50. Labor Cost in Warehousing
Understanding, Controlling, and Optimizing One of the Biggest Expenses in Logistics
What Are Labor Costs in Warehousing?
Labor cost refers to all the expenses associated with hiring, training, managing, and retaining employees in a warehouse. In most warehousing operations, labor is the single largest operational expense, often accounting for 50% to 70% of total warehouse costs.
This includes:
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Wages and salaries (hourly, salaried, overtime)
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Benefits (healthcare, retirement contributions, bonuses)
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Payroll taxes (social security, unemployment, etc.)
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Training and onboarding
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Temporary labor and seasonal workers
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Supervision and management
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Safety programs and compliance
Main Labor Roles in a Warehouse
| Role | Description |
|---|
| Pickers | Retrieve items from storage to fulfill orders |
| Packers | Package items for shipment |
| Receivers | Unload and check incoming shipments |
| Stockers / Put-away | Place items into storage after receipt |
| Forklift operators | Handle heavy pallet movements |
| Shipping clerks | Prepare and load outbound orders |
| Supervisors | Oversee daily operations and teams |
| Inventory controllers | Monitor stock levels and manage counts |
Each of these roles contributes to total labor cost, but not all equally — some are more repetitive, some more skilled, and others highly time-sensitive.
Why Labor Cost Matters in Logistics
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Profitability
High labor costs can quickly reduce the margins on warehoused goods — especially if productivity is low.
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Scalability
Without process optimization, labor needs grow linearly with volume — which is not sustainable.
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Customer Satisfaction
Labor shortages or errors lead to late shipments, wrong orders, and unhappy customers.
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Cost-to-Serve Visibility
Understanding labor cost per order, per pick, or per shipment is essential for accurate pricing and logistics planning.
How to Calculate Labor Cost Per Order or Activity
One way to track labor productivity is by calculating the labor cost per pick, per unit, or per order. Here’s a basic example:
Labor Cost per Order = Total Labor Cost ÷ Number of Orders Fulfilled
If you spend €30,000 in labor for a month and process 15,000 orders:
→ €30,000 ÷ 15,000 = €2 per order
You can also break it down further:
Factors That Drive Labor Costs Up
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Inefficient Picking Paths
Workers travel too far between items, wasting time.
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Poor Slotting and Layout
Frequently picked items are stored in hard-to-reach locations.
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Manual Processes
No automation means more time spent on scanning, labeling, or walking.
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High Turnover
Hiring and training new employees constantly increases cost.
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Overtime and Seasonal Peaks
Unpredictable volume forces use of expensive overtime or temporary workers.
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Inadequate Training
Leads to low productivity, high error rates, and more rework.
Ways to Optimize and Reduce Labor Cost
1. Improve Warehouse Layout
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Store high-velocity items closer to shipping or picking zones
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Use ABC analysis to determine placement
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Reduce worker travel time with better path design
2. Implement a WMS (Warehouse Management System)
3. Use Automation Where it Makes Sense
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Conveyor belts, pick-to-light, voice picking, or robotic arms
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Automated guided vehicles (AGVs) for pallet movement
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Start small and scale — automation doesn’t have to be all-or-nothing
4. Train and Incentivize Employees
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Provide role-specific training and clear KPIs
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Offer performance bonuses for accuracy and speed
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Cross-train workers for flexibility across zones
5. Forecast Labor Needs Based on Volume
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Use historical data and demand forecasting to predict busy periods
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Hire seasonal staff early to avoid overtime
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Use part-time or flexible shifts to cover peak hours
6. Track Key Labor KPIs
Example: Reducing Labor Cost in a Fulfillment Center
An eCommerce warehouse was spending over €3 per order on labor. After analyzing the workflow, they:
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Introduced pick-to-light systems in the picking zone
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Re-slotted fast-moving SKUs to reduce walking distance
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Implemented real-time tracking through their WMS
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Trained team leads to supervise 15 workers each
Result: Labor cost per order dropped to €1.90, and order accuracy improved by 15%.
Summary
Labor is not just a cost — it’s an investment in warehouse performance. But to get the best return, you need:
By understanding and controlling labor cost, a warehouse can become faster, leaner, and more profitable — ready to handle growth without growing chaos.
