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Factors Driving the Supply Chain Strain

Quick Look: Supply chain bottlenecks over the last 18+ months have caused record shortages of products, services, and workers. Backlogs at the world’s largest ports, coupled with an increased need for supply chain talent, have crippled a struggling industry. To help combat those challenges, many organizations have turned to their PEO partners for guidance on how to recruit top talent, and strategies to shape compensation and benefit packages to retain these in-demand workers.

Pandemic-related labor shortages and supply chain issues continue to plague businesses worldwide, making retailers and consumers wonder if they’ll still face empty shelves as we head into the busy holiday shopping season. As a result, small- and medium-sized business (SMB) leaders are facing more challenges than ever before in managing talent, human resources, and processes.

If you’ve noticed the shelves at your local grocery store are looking extra bare, or the fine-print warnings that your online purchases may experience shipping delays, here are three factors driving the supply chain shortage, and how SMB leaders can overcome the subsequent staffing issues.

1. The COVID-19 pandemic

COVID-19 wreaked havoc on nearly every aspect of the global supply chain. Unexpected factory closures due to illness in parts of the world where most of the global manufacturing happens knocked out production of many goods.

For example, a lockdown in the port city of Guangzhou caused a significant delay in shipments — particularly in Yantian, a major port 50 miles away from Hong Kong. Before the lockdown, the Yantian port handled almost 36,000 20-foot containers daily, but a COVID outbreak among dockworkers shutdown the entire shipyard.

In response, many shipping companies anticipated a drop in demand for goods and cut their schedules. This proved to be a misstep, as retailers experienced a giant leap in online shopping as people began to make more purchases from the comfort of their homes.

Americans were also spending a significant amount of money on goods and services for said homes, which suddenly became offices, classrooms, gyms, and restaurants. The timing and demand of these purchases flooded the already overwhelmed supply chain system.

2. Backlogs at the world’s largest ports

A backlog of cargo ships at global ports, container shortages, and rising shipping costs have greatly contributed to the supply chain troubles.

In the United States, dozens of container ships were forced to sit afloat throughout congested ports in Southern California, the entry point for about 40% of goods imported into the country. At the same time, truck drivers and dockhands were in quarantine, reducing the availability of people to unload goods—leaving containers stuck on ships or sitting idly in warehouses.

And since containers were scarce, the demand for shipping increased. Before the pandemic for example, an average container shipped from Shanghai to Los Angeles fetched approximately $2,000. By early 2021, the same journey cost as much as $25,000.

Major retailers like Costco, Walmart, and Home Depot have contracted their own private cargo vessels and purchased their own shipping containers, finding new and unprecedented ways to manage the supply chain snarls. But according to Goldman Sachs, over 30 million tons of cargo await delivery ahead of the Thanksgiving to Christmas rush, meaning the congestion isn’t expected to wind down anytime soon.

3. Demand for supply chain talent is at an all-time high

According to the U.S. Bureau of Labor Statistics, the number of job openings is approximately 4.4%, yet unemployment is at 3.5%. Basically, there are more openings than available people to fill the roles. This nationwide labor shortage has put employees in control, with droves of prospective supply chain workers declining to accept jobs they deem too strenuous, too menial, or poorly compensating.

To entice and retain this group, many companies have developed new training and development programs. Target and Walmart have announced plans to offer free college tuition and additional career opportunities. Target stated it would be offering a debt-free education assistance program to the nearly 30,000 supply chain workers it plans to hire, while Walmart announced it was hiring 20,000 more supply chain workers and opening six new Walmart Academies, a series of training facilities designed to upskill its workers.

Partner with HR Experts

According to a new survey by the National Association of Professional Employer Organizations (NAPEO), more than 92% of Professional Employer Organizations (PEOs) report that most of their clients are experiencing labor shortages. Nearly 86% of PEOs say such shortages are preventing their clients from resuming normal operations.

It’s clear many employers are struggling to manage the labor shortage, and as a result, have turned to their PEO partners for guidance on how to secure talent and create competitive compensation and benefit packages.

Increased benefits and compensation

Compensation and employee benefits are more important than ever, especially in today’s aggressive supply chain market. With competition for talent at an all-time high, many businesses have taken to increasing wages and working with their PEO company to transform how they structure their compensation packages to entice and attract workers.

According to Supply Chain Dive, nine in 10 supply chain leaders say they need to increase hiring to meet peak season demand, and 47% aim to attract and retain employees by paying higher salaries or wages before the end of 2021. FedEx for example reported that it spent an additional $450 million in the quarter ending August 31, to cover costs associated with increased overtime and higher wages to attract more workers. Including a $3-an-hour pay premium for certain part- and full-time positions in several U.S. markets.

Employers both big and small have also began offering more voluntary benefits like student loan consolidation programs, life insurance, pet health insurance, legal services and financial counseling. Some have even offered profit-sharing and larger 401k contributions, which gives workers a boost in retirement savings and helps ensure they stick around.

Reshaping recruiting strategies

With supply chain talent weighing their options and being selective, recruiting has become more competitive than ever, and keeping good people is a bigger challenge. But working with a PEO that offers full-service, flexible HR solutions can help employers remain competitive, recruit strong candidates, and retain top performers.

SMBs should consider a variety of recruiting tactics, including:

  • Fostering a diverse work culture: An increased emphasis on Diversity, Equity, and Inclusion (DEI) is an opportunity to shake up your organization in a positive way. When working together, each supports the long-term strategy of bringing on new talent, ensuring fair treatment, and providing opportunities for employees to thrive within an organization.
  • Providing professional development and training: It’s important for companies to invest in their employees through training and development. This begins with laying out a well-defined career plan employees can follow to reach their goals. Specific employee benefits may include a mentorship program, tuition reimbursement, or on-the-job training.
  • Engaging potential candidates: The importance of writing a strong job description cannot be understated. If it doesn’t contain enough information, candidates won’t apply. And worse, if it isn’t accurate, employers jeopardize damaging their candidate experience. Some SMBs struggle to create the kinds of job descriptions that entice a candidate to apply to a position, but a PEO can take-on this challenge, using their experience and expertise to create job descriptions that lead to higher application conversion rates.

The Road Ahead

Nearly two years into the pandemic, businesses are still struggling to manage the crushing shortages of workers, equipment, and goods. Fortunately, a PEO like ExtensisHR has the experience to help SMBs weather the storm. By tailoring benefits and compensation packages and ramping up new recruiting strategies, you can position your company as an employer of choice.

Looking for fresh ideas and strategies to incentivize current and potential employees? Our HR experts are here to help.

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