How to Recruit, Retain, and How to Recruit, Retain, and Train Employees in the Outdoor Train Employees in the Outdoor

Power Equipment Distributor Power Equipment Distributor Industry?Industry?

Dr. Hokey Min

.

UPS Center for World Wide Supply Chain ManagementUniversity Of Louisville

Why Matters?Why Matters?

• 52% of the U.S. Companies reported that their employee turnover is increasing (Wilson, 2000)

• One in 10 (17 million) U.S. workers were quitters in 1994, while one in 7 (6 million) quitted in 1999.

• Cost of turnovers = 93% to 200% of the quitter’s salary (Cascio, 2000)

• Lost time => lost productivity => lost efficiency => “Hurt Bottom Line”

Why Matters?Why Matters?• There is 58% more absenteeism in departments when

employees are dissatisfied than in those where staff morale is high.

• Sales people are the least committed to a company (38% plan to leave in 2 years), followed by IT workers (31%), hourly employees (28%), professionals (25%), and managers (11%).

• Lack of career development opportunities and dissatisfaction with the leadership – not low pay – were the most likely reasons for all workers to contemplate leaving their jobs. (The Hay Group, 2001?)

The Extent Of the Impact Of Warehouse Employee Shortages

1 = largest impact; 7 = no impact

3.05

3.25

3.36

3.44

4.06

5.22

5.64

0 0.2 0.4 0.6 0.8 1 1.2

0 1 2 3 4 5 6

Potential Turnover Potential Turnover CauseCause• Geographic factor: Job too far; Job relocation

• Personal reasons

• Marriage

• Other employment opportunity: better pay elsewhere; increase of pay in other industries

• Unsatisfied work hours

• Conflict with management

• To stay home

• To attend schools

Turnover Cost Turnover Cost FormulaFormula• For a manager or professional, the estimated

replacement cost is “1.5 the annual salary”

• For a frontline person, the estimated cost is 25% to 75% of the annual salary

• 80% of the turnover cost is hidden (e.g., 13.5 months to achieve the productivity of a mature, accomplished performer)

-- Performance differential and low morale

(adapted from Hense Bennett of GLI)

Simple Turnover Cost Simple Turnover Cost FormulaFormula

1. Annual wage = employee’s annual salary 25%

2. Annual benefits = employee’s annual salary 30%

3. Total turnover cost per employee = Annual wage + annual benefits

4. Total number of employees who left

5. Total cost of turnover = total turnover cost per employee total number of employees left

(adapted from Saratoga Institute and Kepner-Tregoe, Inc.)

Cost Of Employee Cost Of Employee TurnoverTurnover

EXIT COSTS

• Cost of exit interview

• Cost of existing employee’s time

• Cost of administrative functions related to turnover

• Separation pay

• Increase in unemployment tax

Source: H. Bennett of GLI

REPLACEMENT COSTS• Pre-employment administrative expenses

• Cost of attracting applicants (Job advertisements)

• Cost of entrance interviews

• Testing costs

• Staff costs (review of candidates)

• Travel and moving expenses

• Post-employment information gathering and dissemination

• Cost of post-employment medical exams

Source: H. Bennett of GLI

Cost Of Employee Turnover Cost Of Employee Turnover ((ContinuedContinued…)…)

MANPOWER COSTS

• Cost of additional overtime

• Cost of additional temporary help

• Wages and benefits saved due to vacancy

Source: H. Bennett of GLI

Cost Of Employee Turnover Cost Of Employee Turnover ((ContinuedContinued…)…)

TRAINING/EFFICIENCY COSTS

• Cost of informational literature

• Formal training costs (e.g., compensation of trainers)

• OJT (On the Job Training) costs

• Productivity inefficiency during training

PERFORMANCE DIFFERENTIAL

• Differential in performance costs/benefitsSource: H. Bennett of GLI

Cost Of Employee Turnover Cost Of Employee Turnover ((ContinuedContinued…)…)

Annual Turnover RateAnnual Turnover Rate

Why Warehouse Employee Shortage?

