The 'Real' Cost of High Warehouse Turnover Rates

It costs $8,500 dollars to replace a warehouse worker.

Sound like a lot? Well, that’s actually the low end. 

Calculating just the direct, trackable dollars, the cost to replace one warehouse worker can reach 25% of that worker’s salary. Using an average warehouse associate salary of around $34,000 (Glassdoor), $8,500 is about where you end up. But the real costs, when you factor in lost productivity and other indirect impacts, are much, much higher.

The latest figures from the Bureau of Labor Statistics put annual warehouse turnover rates at 43%. Losing that percentage of a 100-associate warehouse team would cost, at the very least, $365,500 every year. And that includes ONLY the easily calculated costs for things like:

• Departure costs – exit interviews, severance pay and increased unemployment taxes
• Supplementary costs for overtime or temp staffing
• Additional advertising, recruitment fees, and screening costs
• Drug testing, background checks and possible relocation costs
• Orientation training, certifications, uniforms and informational literature

The biggest costs don’t even get calculated in “cost of turnover” statistics. Those include:

• Lost warehouse productivity. It takes months before new warehouse associates are fully productive. To make up for that, more staff must be added to meet daily throughput requirements. Also, there is a direct correlation between high warehouse turnover rates and higher callout rates. More daily callouts jeopardize a 3PL’s ability to process that day’s orders.
• Damaged reputation among carriers. Poor productivity can impact the DC’s ability to load trucks on time. When that doesn’t happen, carriers may levy detention charges. Over time, if the facility develops a poor reputation among truckers, they may choose not to service that location.
• Unhappy customers. Newer associates or temporary associates make more mistakes when unloading, picking and packing. In retail distribution, that means on-time, in-full (OTIF) percentages will fall, along with your ratings with retailers. In B2C fulfillment, an inaccurate order creates added costs for customer service and returns processing – up to $50 per error – not to mention the potential loss of a customer.
• Higher 3PL rates. If you outsource, 3PLs with high warehouse turnover rates may ask you for more money. In some cases, the request is a legitimate attempt to match market labor rates. But it may also be an attempt to recoup profits lost due to poor hiring, training and people management practices.

Save for the smallest operations, warehouse turnover is a 7-figure drag on a P&L that requires the close attention of logistics executives – particularly as the competition for warehouse workers heats up.

Why are warehouse turnover rates so high?

A few factors explain why turnover is high among warehouse associates.

One is Amazon. As of February 2022, Indeed puts the average salary of an Amazon warehouse worker at a relatively high $16.22, and that doesn’t include signing bonuses the company uses to lure people away from other nearby warehouses.

And those other warehouses really are nearby. Distribution centers are often tightly concentrated in an industrial area of a city. Therefore, workers can easily move between employers – whether it’s Amazon or other 3PLs – to obtain a slight hourly rate increase or signing bonus. Very little else changes for them, including their commute and the type of work they do. Unless their current employers give them a good reason to stay, they don’t.

How do you reduce warehouse worker turnover?

Kane Logistics is proud of the fact that our turnover rate is currently 25%, which is significantly less than most other 3PLs. Our ability to maintain a stable warehouse workforce improves the speed and quality of the work and, ultimately, drives down costs for our customers. Following are tips for creating happy associates who stay. Some of these insights were gained from a large-scale survey KANE conducted with its warehouse associates, in cooperation with Colorado State University.

• Hire the right people from the start. Vet candidates carefully, not just to ensure they have the right skills but also that they fit in well with the company culture, managers and co-workers. As we like to say at KANE – hire for attitude, train for skill.
• Set the right compensation and benefits package. Warehouse workers will follow the money. Work with your HR group to get current data on industry pay packages and at least match those compensation levels. At KANE, we overhauled our compensation for hourly workers during the pandemic, increasing the hourly wage relative to market rates. And new hires receive 4 guaranteed wage increases during their first 24 months with KANE, while existing KANE associates received a pay increase to match the increases given to new hires.
• Stay close to warehouse associates, particularly 1–3 years post hire. This is when most attrition occurs, contributing to higher warehouse turnover rates.
• Invest in hiring and developing great mid-level managers. They say people don’t quit companies, they quit their bosses. For warehouse associates, job satisfaction levels are largely determined by their relationships with supervisors and DC managers.  
• Recognize achievement. Awards, recognition and praise is the single most cost-effective way to maintain a happy, productive work force. Simple, one-to-one praise at the completion of a project and peer-recognition programs are all ways to inject some positive feedback. At the end of the day, retention is a very human issue.
  

Warehouse worker retention in an outsourced environment

When you outsource day-to-day management of your distribution operations, you can forget about the details of hiring, training and retaining the best workers.

Wrong!

While they may be paid and managed by someone else, those 3PL associates become your team – the people you rely on daily to keep your customers happy by getting orders out the door accurately and on-time. It’s virtually impossible for a 3PL with a revolving door workforce to drive consistent operational excellence on your behalf.

Despite this, companies searching for a 3PL partner rarely ask the question: “What is your warehouse turnover rate?”

You need to make the issue of warehouse turnover rates a key part of the 3PL vetting process.

In the current logistics labor market, there’s a worrying shortage of reliable warehouse workers. Even the most aggressive recruiting strategies won’t solve it. The best solution is to hold on to the people you have. With an outsourced model, that means finding a 3PL partner with an employee-centric culture and policies that create happy associates that stay.

Make associate retention a top management priority

Whether you outsource warehouse operations or manage the function yourself, there’s a good chance you’re understating the cost burden of high warehouse turnover rates. It’s not just about added recruiting and training costs. When you have a higher percent of new or temporary workers, productivity takes a nosedive and quality suffers. So you pay more to process the same volume of work and you risk losing important customers. In this context, investing to create a happier, more stable workforce is just smart business.

As Kane Logistics’ former chairman and patriarch, Gene Kane, used to say: “First, take care of your people; they’ll take care of the customer.”

If you haven’t done so already, it’s time to make associate retention one of your top KPIs for warehouse operations.