How Bad Is The Supply Chain and Logistics Workforce Challenge?

The Descartes Systems Group, Inc. | www.descartes.com | How Bad is the Supply Chain and Logistics Workforce Challenge?

22The Descartes Systems Group, Inc. | www.descartes.com | How Bad is the Supply Chain and Logistics Workforce Challenge?

Introduction

The general thinking has been that, post-pandemic, with economies cooling and COVID under better control, the workforce shortages of the past few years would subside. This doesn’t appear to be the case, however, and organizations continue to struggle getting the labor, knowledge workers and leaders they need to thrive. Recognizing the workforce problem is complex, we wanted to find out where the challenge is the greatest and what companies are doing to address it. Descartes worked with SAPIO Research to survey 1,000 supply chain and logistics leaders in Europe and North America to better understand the current situation and companies’ future plans. Our goal for the study was to give supply chain and logistics leaders an in-depth perspective on the challenge and an understanding of the strategies, tactics and technologies being deployed to address it.

Top Level Findings Below are high-level at-a-glance takeaways from the research1

37% are experiencing high workforce

shortages

58% indicated that workforce shortages

have impacted customer service

61% said transportation operations are suffering

the most from workforce shortages

Knowledge worker (55%) and manager (54%) positions are

hardest to fill

The workforce challenges supply chain and logistics organizations are facing today and in the future.

Post-pandemic, organizations continue to struggle getting the labor, knowledge workers, and leaders they need to thrive.

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Establishing cross comparisons for better insight

To get a better sense of magnitude of the workforce challenges that supply chain and logistics organizations are facing and the impact on business performance, we evaluated the issue from multiple perspectives, including:

y Financial performance y Company growth y Management’s view of the strategic importance of supply chain and logistics y Employee turnover

Based on other studies we have conducted, such as Supply Chain and Logistics Innovation Accelerates, but Has Long Way to Go and the annual Global Transportation Management Benchmark Survey, we’ve learned that financial performance, growth, management’s view and employee turnover play an important part in supply chain and logistics strategies, tactics, technologies and performance. These studies also show a close relationship between perspectives and outcomes: higher management importance and lower turnover are related to better financial performance and growth. Management who see supply chain and logistics as a competitive weapon are significantly more likely to be more aggressive with their strategies and use of technology. Given the challenges many organizations are facing with recruiting and retaining resources, we wanted to know how each perspective impacted these efforts. Any interesting correlations between them are also noted.

Financial Performance A significant number of respondents (56%) indicated that their organization had above-average to industry- leading financial performance. When looking at financial performance compared to employee turnover, the number jumped to 74% for those who said they had better-than- average employee turnover and dropped to 24% for those with worse-than-average turnover. Simply put, better financial performance comes from supply chain and logistics operations that are more stable and where the workforce has accumulated deep domain expertise.

9% 47% 41% 3%

Industry leading

Above average

Middle of the pack

Below average

Financial performance, growth, management’s view and employee turnover play an important part in supply chain and logistics strategies, tactics, technologies and performance.

https://engage.descartes.com/descartes-insights/home/supply-chain-and-logistics-innovation-accelerates https://engage.descartes.com/descartes-insights/home/supply-chain-and-logistics-innovation-accelerates https://engage.descartes.com/descartes-insights/transportation-management-%7C-visibility/global-transportation-management-benchmark-survey?utm_source=Descartes&utm_medium=referral&utm_campaign=HeaderNavigation&w=dagea

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Company Growth Almost half (46%) of respondents expect their company’s annual growth to be greater than 5% over the next two years, with 5% expecting growth to exceed 15% annually. There is good news and bad news in these results: the good news is that many companies expect to grow robustly in the next two years; the bad news, however, is that the pressure on hiring new workers will also continue to grow.

Management View Respondents that indicated management viewed supply chain and logistics as a competitive weapon was 24% overall but jumped to 34% for those with industry-leading financial performance. As mentioned earlier, when management understands that supply chain and logistics operations are another weapon in their competitive arsenal, they get better results because they use logistics in ways to grow the top line, be more profitable and create differentiation through service.

5% 41% 32% 20%

Greater than 15%

5-15%

Less than 5%

Limited or no growth

2%Shrink

24% 36% 37% 4%

Competitive weapon

Customer service differentiator

Basic service

Necessary evil

Not hard Somewhat hard Hard Very hard Extremely hard

When management understands that supply chain and logistics operations are another weapon in their competitive arsenal, they achieve better results.

