Labor standards, which represent the average amount of time it takes a worker to complete a task, are effective tools that organizations typically use for forecasting and scheduling to ensure the right number of people are working at the right time. But the value labor standards can provide to businesses goes far beyond just scheduling efficiency.
Often, process changes are made at a regional or corporate level with little understanding of what’s actually happening on the store floor. The true impact these decisions will have on the business is therefore relatively unknown. Labor standards, when created and then utilized in the right way, can help companies understand the current state of business and the impact on labor costs when operational changes occur.
What labor standards can do
Let’s take the example of a busy grocer. To create lift on a high margin, affordable item, the store manager has been instructed by the corporate merchandising department to have cashiers announce the “Deal of the Day” to each customer at the point of sale. Each time a customer approaches the checkout line the cashier is required to:
1. Stop what they’re doing
2. Point over to the product on display
3. Announce, “This is the Deal of the Day”
4. Return to checking out the customer’s groceries
After a short run, it’s determined the initiative is not being executed properly. A study reveals that cashiers are too busy focusing on another key requirement – getting customers through the check-out as fast as possible – to effectively concentrate on other tasks. The cashiers found the process burdensome, especially at peak times when a customer’s desire to get home far outweighed their desire to hear about a special sale. Further investigation through a labor standards analysis showed that during peak times in 132 stores, the costs associated with the additional cashier time to promote the sale merchandise were approximately $15,000 per week.
The purpose of this example is to show that decisions for process changes can be measured before they are sent down. Had labor standards been in place, the questions would have been asked and subsequently answered before any time was ever spent on execution. Then the team could have re-focused its effort to develop a new cashiers pitch to customers which would have minimized or eliminated the labor effort, but still resulted in a sale of the “Deal of the Day.”
This next scenario illustrates what happens when an organization uses labor standards to identify the impact of a process before it is implemented. Let’s say a retailer wants cashiers to identify lower tare weights for produce items. (Quick refresher: tare weight is the weight of the container that the food comes in which must be subtracted from the total package weight at checkout). The store currently defaults to a tare weight that covers 90% of all items; the remaining 10% are known to need an adjustment to a higher tare weight. The produce department feels they can increase their margins by eliminating the embedded tare weight and get clerks to assign the appropriate tare weight for all items. The cashier is required to:
1. Identify the item that needs a tare weight
2. Enter the tare weight with two and a half keystrokes
The process seems simple enough. You might even think there’s no need to measure it at all. However, by using identified labor standards, it’s calculated that this process (for 50,000 items per week) will require an additional 20 hours per store per week. At $20 per labor hour, the team now has the ability to determine if the new process justifies the spend to boost produce margins above $400 weekly (the cost of additional labor). In this scenario, the labor standards are used to perform a cost/benefit analysis before the new policy is put into effect.
As you can see, organizations can use labor standards to realize a number of benefits over and above efficient scheduling. Managers can make more informed decisions related to the cost of labor, before changes are deployed, that will ultimately improve their business outcomes.