have, at best, shifted workers’ expectations and priorities towards a better work-life balance, and, at worst, have caused sweeping mental health issues.
In short, Covid-19 has caused irreversible changes in attitudes to work.
A United Nations study estimates that Europe will have a staggering 95 million fewer people of working age in 2050 than in 2015. It is no great secret that the population in the Eurozone is aging. More people are leaving the workforce than joining it.
With the ‘Boomer’ generation approaching retirement, the ‘Millennials’ and ‘Gen-Z’ must carry the torch for supply chain. Unfortunately, there exists a misperception and general mistrust of logistics and supply chain roles among these younger generations, with the industry seen as a purveyor of temporary, low-paid gig work offering few prospects for growth beyond delivering packages. Despite the recent explosion in exciting, new supply chain technology, and the importance supply chain holds in an ever more connected and faster paced world, such reputations are difficult to shake.
As a result, supply chain is battling, and more often than not losing out to, more ‘attractive’ industries, such as healthcare and those businesses that set up shop in Silicon Valley. This is causing a labor shortage now – for the industry’s entry roles – and will cause another shortfall later – for those supervisory roles that require experience beyond the gig economy.
Supply chain is quickly evolving and has made huge advancements in technology, AI, and automation. This has streamlined processes and improved efficiency. While this might suggest a reduced requirement for personnel, it has in fact increased the number of open roles in the industry. Development teams, technical support, operators – such roles are lying vacant, and applicants require advanced skillsets and training that are not so easy to come by.
This is not a new issue. For years, technology has experienced an under-supply of skilled workers. This stems from a general lack of investment in the relevant skillsets, a problem experienced in many developed countries, and a lag in up-skilling, as training or retraining takes time. In short, the skills gap for supply chain is wide, and, on its present course, it is only getting wider and intensifying the supply chain labor shortage.
The Bundesverband Mittelständische Wirtschaft (the German Association of mid-sized Businesses) estimates that over 100,000 drivers working for Polish haulage companies are Ukrainian. With Ukrainian men aged 18-60 being drafted into the military, many of these drivers are leaving the workforce. This affects haulage not only in Poland but across Europe. In Germany, as an example, up to 20% of haulage is carried out by Polish companies.
This is just one example of how the war in Ukraine is exacerbating the current logistics labor shortage. Other effects include the reduction in freedom of movement due to international sanctions; the added complexity of re-routing affected supply chains, increasing the workload for supply chain management; and the general uncertainty caused by international conflict resulting in adjusted priorities in the workforce.
Vast improvements in technology and a Covid-19-propelled increase in e-commerce sales has seen more people than ever using e-commerce. The engine room of e-commerce is its supply chain and supply chain operatives. With greater demand and ever-increasing service level expectations, the supply chain has never before needed more personnel. Even in a relatively stable labor market, manning the pumps would be a strain, but in times of labor shortage, the situation becomes precarious.
What is the Impact of the Labor Shortage on Supply Chain?
From hospitality to aerospace, the labor shortage pinch is being felt across all industries. Combine that with the aforementioned labor-intensive supply chain operations and a rise in demand for logistics personnel, and supply chain is clearly amongst the worst disciplines hit.
In the UK, there is a shortage of 100,000 lorry drivers; in Turkey, the shortage is approaching 25%; Germany currently faces a shortage of 60,000-80,000 truck drivers. The immediate impact of such a labor shortage is obvious. Simply put, there are not enough drivers to fulfill the delivery requirements. Shipments are delayed and the backlog mounts; meanwhile, supply chain management is busy fighting off competitors to secure precious haulage space, their strategic work set to one side so they can deliver on time. And this situation isn’t constrained to drivers. The same can be said for warehouse workers, dockworkers, the list goes on...
But what are the wider impacts of the labor shortage on supply chain?
An understaffed supply chain creates inefficiencies, which can snowball into full product shortages.
Take perishable food items, for instance. If a delivery of fresh food is delayed due to a shortage in truck drivers, it may fail to meet cold-chain criteria and health and safety requirements. The whole consignment will have to be disposed of. This not only affects the supplier, but the consumer too, who may find their supermarket shelves suddenly empty.
Similar can be said for complex electrical goods. The delay of one component delays the product from reaching the consumer. The delay of ten components can close the assembly plant. That new smartphone or laptop is suddenly in short supply.
While product shortages can lead to short-term price spikes, the labor shortage may also cause long-term price increases. High demand and short supply in the labor market will lead to increased labor costs, which will have to be passed on to the consumer. Combined with other inflationary pressures, such as the energy price-hike, this inflation can reduce sales and, more generally, push the economy towards recession. Without a doubt, this is concerning for companies big and small.
The Hindrance of Growth
In 2022, 64% of IT executives in the US surveyed by Gartner listed labor shortage as the most significant barrier to the growth of emerging technologies, compared to just 4% in 2020.