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Employee Turnover Overall, 41% of respondents said they had slightly to significantly better employee turnover, but the number jumped to 68% for those with industry- leading financial performance and dropped to 18% for those with below-average financial performance. This is yet another proof point that being an employer of choice builds higher performing supply chain and logistics operations.

Being an employer of choice builds higher performing supply chain and logistics operations.

9% 32% 37% 17%

Significantly better than average

Slightly better than average

Middle of the pack

Slightly worse than average

4%Significantly worse than average

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How big is the workforce shortage issue in supply chain and logistics?

Labor We wanted to know where supply chain and logistics leaders were experiencing workforce challenges and to what degree it was impacting the organization. Overall, 37% of respondents cited a high to extreme shortage of laborers (e.g., drivers and warehouse workers). Only 24% said there was little to no shortage in this area. For C-level respondents, the high to extreme shortage number climbed to 46%, and to 44% for those with better-than- average employee turnover. In addition, respondents in countries with stronger economies indicated they had more severe labor workforce shortages, with Germany and the U.S. at 43% and the Nordics at 42%.

Customer Service Supply chain and logistics operations are resource intensive and a workforce shortage can directly translate into poor customer service performance. Only 12% of respondents indicated that their customer service was not impacted to some degree by a workforce shortage. Overall, 30% said they were very to extremely impacted and that number rose to 49% for industry-leading performance respondents. Respondents who indicated that management views supply chain and logistics as a necessary evil (51%) were significantly more impacted than those where management considers logistics as a competitive weapon (29%). The U.S. (36%), followed closely by France (35%), were the countries where respondents indicated customer service was very to severely impacted.

9% 28% 40% 19%

Extreme shortage

High shortage

Some shortage

Little shortage

5%No shortage

8% 22% 29% 30%

Extremely impacted

Very impacted

Impacted

Somewhat impacted

12%Not impacted

Supply chain and logistics operations are resource intensive and a workforce shortage can directly translate into poor customer service performance.

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Peak Season Peak season puts extreme pressure on hiring and scaling supply chain and logistics operations to meet increased demand. Only 9% of respondents said that peak season performance was not impacted in some way by workforce shortages. Almost half (42%) said that it was very to extremely impacted. This number jumped to 59% for respondents where management considers supply chain and logistics a necessary evil. Germany and the U.S. were tied (51%) for the countries where respondents indicated peak season was very to extremely impacted.

15% 27% 28% 20%

Extremely impacted

Very impacted

Impacted

Somewhat impacted

9%Not impacted 2%Not applicable

Only 9% of respondents said that peak season performance was not impacted in some way by workforce shortages.

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Logistics Partner Performance Because supply chain and logistics operations are multi-party processes, many organizations rely heavily on logistics partners to execute resource-intensive warehouse and transportation operations. Again, only 9% of overall respondents indicated that their logistics partners’ performance was not impacted by workforce shortages whereas 36% said their logistics partners’ performance was very to extremely impacted. That number climbed to 47% for respondents where management considers supply chain and logistics a necessary evil. The U.S. (45%), followed closely by France (43%) and Germany (42%), are the countries where respondents indicated logistics partner performance was very to extremely impacted.

Logistics operations are multi- party processes, and many organizations rely heavily on logistics partners to execute resource-intensive warehouse and transportation operations.

12% 24% 28% 26%

Extremely impacted

Very impacted

Impacted

Somewhat impacted

9%Not impacted 1%Not applicable

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How are workforce shortages affecting business performance?

Areas Most Impacted The competition for supply chain and logistics resources is universal, but the degree of pain stemming from the shortage varies by function. Labor-intensive transportation operations (61%) and warehouse operations (56%) were selected as the areas suffering the most from resource shortages. For respondents with worse employee turnover in transportation operations, the number increased to 65% and decreased for better employee turnover (57%). The Nordics (70%) and France (68%) had the highest number of respondents indicating transportation operations suffered the worst.

61% 56% 51% 51%

Transportation operations

Warehouse operations

Transportation planning

Inventory/distribution planning

42%Customer service 37%Demand planning

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Filling Open Positions High-performing supply chain and logistics operations now not only require a full complement of laborers, but also a growing number of knowledge workers. Open positions for knowledge workers (e.g., planners and analysts) were the hardest positions to fill (55% hard to extremely hard), followed closely by managers (54% hard to extremely hard). Almost one-third (32%) of respondents said replacing warehouse workers was not hard, compared to only 13% for knowledge workers. For competitive weapon respondents, filling manager positions was very to extremely hard (26%) versus necessary evil respondents where 40% found filling manager positions very to extremely hard. For each workforce category, the top countries where filling positions were noted as very to extremely hard were:

20% 6%

13%

32%

29%

18% 6%

15%

32%

30%

16% 7%

25%

29%

24%

How hard is it to fill open positions in the following areas?

