Beyond Development…Integrating Engineered Labor Standards into Your Business

Here is an all-too-often familiar scenario…

Your organization has just completed a project to develop Engineered Labor Standards, and chances are that either your organization has never had standards or has not revised them in quite some time…

Obviously, this was not merely an intellectual exercise to keep your engineers busy. There was a strategic reason for developing or updating the standards.

So, what happens next?

There are typically two broad categories of application for labor standards. One is operational and involves using the standards to help generate schedules for stores that are unique to their individual labor demands. The other is financial and involves using the standards to help forecast the actual cost of labor for different budget scenarios.

Developing Labor Schedules:

Accurate labor schedules are an underpinning of effective store operations. The process to generate effective schedules can vary from retailer to retailer. Mall-based retailers with small footprints may be able to get by with predominantly “fixed” schedules that ensure minimum coverage is in place during open hours. Larger retailers will be highly variable depending on customer flow, product flow and other activities (like visual merchandising and marketing) in stores. For anything other than the most basic of retailers, it is usually best to employ a Workforce Management (WFM) system to help managers generate accurate schedules.

Integrating Labor Standards into a Workforce Management (WFM) Application

WFM systems use standards, coupled with a forecast engine to determine when certain drivers (such as customers, shipments, plan-o-grams, etc.) will occur, to determine finite labor demand, often down to the 15-minute increment level. Other factors such as skillsets, scheduling rules, job roles and availabilities transform this demand into actual shifts and schedules. Let’s assume you already have some WFM solution in place to generate optimized schedules for your stores. You must now integrate your newly developed labor standards into the WFM solution. Most WFM systems default to a static table within their software to house labor standards. Another option is to house your standards in an external system or database, then integrate it into the WFM through a robust API.

Why use ANOTHER system to house our standards?

The optimal way to manage labor standards within a WFM environment is to have them reside in a tool / application specifically designed to house labor standards and to integrate into a WFM application. The primary benefit of using a tool like this, since such tools are designed specifically for labor standards, is that it makes maintenance much easier.  In any business environment, changes will occur that require you to make updates to your standards. For example, a process may change due to a technology enhancement. This may involve making a change inside the standard rather than a wholesale replacement or global update. These changes can be made manually if you do not have a tool, it is just a much more arduous process which often leads to the changes not being done on a regular basis. Labor standards tools facilitate these changes very efficiently.

Another benefit of using a purpose-built labor standards system is that it facilitates functions like peer grouping and store attribute tracking. There are normally physical, demographic or technological differences between stores that change the labor requirement for similar tasks. For instance, a mall location might experience much higher traffic, but lower conversion (i.e. more “browsers”). The standard for recovery per traffic might be different for mall stores versus stand-alone locations. This requires that these attributes are housed in one location that can be easily monitored and audited when changes (i.e. relocation) occur. Having “one source of truth” in a labor standards system facilitates this process.

Finally, labor standards systems typically have been designed to integrate with most of the major WFM solutions on the market, so the process is straightforward to achieve integration. If you do not have a tool and you are using, for example, Excel, integration can still be achieved by an export and manually inputting the file into your WFM application. This is certainly not the optimal method, but still feasible. The point is, you should be thinking ahead at the beginning of your labor standards project to how you will ultimately integrate your standards into a WFM application.

Financial Modelling:

Just as accurate labor standards are an underpinning of effective store operations, they are also a critical piece of effective financial planning and analysis regarding labor. An accurate picture of how much labor is required in stores, particularly in discrete detail down to the task level, allows a series of intelligent decisions to be made; a reconciliation between labor demand and available budget reveals productivity challenges, underfunding and ramifications to the service model. However, it is critical that this process is not oversimplified. Consider how WFM systems use standards to generate schedules. If, in financial analysis, standards are simply applied against historic drivers (traffic, transactions, units sold, etc.) then the true labor demand can be greatly underestimated.

