March 02, 2021
Posted by Jeremy Bodenhamer

How Higher Wages for Operations Workers can Lead to Higher Profits

The CEO series features industry insights and ideas from ShipHawk’s very own CEO, Jeremy Bodenhamer. The following is adapted from his book, Adapt or Die.

The COVID-19 pandemic has emphasized the inequality that plagues our society. The growing income divide has occurred despite a never-ending push for productivity and the efficiencies of supply chain automation.

In fact, the treatment of workers as a result of automation is having a deleterious effect on bottom lines and widening the chasm between workers and wealthy corporate CEOs. 

The future we need is one where the independent business can thrive. It’s one where business ownership is a powerful equalizer, reducing income inequality and empowering families and communities. Paying higher wages is the path to a more equal society and greater profits. 

Increasing Automation Does Not Necessarily Boost Profits

The increased productivity that is linked to automation is no longer causing economic expansion commonly associated with productivity booms, according to Bill Davidow and Michael S. Malone, authors of The Autonomous Revolution. “Automating technology has driven GDP down instead of up.” The middle class—when and where it still exists—“is working better and smarter than it ever has, but it’s not getting any wealthier,” the authors say. 

This non-monetizable productivity is because the markets that automation and intelligent machines affect are largely inelastic markets. For example, when the price of a car dramatically decreases, sales increase. But if the price of a newspaper drops to near zero, people with limited time will not buy or read 100 times more news. 

Better Conditions Would Reduce Turnover Rates

Another finding is that the potential profits from automation can come with significant losses. Workforce turnover is a huge problem for warehouses. In California, turnover rates for warehouse workers was 83 percent, up more than 40 points since 2011. Not to pick on Amazon necessarily, but the National Employment Law Project found that the average turnover rate for warehouse workers in counties with Amazon fulfillment centers was 100.9 percent in 2017.

There is no doubt that these incredibly high turnover rates are a direct product of worker treatment and experience in these warehouses. One Amazon worker said that an Amazon warehouse “is like a prison.” Hiring and training new workers is extremely costly for businesses, and robots cannot replace humans completely. 

Improving Worker Conditions Increases Productivity

Robotics, in particular, has fundamentally changed the literal and figurative value of some human labor, but this needn’t be the end of the story. Worker treatment is, in fact, one of the few remaining areas of business in which supply chain companies can and must act differently than Amazon and its many predecessors. It’s the right thing to do, but it is also the best decision for long-term business prosperity, and, yes, productivity. 

A commitment to the workplace environment is a must for companies hoping to attract and keep the young employees they seek, with 65% of 18-to-34-year-olds likely to place culture above salary. Not only do such initiatives save organizations money by avoiding turnover losses, but they can also lead to increased productivity figures as workers are increasingly motivated to perform and contribute. 

Up-skilling Workers and Investing in Them Leads to Growth  

There is a huge opportunity for companies to use automation to up-skill workers. A 2013 study by Frey and Osborne predicts that close to 50 percent of American jobs might be automated in the future. Given the high cost of replacing workers, the data may soon show that investing in warehouse worker well-being is actually good for business and the bottom line. 

Replacing highly repetitive, difficult tasks with hardware, robotics, and software should reduce the total number of employees needed to run an operation, but people are still imperative. Any savings should be invested in worker wage increases and benefits whenever possible. Doing so may increase profitability by reducing turnover and its associated costs, improving employee engagement, output, and each worker’s investment in the business’ success. 

Higher Pay Means Higher Profits

Before the COVID-19 pandemic, many people saw operations labor as disposable. Now, truck drivers, delivery workers, packers, sorters, and materials movers are regularly called heroes, and their labor is thought of as undeniably essential.

If that's the case, it’s time to reward their heroic efforts and pay them higher wages, up-skill them, and allow them to grow. Companies are likely to see their profits grow, too.

 

Jeremy shares similar industry news and stories in the weekly Adapt or Die Newsletter. Click the button to subscribe today.

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