Can Warehouse Automation Make Up for a Tight Labor Market?

Warehouse employment is one of the few bright spots in the job market. The sector is now employing more people than before the start of COVID, with employment up 3.8% or 46,000 positions, since mid-March, according to the Bureau of Labor Statistics.

When choosing an infill location for a warehouse, investors need to keep this tight labor market in mind. “A proper labor analysis digs into employee drive-times, extent of existing warehouse jobs, turnover, number of eligible workers, unemployment and wage rate trends. It’s also vital to consider labor availability for peak season,” writes Cushman & Wakefield’s Benjamin Conwell.

Solving for the labor issue is particularly crucial for e-commerce operations, which is taking an increasingly significant share of the industrial sector. “E-commerce orders are fulfilled differently than wholesale or traditional store replenishment. Rather than being palletized, orders are shipped as ‘eaches,’ which are received, stowed, picked and shipped individually. This process requires a greater number of associates than comparable legacy warehouses,” Conwell writes.

Labor availability has been a concern for industrial operations for several years. As technology improves, companies might be tempted to turn to automation to ease their capacity needs. But Conwell urges caution in making that decision, saying that the “tradeoff between automation and labor is a huge business decision.”

The massive cost of automation is only one reason this is a huge business decision. Automation can also limit the flexibility of a warehouse operation, according to Conwell. For instance, it can be difficult to scale operations for peak season because it locks operations into a specific process flow.

Factors like the nature of the items fulfilled, the delivery level of service, availability of capital and variability in throughput can help determine whether an investment in automation makes sense. Conwell also points out that having more automation doesn’t automatically mean employing a smaller workforce. Automation may require workers to perform maintenance, coding and other tasks.

For the big players, however,  increasing their investment in automation is a no brainer. NKF’s chairman Thad Mallory points to companies like Amazon, Costco, Walmart, Lowes and Home Depot leading the way with automation.

“Those companies are going to double down their investment because they’re making money right now, they’re getting more market share and they’re going to come out on the other side stronger,” Mallory told GlobeSt.com in an earlier interview. “I don’t think they’re going to be afraid to make an additional investment.”

Even though the jury is out on how much automation will help warehouse operators reduce costs, experts foresee an increase in automation, especially as the pandemic continues to remake supply chains.

Already, COVID is prompting investment. The pandemic has forced various industries, including healthcare and grocery stores, to automate rapidly. The supply chain isn’t far behind. “I think that, given the spotlight that the pandemic has put on the fragile nature of our global supply chain, automation and robotics will gain a lot of attention,” Rich Thompson, international director, supply chain and logistics at JLL, told GlobeSt.com in an earlier interview. “And for anyone interested in those investments, it will just accelerate that interest.”

Will O’Donnell, managing partner, Prologis Ventures, thinks COVID-19 has also highlighted the need to rethink global supply chains and their adaptability to meet today’s unprecedented challenges.

“As part of this major supply chain evolution, I expect to see companies continue to optimize the operations of their logistics facilities, as well as increased investment in robotic systems to enhance processes, as they seek to create environments that prioritize the health, safety and well-being of employees,” O’Donnell told GlobeSt.com in an earlier interview.