What is the secret to long-term success in retail? Not settling for quick fixes. While, at times, these seem to be a smart idea and possibly profitable, there is no groundwork being laid for long-term return. Your business needs to build the foundation for the long term by creating superior workforce management tools through engineered labor standards.
ELS? What is That?
What does the term engineered labor standards mean in plain English? Identifying every employee task, measuring and validating the standard time needed for task completion, and implementing and maintaining the standards determined. The key to being able to create effective workforce management tools is to properly measure all tasks to objectively evaluate the efficiency of a company and, thus, is the purpose of engineered labor standards.
You won’t need anything like this to calculate these measurements.
The best way to learn about this process is to examine one facet of what goes into the creation of workforce management tools for your business. Let’s learn more about an expense that is often the first to jump to mind when thinking about optimization:
Here’s a hint for you on what this expense relates to…
Direct Labor Utilization
Payroll tends to always be up there in the accounting department, so having a method to measure the efficiency of your labor is invaluable.
Enter: direct labor utilization.
Direct labor utilization is a calculation used for identifying what percentage of total payroll expense is related to direct (or income producing) labor. Simply take the cost of direct labor divided by total payroll expense to calculate this percentage. The higher the percentage, the more efficient the direct labor. On average, businesses should be seeing at least 65% in their direct labor utilization calculation.
Keep in mind that some of the other expenses that contribute to total payroll expense are critical pieces to running a successful business, such as employee training. If a company has an extensive training program, chances are the direct labor utilization percentage will be lower. You have to look at the way your individual company runs to be able to interpret the percentage as it is applicable to you to assist with engineered labor standards and workforce management tools.
It can be a delicate balance to decide how much training is needed when evaluating direct labor utilization for profitable purposes.
Engineered Labor Standards = Effective Labor Solutions
With a further understanding of the mindset of engineered labor standards and the role that these measurements take in creating effective workforce management tools, it becomes clear that the secret to long-term success in the retail business is implementing and maintaining these standards. A deep comprehension of your metrics will not only help you identify areas for improvement, but will also help to focus you on the areas that drive your business. A fundamental understanding of every element that makes up your day-to-day operations will not only improve the business, but also improve your skills as a successful retailer.
It’s not about the quick solution, it’s about the right solution. In the words of the late Steve Jobs, “If you really look closely, most overnight successes took a long time.”
Want more specifics about engineered labor standards and how we can help you achieve greater retail success? Contact us today and learn more!