I recently had a client whose procurement team requested that we decrease our travel cost estimate because it exceeded their percentage to services target. This was a challenge because the project required a great deal of travel to their remote sites. Since we had little control over travel costs, the natural question was to ask which sites were they willing to cut from the travel list.
This made me think of a similar correlation…
Many retailers will reduce labor when sales are lower than expected. This will help maintain a % target, but it will come at a cost. If the labor model is correct, the work is still there; so, what tasks are the associates not going to do because the labor was reduced? From experience, most of the time it’s customer service. Associates will always do the tasking work that is required of them, but the soft stuff – the less tangible service, is going to drop.
Finance isn’t going to migrate away from % of sales budgeting any time soon. However, with a labor standards-based model in place, the improvement in operations will help reduce the negative impacts of budget decreases.
To that end, we typically see our clients experience three common challenges:
- Operational inefficiencies leading to wasteful labor hours
- Inconsistent processes from store to store which impacts labor required
- Imbalance in labor hours across stores (some too many, others too few)
All these problems are addressed when an organization builds a labor standards-based model. Once adopted, the impacts from budget constraints are typically minimized. Additionally, the new labor model provides insights into what tasks can be postponed or require modification to accommodate the constraints from the finance team.