Authors: Scott Hamilton Lisanne Sison
An uninvited guest that has stayed too long, the pandemic continues to test people's patience and endurance in new ways. Panic buying that followed its arrival has now been displaced by all-too-familiar consumer goods shortages, ranging from nice-to-have items like gaming consoles to need-to-have provisions like syringes. Largely, supply chain issues caused by COVID-19 are to blame despite a relatively durable economy
The enormity and complexity of this locally experienced but globally driven challenge all but guarantees that supply chain issues will last well into 2022. Pandemic-induced shocks to the logistics ecosystem, which moves products from manufacturers to consumers and from farms to forks, stem from a combination of factors. Notably, they include labor challenges, exploding consumer demand, production materials shortages and factory closures.
Recent disruptions to the supply chain underscore the importance of people in any networked system. For the foreseeable future, industries that highly depend on goods, components and direct human interaction — namely manufacturing, retail, aviation, hospitality and service — will most likely confront workforce shortages and supply-induced inflation.
From a workforce management perspective, a key problem is that circumstances over the past two years led many workers to rethink and reframe acceptable work-life boundaries. And the surge in resignations that followed has left a lot of employers short-handed. Relieving this strain on workforce stability is essential to sustaining and reinvigorating certain aspects of the economy, including the global supply chain.
Unanticipated blockages — the phenomenon behind workforce shortages and supply chain woes
A bullwhip effect occurs when changes in demand at the end of a supply chain lead to inventory fluctuations, resulting in too many or not enough supplies purchased at each level of that chain.1 Currently, a key challenge of workforce shortages is slow fulfillment times for orders, which creates surges in demand that only add more pressure to deliver.
Just a cursory glance at job hosting platforms offers proof of a record number of openings, especially for warehousing and supply chain work. The number of ads for these empty positions has also spiked significantly, including postings by shipping and logistics companies looking to hire for different shifts and mega-retailers seeking last mile drivers.
Unfortunately, advertising can only do so much in such a hyper-competitive environment, and a lack of other alternatives may be the reason that nominal hourly wages for private employees increased by an estimated 4.8% in 2021.2 This departure from recent trends highlights the unsustainable use of compensation to secure necessary talent.
79% of employers increased compensation costs in the last half of 2021 to address workforce shortages.3
Reliance on second and third shifts to alleviate production backlog, once a common solution, has been thwarted by the move from shift work to opportunities that better match lifestyle and family needs. The pandemic and its consequences accelerated this change, including shutdowns and what some have dubbed the great resignation. For instance, a warehouse employee scheduled for eight-hour shifts may become a ride share driver, working four to six hours on self-selected days and gaining more time for personal priorities. Flexible gig work is one of the biggest competitors for mega-retailers looking to fill jobs.
Alongside wage demands, employers must now consider individual needs and preferences that extend beyond work. Twenty-nine percent (29%) rate employee expectations outside of compensation and benefits as highly important, including support for work-life balance such as commuting policies and other flexibility allowances. More than half (53%) see them as somewhat important, and 72% have increased their emphasis on these wellbeing aspects since 2020.3
The market clearing point for a workforce, where supply meets demand, was always determined by wages before the pandemic. Afterward, demand driven by employer needs has stayed the same, but on the supply side, wages are no longer the only influences on equilibrium. Creating a mutually beneficial plan through a holistic approach to total rewards and employee lifestyle expectations is essential to an optimal outcome.
Identifying reward preferences that match the benefit, lifestyle and retirement expectations of desired talent is integral to reducing and minimizing workforce supply issues. Success further requires prioritizing elements which contribute to organizational wellbeing while understanding that power dynamics have tilted in favor of the employee. As part of this alignment effort, it may be necessary to train managers and supervisors to recognize and proactively support individual needs. Developing skills for effectively managing a virtual workforce has already become vital to attraction and retention, and will continue to be a productive investment.
Adaptation strategies centered on technology and automation
When their compensation models are not meeting expectations, employers resort to automation and technology to fill shifts around the clock. Forty-two percent (42%) implemented or enhanced technology solutions or automation in 2021 to address workforce shortages.3
This model will continue to scale up. Warehouse managers need to fill the gaps left by former employees, and organizations will increasingly turn to tech solutions as viable replacements. Familiar examples are robotics and other forms of artificial intelligence used in warehouses for sorting and packing goods, which have dramatically reduced staffing needs. For consumers, a more likely firsthand experience is the transfer of order-taking tasks from fast food workers to automated tablets.
Most CFOs and CEOs recognize that addressing labor shortages by indefinitely increasing the cost of compensation is a short-term fix. In the last half of 2021, 79% of employers increased this expense.3 Innovative solutions for slowing the rise while remaining competitive require benefit and policy adjustments that promote workforce flexibility and other lifestyle priorities. The high value they hold for most employees reflects very favorably on employers.
Examples of workforce trends include remodeling a 401(k) match and reviewing caregiver leave to include more paid time off. Some organizations have taken bolder steps like introducing a four-day work week without cutting pay.4 By addressing the flexibility issues most important to employees, organizations can improve attraction and retention with family-friendly policies and practices. As HR technology evolves, budget-aligned mass customization options and individualized benefit decisions will likely follow.
Solving for supply chain stressors necessarily involves addressing talent priorities, including preferred working arrangements. Compensation may cover the bills, but it does not buy an exceptional employee experience. Adequate pay that is fair, equitable and reasonably competitive will always factor into employee preferences. But ongoing support for a better quality of life provides a value that pays itself forward every day — for employers as well as employees.