With the uptick in e-commerce and the development of new technologies, the sky really is the limit for supply chain. But, like any industry, to benefit from the growth on offer, it requires people. Whether it’s a local food distributor struggling to put boots on the ground in the warehouse or a multinational failing to attract enough talent to develop its robotic automation systems, the supply chain labor shortage will lead to missed growth opportunities.
This is one of the gravest impacts of the labor shortage. The failure to grow, or perhaps even the reversal of growth, will severely impact the future prospects of the company and the economy.
How to Combat the Supply Chain Labor Shortage
The labor shortage is not going away any time soon. So what can a company do to combat the shortage in the short, mid and long term?
Short Term Solutions
One of the greatest missteps of the post-covid recovery was the lack of communication between management and employees both during and after the pandemic. Management teams did not adequately reassure those that were furloughed or put on reduced hours that there was still a future for them at the company. This resulted in the mass exodus witnessed by so many companies. Those companies that communicated clearly and honestly have witnessed much better results. It’s not too late to start communicating now. Tell your employees where they are going, and go there.
Secure the remaining workers
Just because the worst of the ‘The Great Resignation’ is (hopefully) behind us, it doesn’t mean workforce attrition is over. Companies must work hard to secure the remaining workforce. If this means offering additional remuneration or one-off financial rewards, then it’s a price worth paying – the cost of replacing skilled, trained employees will be even higher in most cases.
Improve HR Processes
Surprising as it may seem, even in the midst of a labor shortage, clunky recruitment processes still exist. By streamlining HR processes or setting up one-off, project-style recruitment drives, you can circumnavigate the slowdowns and get ahead of the competition.
The labor shortage is exposing the fragility of just-in-time delivery across the entire supply chain. One way to maintain the operability of the supply chain with a smaller workforce is to increase the amount of storage available. Then, the delivery SLAs can be fulfilled with less frequent stock replenishments. Of course, extra warehousing comes at a cost, but it must be balanced against the reputational and actual cost of the missed or late deliveries caused by stock outages.
Manage Customer Expectations
Needless to say, customer expectations have sky-rocketed in recent times. Next-day delivery has become standard throughout the supply chain. In the current economic climate, however, sometimes it’s just not feasible, and disappointment reigns. An open and frank conversation with the customer is key. If you’re a B2B enterprise, your customer is probably suffering similar issues and at the very least will be understanding. The last thing they want in a difficult situation is added complications by missed delivery SLAs. Be prepared for the conversation: come with solutions and workarounds. If you are targeting the end customer and individual conversations are not possible, it’s important not to over-promise and under-deliver. Breaching customer trust has long-term consequences. Leave that to your competitors.
Mid to Long-Term Solutions
Rebuild the Employee Value Proposition
In a demand-dominated labor market, it takes more than good pay to attract the right employees. A major reason why employees have left or continue to avoid supply chain roles is a perceived lack of future. By providing room for training and opportunities for personal growth, you can extend the value proposition beyond the transactional and retain skilled employees in the long-term. Of course, this is harder than it sounds. It not only requires finance and effort to set up attractive training programs but also the ongoing commitment to allow employees room to grow, even when times are tough. It also comes with the risk of investing in employees only for them to move on. Although this is sometimes unavoidable – for example if they need to relocate to an area where you don’t operate – remember, the main reason an employee will move to a competitor is if they are dissatisfied in their current role or have been offered better terms. You can control this, at least, by trusting that, when you offer genuine prosperity, your employees will remain.
Market the Discipline
The misconception that supply chain is not an exciting place to work needs to be addressed. This requires a consistent communication effort across numerous channels – from in-person events to social media – to market supply chain and logistics as an engaging place to have a rewarding career. In this respect, we all have our part to play.
Digitalisation and Automation
From route optimisation to warehouse robotics, a whole host of technologies can improve the labor efficiency of the supply chain. By adopting a considered digitalisation strategy, you can move towards a more resilient operation, capable of navigating current and future labor issues. Naturally, this requires skilled technologists, which, as mentioned earlier, is an issue in and of itself. But it’s worth remembering that technology is becoming less of a luxury and more of a requirement. A failure to act now will cause you to fall behind, as your operations become more costly relative to the competition and your supply chain department’s technology skillset, an enabler for future success, remains immature.
Use Workforce Analytics
Workforce analytics can help identify which employees are most likely to leave the company so you can employ targeted interventions to increase the chances of their retention. Such analytics can be something as simple as anonymous satisfaction surveys or, in larger organizations, advanced data analysis to identify statistically ‘at-risk’ employees. Another technological solution capable of increasing worker satisfaction is the use of handheld devices for employees on the road. This allows live feedback from, for example, delivery drivers, so their dissatisfaction can be quickly addressed. Such technologies also generally enhance communication between managers and staff, giving the drivers an improved sense of identity within the company.