1. Rapid Growth of the 3PL Markets

(a) A gradual increase in industrial warehouse space (e.g., total industrial warehouse space in the U.S. =

6.5 million square feet in 2000)

(b) Increasing demand for value-added services

~ Increased skill level (multi-functional skill requirements) ~ (e.g., average annual turnover of 20% in the warehouse industry > median employee turnover in the U.S. of 8.4%)

36.20%

47.40%

12.50%

3.90%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Increase Stay the same Decrease Cannot predict

Expectation of demand for Expectation of demand for entry-level employees in the entry-level employees in the

futurefuture

6.60%

33.60%

15.80%

38.80%

5.30%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Verysatisfied

Smewhatsatisfied

Neithersatisfied nordissatisfied

Somewhatdissatisfied

Verydissatisfied

Satisfaction with current quality Satisfaction with current quality of entry-level employeeof entry-level employee

2. Declining Labor Pool

(a) A slow growth rate in U.S. labor force

Source: US Bureau of Labor Statistics

Why Warehouse Employee Shortage? (Continued...)

1982-1993 1.40%1994-2005 1.10%

Annual Growth rate

1982-1993 1.40%1994-2005 1.10%

Annual Growth rate

1980-1985 31 million1986-2000 21 million

Total Growth

1980-1985 31 million1986-2000 21 million

Total Growth

(b) Lack of interest in less “glamorous” jobs

51.30%

40.10%

7.20%1.30%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

One month orless

Less than 6months

6 months to ayear

Over a year

Time required to find the right Time required to find the right warehouse employeewarehouse employee

3. Poor Working Conditions

(a) Demanding working hours and Higher rate of

work-related injuries

Source: US Bureau of Labor Statistics (1998)

Why Warehouse Employee Shortage? (Continued...)

(b) Non-competitive pay scale

(e.g., $11.16/hour for public warehousing vs. $12.77 for all private industry)

Industry Average weekly working hours

Warehousing 40 hours/week

All Private 34.6 hours/week

Industry Frequency of work-related injuries

Warehousing 10.0 per 100 full-time workers

All Private 7.1 per 100 full-time workers

Obstacles To Effective Warehouse Employee Obstacles To Effective Warehouse Employee Recruitment and RetentionRecruitment and Retention

3.06

3.08

3.25

3.34

3.52

3.9

4.32

4.43

4.81

5.39

5.51

0 1 2 3 4 5 6

Work ethic

Tight Labor market

Lack of qualified labor

Loyalty

Increased skill requirement

Rising pay and compensation

Irregular working hours

Lack of job incentives

Lack of training program

Seasonality of jobs

Location of facility

1 = extremely serious; 7 = not at all serious

1. Warehouses with a larger number of full-time employees tend to have the higher turnover than those with a smaller number of full-time employees.

2. Mega-warehouses tend to have the higher turnover than warehouses with smaller square footage of space.

3. The severity of warehouse employee turnover has little to do with the starting salary of warehouse employees.

Key Findings

• Turnover is likely to be higher in rapidly growing firms.

• Bureaucracy or autocracy increased turnover. (Barron et al., 2001)

• Turnover is caused primarily by poor supervision, a poor work environment, and inadequate compensation. (Hinkin and Tracey, 2000)

Key Facts

4. Warehouses that stress job security for their employees tend to have the lower turnover than those that do not.

5. Warehouses that nurture family friendly atmosphere for their employees tend to have the lower turnover than those that do not.

Key Findings (continued…)

• Pay satisfaction is not significantly associated with turnover.

• Household main-income earners would be less likely to exhibit turnover behavior.

• Part-time employees still may leave the organization despite being satisfied with working conditions and jobs. (McBey and Karakowski, 2001)

Key Facts

6. Warehouses that use a referral bonus program more frequently for their employee recruitment tend to have the lower turnover than those that use it less frequently.

7. Warehouses that use a word-of-mouth recruitment method more frequently for their employee recruitment tend to have the lower turnover than those that use it less frequently.