Understanding the Difference Between Labor Demand from Standards and Creating a Schedule

It is critical to remember that standards are only one piece of the puzzle and the hours that are used to schedule will be different than the simple application of forecasted drivers to labor standards (also known as “Raw Hours”). Typically, the hours scheduled will be higher. There are various reasons for this. Let’s examine a few:

Minimum Staffing Requirements

There are many reasons why a retailer would want a specific store or department staffed with a minimum number of store associates regardless of what the forecasted labor demand is. It could be due to safety related concerns (you may never want an associate working in a store alone). It could be for loss prevention reasons (maybe you have a high-shrink department). It could be strategic (you want to grow a business segment) or it could be just the physical space of an area would make it more desirable to have a minimum coverage requirement. If you have minimum staffing requirements, you would then configure your WFM scheduling application to ensure there is always the required staff schedule even during times when the workload (as determined by standards and driver forecast) would not dictate those hours.

Business Rules

When you configure a WFM scheduling application, as part of the process, you must define specific business rules to adhere to. You may establish a minimum shift definition of four hours. This means that even though your labor forecast may only show a spike for a specific time for two hours, you might schedule to the demand with a minimum shift of four hours. You may have a rule for minimum hours that a full-time associate can be scheduled (typical ranges are from 37 – 40 hours weekly). This means that even during a slow business period, if you staff compliment is heavily weighted with full-time associates, you must schedule their designated weekly minimums regardless of workload demand. There are many other business rules that have an impact, and these are applied by the WFM system in the schedule generation process.

Idle Time

Idle time can be a little more challenging to handle. Idle time is simply the time in a store when a Manager or associate is not performing any productive work. Productive work is defined as any activity dictated by the needs of the business, such as customer service, freight processing, administrative, or cleaning / maintenance. Idle time literally means time the person is idle and not doing a defined activity.

Idle time in the current state is very difficult to quantify unless you have conducted a utilization study. This type of study involves observing and tracking all activities performed by an employee. Data collection typically takes place seven days a week over all store hours to obtain accurate information. Retailers are commonly surprised at the amount of idle time that really exists in their stores when a study is conducted, although it varies greatly by company and type of retailer. We typically see idle time in the range of 5 – 30%.

There is no simple, one size fits all answer on how to address idle time. The decision will vary for each company depending on their service model, customer expectations and objectives. It is not as simple as reducing hours to recapture idle time. Some companies prefer not to reduce labor hours from historical levels and would rather re-purpose idle time to higher-value customer-facing activities to drive conversion and top line revenue growth. Others may see this an opportunity for payroll reduction. Remember that the business rules as they are defined may “force” idleness as well. Many high-service models require that salespeople stay within a certain area, and when no customers are present, they may be “forced” into an idle situation. There is no one correct answer to addressing idle time.

Process Inefficiencies

Typically, during the process of collecting labor standards, observations are made about process inefficiencies that are documented and reported as improvement opportunities. There are also situations where some stores may be doing activities that are above and beyond what is required for the company’s Standards Operating Procedures (SOPs). Examples may include doing a SKU by SKU detail check of new receipts even though the procedure calls for full assumed receiving or only scanning in new receipts at the carton level. Another example may include Districts or Regions initiating cycle counts that are above and beyond what is driven from corporate. Going forward, you would not want to allocate labor to support these inefficiencies and would limit labor to that dictated by the standard for the process as it should be performed.

Without factoring these elements in to your equation, you may experience hours that are significantly lower than you are currently using. You may arrive at the false conclusion that that the labor standards are not accurate. The reality is you must account for minimum staffing, business rules, idle time, and process inefficiencies that reside outside of “raw hours” to create a schedule. Labor standards are a critical component of accurate labor forecasting, but other levers are also part of the complete labor model.

Ultimately is it critical to remember that engineered standards are a means to an end. In order to take advantage of this incredibly powerful tool, it must be effectively integrated into your operations and financial planning process. Store payroll is not only the largest controllable store investment it is the largest single asset and differentiator that an organization must drive sales and positive customer experiences. Getting the right people in the right place at the right time not only saves money and makes the store easier to run, it makes for a better customer experience. A great place to work, a great place to shop and a great place to invest… isn’t that the reason we’re all here?

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