Inbound freight handling seems like a straightforward equation: warehouse labor cost = operating cost/work rendered.
However, this formula works only if one can accurately identify the factors that make the numbers work. These include:
Is labor expense aligned with operational performance?
Is the labor activity focused on value added tasks, or are there hidden expenses like downtime?
Does your tracking and reporting drive the desired behaviors?
But warehouse managers are often challenged to set and define labor standards as criteria and assess improvements in productivity. Given that labor cost can account for as much as 90 percent of operating expenses for a freight operation, the importance of knowing exactly what you’re getting for your investment cannot be overstated.
The average salary of a warehouse associate is about $28,000 per year, according to a report released by salary.com. However, numerous related expenses combine to greatly increase the total cost for that full-time worker to the company.
The following are warehouse labor costs in addition to the employee’s base salary:
- Health Benefits: Health benefits of a warehouse associate make up approximately 35% of the employer’s cost per employee. New provisions of the Affordable Care Act have indicated additional items to this expense; for instance, plans are now required to cover dependents up to 26 years of age.
- Hiring and Recruitment: An additional 25 percent is added to the cost due to hiring and recruitment. This figure represents the costs associated with interviewing, advertising, and pre-employment tests. Companies are increasingly including personality profiles in the assessment process, which could cost more than $500 depending on kind of test.
- Training: The cost of training can add as much as 4 percent of a warehouse associate’s salary to the overall employer’s expense. This is the amount that it takes for managers or a supervisor to train the employee on company policies, customer SOPs, and equipment use.
- Workmans’ compensation and unemployment tax: This amounts to approximately 8 percent of an associate’s salary.
Total warehouse labor costs, based on a $28,000 salary, could come to as much as $50,000 per associate annually when both direct and indirect expenses are combined.
If multiplied by the number of warehouse staff, the result is a significant expense for a function that is probably not a core competency for a manufacturer or retailer. With regard to distribution and warehousing, many leading companies opt to focus their available capital and resources on developing and enhancing their core businesses.
An outsourced warehouse labor provider like Costa Solutions can offer not just labor, but also the systems and warehouses needed to manage unloading, dock scheduling, packaging, stocking, auditing—even security, trailer washing and janitorial services.
The choice to outsource distribution relies largely on an assured reduction in direct labor expenses. The third-party warehouse labor provider can apply automation and re-engineer processes to work more efficiently. The biggest benefit of outsourcing, however, may be the decrease in indirect costs and increased freedom, as it allows companies to focus on customers while their outsourced partner manages the day-to-today affairs of labor and product distribution.