Key Findings (continued…)

• Rehires, walk-ins, and referred employees had lower turnover than the ones drawn from hiring agencies and newspaper ads. (Gannon, 1971)

• Employees hired via referrals tended to have long tenure and recruits hired via newspaper ads and employee agencies tended to have the shortest tenure. (Decker and Cornelius, 1979)

Key Facts

Frequency of Use of Warehouse Employee Recruitment Methods

2.49

3.19

3.48

5.24

6.3

0 1 2 3 4 5 6 7

Word-of- mouth through employees

Advertising in newspapers

Assistance from local employment agency

Referral bonus program

Advertisement in professional magazines

1 = frequently used; 7 = rarely used

1. Employee = “Internal Customer”

(a) Personalized attention

• Determine What motivates each warehouse employee

• Figure out What are important to each warehouse employee

• Key immediate supervisors into their workers

Potential Solutions

(b) Reward managers/directors for their peoplemanagement skills

2. “Hire Tough, Manage Easy”

(a) Realistic job previews: Identification of “dedicated”

workers (Recognition/Reward for work ethic)

(b) Target “non-traditional” recruits• The labor force with an age group of 45-64 will grow faster than

other groups over the 1998-2008 period.

• The women’s share of the labor force will increase from 46% in 1998 to 48% in 2008.

• The Asian and Hispanic labor forces are projected to grow faster than other groups, 40% and 37%, respectively during the 1998-2008 period.

Potential Solutions (Continued...)

(c) Ensure job security

(d) Multi-functional training for value-added services

What is a Realistic Job Preview (RJP) ?What is a Realistic Job Preview (RJP) ?

RJP gives a prospective employee accurate,

unbiased and honest information about the job

so he/she can make a better job choice and

reduce subsequent dissatisfaction and turnover.

What is a Realistic Job Preview (RJP) ? What is a Realistic Job Preview (RJP) ? (Continued…)(Continued…)

Main Objectives

1) Stimulate “self-selection” among job applicants who are most likely to withdraw

2) Change the expectations of new employees to be more congruent with what they encounter later

3) Prepare individuals to cope with the unpleasant aspects of the job

4) Provide more complete information about the job

(Reilly et. al , 1981)

Four Key Issues…Four Key Issues…

1) How to present the negative aspects of the job?

2) When to present the negative aspects of the job?

3) How to clearly convey job descriptions to applicants instead of ambiguous terms open to individual interpretation?

4) How to lower job expectations for newcomers?

RJP TipsRJP Tips

• Present the positive aspects of the job first

• Provide a moderate degree of negative information

(e.g., amount of time on the road, hours of work, physical working environments, boredom)

• May show how current drivers deal with the negative aspects of the job and how the company will help them cope with such aspects

• Provide RJP during recruitment, not during orientation

• Install RJP as a component of the company’s normal recruitment process (“Make it policy”)

• Use multimedia (e.g., brochures, audio-visual methods, descriptive materials) for RJP (“Talk is cheap”)

• Provide specific information on starting salaries, fringe benefits, hours of work, hours on the road, career advancement opportunities, degree of supervision, etc.

RJP Tips RJP Tips ((ContinuedContinued…)…)

3. Minimize “Role Stress”

(a) Assign tasks to your employees with adequate equipment and resources

(b) Clarify the criteria for pay raises and promotions

(c) Ensure clear policies and guidelines

(d) Switch schedules to accommodate employee’s family duties

(e) Permit personal phone calls to check on family members

Potential Solutions (Continued...)

4. Motivate Employees through Training

(a) Offer cross-training opportunities that lead to career development and personal growth

(b) Train both supervisors and floor-level workers immediately when new technology (e.g., RFID) or systems (e.g., WMS) are implemented.

(c) Adopt standards and methods derived by employees to enhance employee participation in the decision-making process.

Potential Solutions (Continued...)

5. Conduct “Thorough” Background Checks

(a) Perform a criminal check.

(b) Check the visa status for foreign nationals.

(c) Check into academic claims (as many as one third of claimed college degrees are false).

(d) Do not skip background checks at the executive or manager level (Beware of white-collar crime).

Potential Solutions (Continued...)

6. Leverage Labor Standards to Increase Productivity

(a) Guesstimates: An educated guess at how long it takes to do a particular job.

(b) Historical standards: A measure of how long it has taken in the past to perform a particular task.

(c) Engineering standards: a scientific measure of how long it should take to do the job with the goal of discovering the way to do the job with the least amount of effort in the least amount of time without compromising safety or quality.

Potential Solutions (Continued...)