Do you want to divest your company of the risk and management costs of a labor shortage? Then outsourcing might be the solution. By agreeing the required labor levels or the fulfilment of prescribed duties with a labor agency, you can transfer the burden of workforce management onto a third party. Measurable KPIs and enforceable penalties are what make the agreement function.
Remember, the third-party provider will price in risk, which could be high during a labor shortage if the expectation is that they have to pay more to attract sufficient workers. Additionally, during extreme labor market disruptions, the agency may also struggle to attract talent altogether. As much as you might threaten with contractual fines and legal action, you will still be short staffed. Outsourcing is not necessarily a silver bullet, more a preference of where you want the risk and responsibility – and effort! – of recruitment to lie.
Strategic Sourcing Levers
In the case where late or missed incoming deliveries are disrupting your operations, it makes sense to consider whether you want to purchase the product at all. A full Cost-Benefit Analysis can be undertaken to evaluate various procurement levers: e.g. Make vs Buy decisions, possible product respecifications, reducing complexity of the product components, partnership with suppliers, and a lot more. (Read more about strategic sourcing and its levers here) Generally, you can try to reduce the risk that comes with reliance on others and as a result gain more control over your supply chain and ensure uninterrupted supply. While potentially exposing you to similar issues regarding the receipt of precursor products, as well as an additional labor requirement in your own operation, being less reliant on other, more poorly managed supply chains may give you the certainty you need to fulfill customer expectations.
Remain Vigilant – don't make the same mistakes again
While with 20-20 hindsight, it’s simple to trace the cause and effect of the current labor shortage with regard to Covid-19, it’s worth remembering that, at the time, when the future was uncertain, it was difficult to know what path to take. Should you retain employees at significant cost and risk sinking the business? Or should you cut back to protect your business in the hope of scaling up when the pandemic stabilizes? Certainly, many companies have learnt a great deal through their actions and experiences in the pandemic. The key is to use those learnings in future challenges so that you not only weather the storm but are ready to pick up where you left off when the skies clear.
Tackling the Labour Shortage in the Supply Chain: Final Thoughts
From generational shifts to Covid-19 and the war in Ukraine, a cataclysmic confluence of economic forces has led to the current labor shortage. With supply chain suffering particularly acute troubles, it’s important to address the challenge with strategy and intelligence.
Working hard to retain workers in the short term; utilizing technology and strategic sourcing levers; and reimagining the employee-employer value proposition are all key to ensuring a company can not only survive but take advantage of a difficult market place. Simply put, in a labor market that is heavily weighted towards the worker, rewarding employees with financial and personal growth is the best way to ensure a prosperous future for all.
OCM Consulting has years of experience in supply chain transformation. We have employed a variety of technical and organizational solutions to improve supply chain labor efficiency, such as introducing handheld devices for drivers in a large pharmaceutical wholesaler; outsourcing transport functions to third party providers; procurement transformation; and reformatting program management practices to give voice to those working closer to ground level. In short, we can provide the know-how and the working capacity to implement solutions that improve both efficiency and employee retention.
If you need advice on how to handle the supply chain labor shortage in your organization or would like to discuss our service offerings, product modules, and expertise, then please don’t hesitate to get in touch.
Founder & Partner
M.+49 160 93882573
Our project modules at a glance:
Logistics optimisation & Supply Chain Consulting modules
Logistics & SCM Opportunity Assessment
- Benchmarking & maturity testing
- Identification of opportunities & action plan
Transport Partner Management
- Transport partner strategy & professionalisation
- Securing resources and resource training design
- Competition, effective transport tendering, fact-based negotiation
- Transport cost reduction
Freight & Logistics Tender
- Competitive pricing, quality, and performance assurance
- Individual weight-distance matrix
- Efficient warehouse logistics & layout
- Optimised processes & working capital
- Optimising logistics through synergies
- Finding a fair and stable collaboration model
- Distance and route reduction
- Reduce resource & logistics costs
Supply Chain Network Optimisation
- Optimise delivery times, service levels, & processes
- Reduce working capital
Inventory & Order Management
- Optimal order quantity & stock on hand
- Optimise working capital
- Fleet concept tailored to requirements
- Cost optimisation
Supply Chain & Logistics Strategy
- Sustainable maximum value contribution of the supply chain
- Clear objectives, concrete measures
Digital Logistics Management & Reporting
- Information advantages in speed, scope, & significance
- Efficiency through automation, data integration & process simplification
Interim Supply Chain & Logistics Manager
- Rapid response: candidates within 48h
- Matching of requirements and assessment of suitability using logistics experts
- From dispatcher to logistics manager
Short-term staff shortage? Unexpected need for action?