While supply chain and distribution efficiency has been a goal of retailers for many years, more retailers than ever are now looking toward the “front of the store,” particularly a better allocation of labor, for efficiency gains. Given payroll expense, this can indeed be a very fruitful place to try to save money. However, it’s also a risky place to make cuts — because having the right people and the right number of people in place to sell your merchandise when the customer wants to buy it makes all the difference in the world. The big danger is that in trying to keep payroll down, the shopping experience can become diminished, sending customers packing. In our view, the best approach to controlling costs while still maintaining adequate service is to focus as much upon reallocating labor as on cutting it.

For generations, payroll management in retail didn’t change much: Payroll was allocated among stores on the basis of individual store sales volume. Of course, just because two stores do the same sales volume doesn’t necessarily mean that they require the same number of staff hours. For example, imagine two $4 million-revenue stores. One store sells four million items at $1 apiece, while the other store sells one item for $4 million. Guess which store is going to be busier and need more sales people?

Over that last several years, software vendors have been developing highly technical “workforce management” programs that look at all the component activity involved in a retail operation, and the time involved to perform those activities. These programs estimate how many times each of these activities will occur in a given time frame and, on that basis, determine how much labor will actually be needed. It is an elegant, if highly technical, approach to payroll planning.

For all its power, though, most retailers don’t find that workforce management meets their needs. For starters, it can take up to 18 months and cost millions of dollars to fully implement such a system. More importantly, many retail situations simply don’t lend themselves to an industrial-engineering solution. The idea of workforce management software sounds compelling, but the reality is that retail is simply more unpredictable than the manufacturing floor — despite what software vendors will tell you.

What we have found is that most individual store managers are using a kind of “internal software” and are allocating hours according to an intuitive sense of where those hours are most needed. While this method is often good enough to keep the store in business, a better alternative would be to combine this “hands-on wisdom” with the discipline of workforce management software in an approach that’s cost–effective, simple and easy to implement, and, most important, much more closely tied to the realities of the retail environment. And it’s just such an alternative that we recently developed.

Here’s how it works: Experience shows that retailer managers’ decisions in allocating resources are good enough that historical data from individual stores can replace the kind of predictions that would take months to arrive at using industrial-engineering time studies. Moreover, in looking at a large chain we are able to identify a small number of “groups” of stores that, based on size, location, sales patterns, etc., are essentially alike and can be expected to operate at roughly the same level of productivity.

Our process begins with a study of several factors, including store layout, open hours, delivery days, etc. to indicate the fixed hours a store needs regardless of customer activity. We use actual historical data to gauge the productivity for the stores in each group, taking into account not only sales volume but also transactions, customer traffic, units per transaction, etc., which in turn generates earned hours. If there are special factors for a particular store – e.g., a loading dock in challenging location, or an elevator – that will require additional labor, we factor those in. These are incremental hours. The sum represents the total number of hours each store should get. Note that by standardizing productivity levels for each group, we invariably push some stores to work more efficiently and allow others to relax, but the method also clearly shows the retailer the level of productivity that the best in each group is performing, and this helps set the target productivity level all stores in the group.

Establishing the total hours for each store is only the first step towards optimizing labor. Next is to look at the hour-by-hour store- and department-level data. That’s the key information that drives labor deployment. Beyond sales revenue per hour, merchants who have worked with us have found that transactions per hour, the value of those transactions and the margin derived are all just as important. It is this information that helps identify the most valuable times of a day or week, and it is on this basis that labor needs to be deployed. With this information the merchant can begin to identify ways to cut down on the overall labor spend without sacrificing the customer experience.

Further, because this approach takes into account that a retailer is simply not like a manufacturer, with standard processes, machines, tools, etc., it doesn’t “force” workers into short-shifts, doesn’t result in employee dissatisfaction and avoids the “big brother” nature of most software applications.

Through years of working in the trenches with troubled retailers, we have gained both a high degree of expertise and a core sense of urgency. We have been able to take the guesswork out of assigning hours to individual stores, and then provide the information about a store’s traffic pattern that will help determine how to schedule those hours. We do it from start to finish in far less time and at far less cost than putting work force management software into action. And we do it in a way that is sensitive to the retail entity in all its manifest differences.

Published Jan. 22 2009 in Chain Store Age