Ask any distribution manager what metrics they’re tracking in their DC today, and you’ll get a wide range of answers. A few responses you might hear: inventory turnover, order accuracy, percentage of on-time shipments, lost sales due to out-of-stock products, and order picking accuracy, to name a few.
However, one key metric you’ll often find missing is employee turnover, which is completely surprising considering that labor costs account for 50% to 65% of a distribution facilities’ total operating budget.
Despite an overall higher than average unemployment level in 2020, warehouses and distribution centers continue to face a shortage of qualified workers as the number of opportunities in the sector continues to skyrocket.
This week alone, Amazon announced that it plans to hire more than 125,000 warehouse and transportation workers in the United States. This news follows a recent announcement earlier in the month by Walmart indicating it planned to hire 20,000 workers at its supply chain division ahead of the busy holiday season.
As demand shifts and labor shortages rage on, employee retention is becoming more critical than ever before. Because, according to Evan Danner, CEO at TZA, “When one person leaves, you can’t just hire another one tomorrow. It’s been the case for years, and it’s a trend that is here to stay.”
How do I track associate turnover in my DC?
Monitoring the movement of employees out of your organization can help you identify and address the causes of turnover. Human resources ideally manage this vital function, but unfortunately, this isn’t always the case. If you don’t have support from human resources, you’ll have to gather your metrics and build a method for tracking performance on your own. A simple spreadsheet offers an excellent way to get started.
According to the Society for Human Resource Management (SHRM), the turnover rate is calculated by taking the number of separations during a month divided by the average number of employees, multiplied by 100:
Turnover Rate = # of Separations / Avg. # of Employees x 100
The formula sounds simple, but SHRM notes that deciding which data to consider and when can be confusing. For example, does your organization use full-time equivalent (FTE) or straight headcount when determining the number of employees and separations? What about part-time or temporary workers? And, what about employees that take leave or furlough?
Once you set up a system for tracking turnover, don’t stop there. Build some other processes to glean insights into why associates leave. Some actions to consider include:
Establishing a formal exit interview process to learn why people leave.
Analyzing turnover concerning the length of service. How many employees leave during training? How many leave during their first year on the job? Can you spot any trends?
Calculating actual turnover costs. Include time and associated costs of recruiting, initial training, and on-the-job training.
How much turnover is too much?
Employee turnover is a given in any business. But a high employee turnover rate can signal trouble. Why? Because employees who are satisfied with their jobs don’t give them up.
TZA is currently seeing that a significant number of companies are in the 20-40% turnover range, a number that’s quite concerning when you dive into the details. If you have 200 people and an annual turnover rate of 40%, you’re turning over 80 employees a year, or roughly seven people a month.
That number itself is alarming, but when you consider the repercussions, things get even scarier.
- Being short-handed drives more overtime.
- More overtime leads to employee burnout.
- Employee burnout leads to more turnover.
It’s a vicious cycle that’s hard to escape. Our advice? If you’re experiencing over 10% turnover, you need to consider solving that problem seriously.
What should I do if I have a turnover issue?
Once you identify that you have a turnover problem, you first need to identify what is causing the problem. In TZA’s experience, turnover is driven by three main issues:
- Non-competitive wages
- Overtime
- Management Communication
Learn more about these issues, and how to begin taking action to address those issues in our white paper 2021: The Year of The Labor Management System System. and our latest infographics on the subject.
You can also reach out to us to learn more about our Labor Management System Services that can help you assess performance, establish best practices, and manage performance standards.
