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How to Minimize the Impact of a Minimum Wage Increase in Your Supply Chain

Written by Mark Gemberling
January 25, 2017

An increase in minimum wage will likely affect many companies supply chains.

An increase in minimum wage will likely affect many companies supply chains.

How will your company adjust its supply chain management strategies to address rising minimum wages? The answer to this question could determine not only the changes you make to your supply chain management process, but the types of systems you use to accomplish these goals.

If you’re located in a state that doesn’t plan to increase its minimum wage today, we believe you could still find the following information valuable. After all, one day your state may also decide to up the minimum wage, and it’s better to prepare now than later.

Here’s what you need to know:

1. What Industries Will be Affected the Most?

Labor intensive companies could feel the unyielding brunt of higher minimum wages more than others. Spencer Levy, head of research for CBRE in the Americas, believes e-commerce businesses, which hire manual warehouse laborers to receive and ship products, could feel the greatest impact of higher minimum wages.

“While the impact of rising minimum wages will vary across companies and the states and municipalities in which they operate, it’s a near certainty that e-commerce facilities will take the biggest hit,” said Levy in a press release. “Fulfillment centers and other facilities that process, sort and ship online orders tend to employ twice as many people on average as do typical warehouses and distribution centers, often expanding during peak seasons to as many as four times the average workforce.”

Levy told The Wall Street Journal that e-commerce companies located in highly dense locations – typically urban ones – could feel the greatest impact for two reasons: 1) More warehouses are springing up in urban neighborhoods to meet increased consumer demand for quick service and delivery, and 2) These areas are seeing the most pressure to increase minimum wages.

However, e-commerce isn’t the only industry facing pressure to manage rising minimum wages. A Purdue University study found that increasing the federal minimum wage to $15 an hour in limited-service restaurants could make restaurant expenses jump by 4.3 percent. This would put more pressure on consumers to pay the difference and more burden on intermediary suppliers to provide products at less expensive rates to keep supply chains stable and help those restaurants stay in business.

Richard Ghiselli, professor and head of the School of Hospitality and Tourism Management at Purdue University, said if companies don’t want to raise prices, they could reduce their products’ sizes, which would decrease supply-chain costs.

2. What’s the Cost of Increasing Minimum Wages?

Some companies that aren’t forced to increase their minimum wage may still notice their supply chain costs climb. This would happen if one of their suppliers feels obligated to increase product prices due to having to raise their employees’ salaries.

While the actual cost will depend on a number of factors – such as the new wage, industry type, and product or service – CBRE Group, Inc. estimated in a report that employee labor expenses could reach $1 million for every $1 wage increase.

The level of impact the wage increase will have on companies will also differ. For example, Supply Chain Management Review noted that some companies already offer employees a wage well above the required federal minimum, and therefore they may be able to more easily adjust. Others who offer employees the bare minimum wage may struggle (at least initially) to make up losses. Further, an increase in wages for minimum-waged workers could force companies to pay managers more if they want to retain their services.

3. What Can Companies Do to Minimize the Impact on Their Supply Chain Management Procedures?

Many states are likely to increase their minimum wages more than once over the next several years, and companies should plan accordingly.

Take for example, voters in Maine, Colorado and Arizona, who approved a ballot measure to incrementally increase their state’s minimum wage to $12 an hour by 2020, according to the National Conference of State Legislatures. By 2018, New York will raise minimum wages to $15, and others will follow suit.

This type of wage increase, as we mentioned, can strain supply chains. However, by adjusting supply chain management policies, companies can better overcome matters directly related to, or that somehow affect, their supply chains. The question now is, how do businesses make these necessary changes?

We believe it all starts with the types of supply chain management systems companies use to streamline their data collection processes. These automated data collection systems provide managers with accurate data quicker than if they used manual and paper-based processes, enabling them to make more informed decisions about how to adjust their supply chain so it can handle rising costs.

However, the first step in adopting one of these systems is for managers to figure out exactly how it’ll benefit their company. That’s where an ROI calculator comes into play. An ROI calculator, such as one offered by RFgen Software, can help companies realize the potential return on investment by implementing a barcode and mobile data collection software solution. Simply input your inventory management, cycle counting, picking accuracy and product increases to see your ROI results.

This type of tool is the first step in helping you adjust your supply chain management strategy to ensure your supply chain doesn’t falter due to higher expenses caused by rising minimum wages.

Calculating the ROI of an Automated Data Collection System

Because every automated data collection system is different, an array of products are available to help companies gain greater insight into their operations and record data quicker and more accurately. This can free workers to spend more of their time on value-creation tasks within the supply chain. As such, automation simultaneously reduces overhead and lets workers focus on generating revenue. This makes it easier for companies to take on the additional costs of a minimum wage hike.

CONTINUE READING: Solving other common problems in supply chain management »