Supply chain and logistics

knowledge workers (eg, planners & analysts)

Drivers

14% 6%

32%

29%

20%

Not hard Somewhat hard Hard Very hard Extremely hard

Warehouse workers

Supply chain and logistics managers

y Knowledge workers: U.S. at 35% y Managers: U.S. at 33%

y Drivers: Germany at 31% y Warehouse workers: U.S. at 28%

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Wage Increases A combination of demographics and accelerated growth during the pandemic has turned hiring from an “employer’s market” into an “employee’s market” and wages have risen aggressively to be able to hire and retain workers. Over the next five years, respondents indicated that the impact of workforce market conditions on wages will increase significantly. At the time of the survey, only 17% of respondents said they were very to extremely impacted. In five years, the number rose to 39%. Only 14% believe there will be no workforce market impact on wages in five years. Countries where respondents indicated that wages in five years will be very to extremely impacted were France (51%), Germany (46%) and Canada (45%).

14% 3%

21%

34%

29%

19% 3%

12%

32%

34%

22% 6%

12%

27%

34%

What is the current and expected impact of the workforce market conditions on wages over the next 5 years?

Today

25% 14%

14%

23%

25%

Not impacted Somewhat impacted Impacted Very impacted Extremely impacted

In 1 year

In 2 years In 5 years

1212The Descartes Systems Group, Inc. | www.descartes.com | How Bad is the Supply Chain and Logistics Workforce Challenge?

Conclusion

The data in the study shows that the workforce shortage has not abated as 76% of respondents indicated a notable shortage. There are structural issues (see Resource Shortage: Is the Pandemic Masking a Much Bigger Problem for Supply Chains in the Future?) that suggest shortages are likely to remain indefinitely.

The workforce shortage is impacting companies’ financial, customer service, peak season and logistics partner performance. The impact on supply chain and logistics operations varies by financial performance, growth, management’s perceived importance of supply chain and logistics operations and how successful employee retention programs are. There’s evidence that business performance is interrelated—and that the impact of the workforce shortage can be mitigated by business leaders understanding the full potential of their supply and logistics operations and why employee retention is so critical to supply chain and logistics performance.

Transportation and warehousing operations are most impacted by the workforce shortage because they are labor- intensive; however, knowledge workers are the hardest to hire and becoming increasingly important as supply chain and logistics operations become more technology-enabled and data-driven.

A number of factors, such as strong economies, declining working age populations, arcane immigration policies and workers willing to jump industries, are putting workers in the driver’s seat. As a result, logistics leaders believe that the fluid labor situation going forward will put pressure on wages and increase costs.

Supply chain and logistics and, ultimately, business performance is driven by the quantity and quality of the workforce. Supply chain and logistics leaders need to rethink their strategies for hiring and retaining workers and how technology mitigates the workforce challenges they face today and in the future.

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Appendix: Respondent demographics summary

Footnote: 1. The use of standard numerical rounding conventions may make the summation of some charts appear to be off by 1%.

Responsibility

Country of residence

Total respondents: 1000Demographics

Business sector

Gender & age

225

Company sectors: Manufacturing, distribution or retailer: 55%

Logistics services provider: 20%

Carrier: 25%

Role type

Size of company

# of employees 20 to 49 50 to 99 100 to 499 500-999 1000-4999 5000+

% of respondents 10% 14% 26% 20% 15% 15%

150 150 150 75 75 175

11% of respondents held Owner positions 19% of respondents held C-Level Executive positions 15% of respondents held Director-level positions 56% of respondents held Manager-level positions









 73% of respondents were male and 27% female  62% of respondents were between the ages of 25-44

 42% of respondents are responsible for managing logistics and the supply chain

 32% of respondents are heavily involved in managing logistics and the supply chain

 26% of respondents are somewhat involved in managing logistics and the supply chain

About Descartes Systems Group

Descartes (Nasdaq:DSGX) (TSX:DSG) is the global leader in providing on-demand, software-as-a-service solutions focused on improving the productivity, security, and sustainability of logistics-intensive businesses. Customers use our modular, software-as-a-service solutions to route, track and help improve the safety, performance, and compliance of delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in the world’s largest, collaborative multimodal logistics community. Our headquarters are in Waterloo, Ontario, Canada and we have offices and partners around the world.

Learn more at www.descartes.com and connect with us on LinkedIn and X.

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