Analyst Insight: Workforce and talent shortages now rank as the number three supply chain challenge globally, while 73% of organizations say human capabilities aren’t keeping pace with technology (only 9% making progress). As labor models shift toward more flexible, skills-based deployment, companies that invest in upskilling (63% already do) will be best positioned to stay competitive.

Early on in my career, I had the fortune to be mentored by a great leader. A leader who embodied servant leadership — a concept which he simply defined as serving your associates with compassion, humility, service, and accountability. Simplified further, his litmus test for success was whether a positive work environment was being fostered. “Would you be proud to have your loved ones work here?” was a question he would frequently ask during town hall meetings. Being mentored by a leader of this caliber had a profound impact on me, one that has stuck with me throughout my career. 

Although ESG has faced backlash in recent years, one thing is certain: Social governance is absolutely critical to organizational success. How can you properly service your customers if your front-line associates are not being properly serviced? Sometimes misunderstood, social governance ensures long-term sustainability, builds trust, reduces risks, and drives ethical, inclusive, and socially responsible practices. These inputs achieve the most important output — talent retention. The importance of talent retention is immune to economic volatility; whether the labor market is strong or weak, organizations must retain their talent to survive the cutthroat competition they face every day. 

MHI, the nation's largest material handling, logistics and supply chain association, produced an insightful 2025 annual industry report, for which it surveyed more than 700 supply chain leaders globally. The conclusions were enlightening.

Workforce shortage is a persistent and structural constraint. Thirty-five percent of all leaders surveyed cited workforce and talent shortages as a top 5 supply chain challenge, ranked third, only behind inflation and economic challenges. Workforce-related issues rank among the most critical operational barriers. The top three workforce issues are hiring and retaining workers (52%), talent shortage (45%), and forecasting challenges tied to labor (44%). This points to the fact that labor scarcity is no longer cyclical; it is structural and ongoing, with a direct impact on fulfillment speed, planning reliability, and customer service levels. Organizations are being forced to treat workforce strategy as a core operational strategy, not just an HR function.

Workforce models are shifting toward more adaptive structures. Organizations are moving away from fixed, role-based staffing to more agile and responsive workforce models. Labor capacity is increasingly adjusted in response to demand variability and operational constraints. This is done by treating the traditional full-time workforce as somewhat flexible. Traditional “set headcount” models are too rigid for modern supply chains. Organizations must be able to reallocate labor quickly across tasks and time horizons. Workforce size is no longer the objective; instead, flexibility in workforce deployment is key. 

A skills-based workforce is becoming the core operating model. Team members are 52% more likely to be innovative in skill-based models. Organizations are moving away from traditional job titles, and instead focusing on skills and capabilities. Team members are matched to tasks based on current skills, adjacent capabilities and future potential. Although supply chain leaders know this transformation is a must, there continues to be a substantial adoption gap — only 19% of executives and 23% of the workforce say their organizations are structured this way. Organizations need visibility into workforce skills and systems to dynamically align talent with work.

Upskilling is now the primary strategy for closing talent gaps. Sixty-three percent of companies are upskilling current employees, while 36% are hiring for new skill sets. Investment in reskilling/retention increased from 25% to 38%, year over year. Organizations are shifting from buying external talent to building internal talent. This enables workers to transition into new roles as technology evolves, reduces dependency on tight labor markets, and establishes greater internal mobility and workforce resilience. A more skilled workforce is a more adaptable workforce, capable of responding to shifting operational demands.

Human + technology integration is redefining work. Seventy-three percent of organizations say human capabilities must keep pace with technological innovation; only 9% report making any meaningful progress. The competitive advantage is not just technological adoption; it’s how effectively organizations integrate human talent with that technology. In some instances, automation and AI are reducing labor requirements by 50%, improving productivity by 97%, and reducing training time from weeks to hours. Employees are shifting towards problem-solving, creativity and exception handling. 

The MHI report signals a clear transformation: The workforce is becoming scarcer, more valuable and more strategic. Organizations must shift from headcount to capability, roles to skills, and static staffing to adaptive deployment. Supply chain survival depends on continuously aligning talent, skills and technology to changing operational needs. The one constant is the need for social governance or, more simply, the nurturing of a positive work environment.