Labor Outsourcing Perspectives

Transcription

1 Labor Outsourcing Perspectives Tim Thornton Chief Operating Officer Capstone Logistics, LLC October 14, Agenda Labor Outsourcing Historical Perspective Changing Landscape Re-Evaluation Strategies Why In-source? Control Culture / Team Customer Service Operating Cost Accountability 3 4 What s Changing our Business Landscape Budgets / Pressure to Reduce Distribution Costs Rising Costs Reduce Distribution Costs Rising Employer Risks Increasing Employer Challenges Healthcare Reform 5 6 1

2 Inventory & Warehousing Costs Inventory Carrying Costs, which includes inventory plus warehousing costs, were 32.6% of Total Logistics costs or $434 Billion in These costs continue to rise year-over-year. Rising Costs 7 8 Worker s Compensation WC laws establish the liability of an employer for injuries or sicknesses that arise out of, and in the course of, employment. The liability is created without regard to the fault or negligence of the employer. While it is the law, managing or reducing the costs associated with workers compensation has virtually become a necessity in today s economy. Payroll Taxes Americans overwhelmingly want to increase payroll taxes and sweeten the benefits paid out. (via National Academy of Social Insurance) Social Security Administration actuaries project that immediately increasing the payroll tax by 2.61% (for employers and employees combined) would keep the system in balance for 75 years (Board of Trustees 2012). Medical Claims Severity continues to increase Year over Year Rising Cost of an Employee The True Cost of an Employee Based on payroll data, the true cost of an employee is the employee s hourly rate plus an additional cost representing 56.55% of the wage rate. In other words, an employee who receives an hourly rate of, say, $10.00 really costs you $ $5.66 = $15.66). Or, more clearly stated a $ a- week employee really costs the employer $ These additional costs are outlined below. Mandatory Costs (required by law) Federal Social Security Tax & Medicare % Federal Unemployment Tax % State Unemployment Tax % Worker s Compensation % Total Mandatory Cost 15.65% Hiring Costs (cost involved in putting an employee into the payroll system) Recruiting, hiring, training, bookkeeping, payroll % Severance Pay % Total Hiring Cost 7.00% Rising Cost of an Employee Discretionary Costs (cost which by practice have in most instances become obligatory) Paid Time Off (PTO) % Holidays % Sick Pay % Pension Plan % Profit Sharing % Health & Life Insurance % Bonuses & Incentives % Contribute to Thrift Plan % Non-Working Time % Miscellaneous Benefits % Total Discretionary Costs 33.90% Total Additional Costs 56.55% of Base Wage Rate Base Wage Rate $10.00 Mandatory 15.65% Hiring 7.00% Discretionary 33.90% Source: Legal Northwest Source: Legal Northwest

3 Increasing Risks Rising Employer Risks Employee Entitlement Employee Friendly DOL EEOC NLRB Employer Challenges Employer Challenges Recruiting Training Generation X Employee Satisfaction Retention Healthcare Reform ACA Impact Based on a Mercer study - 34% of respondents expect costs to increase more than 3% - in addition to the normal annual increase which has been running at about 6% - more than double the rate of general inflation over the last 5 years. With health benefit cost already rising at twice the rate of general inflation, an additional increase of 3% or more will be very tough for employers to absorb, said Sharon Cunninghis, leader of Mercer s US Employee Health & Benefits business. Very Big Impact with Unknown Costs

4 Why In-source? Why Not Outsource? Re-Evaluation Control Culture / Team Customer Service Operating Cost Accountability Re-Evaluation of In-Sourcing vs. Outsourcing Decision Customer Service Not outsourced. You need to own your reputation / image. Operating Cost / Risk Mitigation Predictable fixed & variable costs / flexible labor models Reduced risk exposure, i.e., to accidents, legal issues, etc. Reduction / Elimination of hiring and training expenses Reduction / Elimination of overtime expenses Lower payroll taxes related to FICA, unemployment, and workers compensation Increased visibility & control productive, non-productive time Re-Evaluation of In-Sourcing vs. Outsourcing Decision Control / Accountability Improving technologies / near real time visibility Systems integration, reporting and analytics Warehouse labor management systems Professional management / core business Industry expertise / benchmarking / best practices Culture / Team Professional staff with extensive supply chain and industry experience Proven methodology to ensure thorough process analysis Knowledge across multiple sites to provide industry best practices Productivity and Continuous Improvement Focus Warehouse / Distribution Strategies Strategies Integrated Strategies Incorporated view on profit opportunities: The Supply Chain makes up the single largest cost component of a corporation s revenues typically 55-85% of the sales dollars. The Supply Chain integrates all decisions, processes, and activities on a lowest-total-cost life cycle basis from raw materials to end-user. The efficiency and effectiveness of these processes are quickly becoming the industrycompetitive differentiators. Your Supply Chain integrates core business and customer needs with best-in-class supply base capabilities. It helps companies routinely achieve double-digit price/cost reductions and drives profitability upwards. Profits soar when supply chain costs are reduced by double digits. Insource All Functions Outsource All Functions Insource/Outsource Hybrid

5 One-third of North American Distribution Centers are outsourced. Are you? Should you be outsourced? Nearly one out of three DC s are entirely outsourced according to the 2012 Supply Chain Metrics report findings across 100 companies surveyed by the Tompkins Supply Chain Consortium. There is an upward trend in the percentage of DC buildings and labor being outsourced in the past two years. - Bruce Tompkins Outsourcing: The Full Service Alternative Cost Service Risk Savings Quality Mitigation Full Service Partner Feedback Food Service / Grocery 150+ Person Distribution Center Risk mitigation & cost savings were primary decision points Outsourced facility outpacing my in-sourced sites in the areas of service, quality, production & costs. Positive Financial Impact Hourly pay model used during facility start-up with neutral to low single digit % savings vs. in-sourced. Switch to pay for performance model yielded +20% reduction of DC labor costs to sales revenue ratio. Adding management salary & benefits on top of Warehouse / Distribution Center impact would yield even bigger savings. Full Service Partner Feedback How do you get 3PL to take Ownership? Outsourced Strategies Strategic Partnership over price alone Shared expectation for success Develop win-win self funded incentive program Collaborative leadership communication Partner Key Benefits of Full Service Approach Final Thoughts If you are like some of the other Companies mentioned in the presentation surveys where 55% 85% of your Sales Dollars go towards Supply Chain costs and Warehouse / Inventory Carrying Costs make up 1/3 rd of your Logistics spend now may be the time to seek out double digit cost savings alternatives. Warehouse / Distribution Labor Outsourcing may be a viable option for you to reduce costs and mitigate employer risks. These new perspectives may help. Customer Acct. Srvc. MFG. Transport WH/Dist. WH/Dist. HR Acct. IT Other s Found 3PL Success Core Business Constant Focus Committed Leadership Continuous Improvement Sales HR IT Your Company 3PL Partner

6 If you have any questions on this Labor Outsourcing Perspectives presentation please contact: Tim Thornton COO Capstone Logistics, LLC 6525 The Corners Parkway, Suite 520 Peachtree Corner\s, GA (770)