Labor Shortages: Why Automation is a Necessity in Today’s Economy – LogiSYM July/August 2017
If you’re not automating you business, you risk going out of business.
Before the holidays last year, Daniel Adam, director of Operational Excellence at Sealed Air Product Care, flew to Romania to meet with his customers in the consumer goods industry. When he asked them what was keeping them up at night, each one had the same answer: skilled labor.
Labor is the most significant resource challenge today, more so than either natural or physical resource issues. Seventy percent of executives across multiple industries and Overall, 45 percent of consumer goods executives say they are facing labor challenges, according to the recent Economist Intelligence Unit’s Global Resource Challenges Report, which was commissioned by Sealed Air to understand the perceptions and realities of labor, natural and physical resource challenges within the industries we serve.
For many companies and industries, labor represents a significant percentage of total costs. In the fulfillment industry, labor made up 22.5% of a company’s cost in 2016 – the second largest cost for the business after products themselves. So shortages and prices have a holidays each year. As a result, the labor sought after is very task-oriented, and companies fill their needs by using temp agencies. Investing in long-term solutions is not seen as cost-effective due to short-term needs.
Meanwhile, unemployment continues to drop in most European states, the physical size and location of their warehouses, so there are constraints to adding more labor while maintaining safe working conditions,” Adam says. “Now, they are trying to bring in some automation to manage capacity and finding skilled technical labor locally is tough.”
Not many find fulfillment jobs very satisfying. When girls dream about being Cinderella, they speak of fairy Godmothers and glass slippers, not picking and packing several hundred customer orders for dispatch. So it’s not surprising that turnover rates are as high as 70 percent in some industries, which in turn requires companies to spend money recruiting and training new employees.
Shortages, increasing salaries, high turnover, and low employee productivity can have a substantial impact on the bottom line of businesses today. Over the next 30 years, the gap between retiring baby boomers and new workers will continue to widen, creating labor shortages across industries. At the same time, wages are on the rise. Factory wages in China increased 19 percent from 2005 to 2010 alone.
To maximize their labor efficiency, many companies provide productivity- based incentives to produce or package more goods per hour. However, that temporary increased productivity is not sustainable nor can it be the long-term strategy to keep pushing employees to work faster. The motivation eventually tapers o and increased benefits diminish.
“The labor and skills shortages that we are facing in consumer goods are mostly self-induced,” Adam says. “There’s so much more we could do to mitigate the issue. Companies should reevaluate the process in which those people work—cutting the waste and focusing on the value that each employee brings.”
Repetitive work should always be eliminated or minimized through automation. Then workers should focus on value-add tasks in a safe and ergonomic environment, rather than overwhelmed by the ever-increasing volume of orders to fulfill, according to Adam.
No matter the industry, robots are becoming a bigger part of our economy. Researchers believe 47 percent of occupations could possibly be automated within 20 years. The automation revolution is already happening. Tablets are now taking our food orders at our airports instead of waiters. While you think Uber was innovative in providing on-demand transportation, they’re already experimenting with driverless cars.
Automation will improve labor efficiency and provide additional savings in other categories of resource usage. In the fulfillment industry, automated packing systems will not only reduce the need for labor but provide efficiencies in fulfillment velocity, damage reduction, freight and packaging costs as well as customer experience.
Another benefit is fewer mistakes and improved safety. Instead of relying on humans to ensure the right products are packaged with the right amount of packaging and addressed to the right person to ensure they get there safely is no longer necessary. Automation enhances the customer experience by standardizing how goods are packed and shipped.
Labor-intensive jobs will continue to evolve with advances in automation. Bank tellers have not gone away because of the automated teller machine, and toll booth attendants have not become extinct because of E-ZPass. It’s not about replacing people but providing employees with tools that eliminate some of the repetitive tasks so they can instead focus on problems that are truly essential for the business — those that require their talent and ingenuity to solve. “Most companies say that they are facing labor challenges, but in reality, they are sitting on gold mines just waiting to be developed”, says Daniel. Humans and robots working together in unison complement each other, driving efficiency and growth in our global economy.
With the exponential changes in technology, the need for skilled employees has never been higher or more specialized. The major concern is finding and training people to adapt to companies increasingly complex and technology-driven organizations. But some regions are preparing today to meet those challenges in the near future. While emerging-market Asia has the lowest share of skilled employment today, two countries within that region—Vietnam and Malaysia—are expected to experience among the fastest growth in skilled labor between 2016 and 2020.
We will solve our labor challenges by investing in innovation and training our workforces to leverage technology that will improve our productivity. We are evolving our business practices and processes as technology allows us to create value in innovative ways.
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So executives must not only look at how to train their local workforces but also leverage the global workforce to meet their labor needs. To support an economy that is increasingly reliant on skilled labor, countries must continue to invest in science, technology, engineering, and mathematics (STEM) education for their own populations and attract skilled labor from other markets.
Labor is our economy’s most valuable resource, and we must ensure businesses have the tools, training, and innovations necessary to become as efficient and productive as possible. Businesses that leverage automation will have an advantage as we face rising labor shortage and costs. Automation allows us to become more sustainable, improve our operational efficiency and, ultimately, improve the standard of lives for many around the world.
Pasi Pesonen
Vice President – Product Care, Asia Pacific Region, Sealed Air
Pasi has been with the organization for 26 years and is now leading the Product Care business in Asia Paci c as Vice President for the region. He first joined Diversey, currently a division within Sealed Air, in Finland and has since lived in six different countries, successfully serving in several local clusters in Marketing, Supply Chain/Logistics, Sales and General Management roles. He has an extensive professional and leadership track record with broad business experience. Among others, he has been the Finnish Marketing and Supply Chain lead, Managing Director Finland and Sweden, Global Customer Management Excellence, and Global Sales Operations Lead. He also held positions as sales lead for North/East Europe and was the Vice President of Diversey Care, East Europe before he moved to Singapore in 2015 to lead the Product Division in Asia Pacific. Pasi has a Master’s Degree in Food Science (economics & marketing).
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