Optimize labor costs with these three agile management tactics.
With the arrival of Covid-19 and the need to intricately manage costs, labor optimization is a hot topic. Agile management allows you to drive...
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As a major cost line for most businesses, labor has always been a key concern. With the arrival of Covid-19 and the need to intricately manage cost, we’re now hearing it discussed more than ever.
Optimizing labor has never been more important. Every single dollar matters. Companies need to make sure they have the right staff every minute of the day to maximize takings, minimize costs, and keep customers happy. Predicting demand and matching your labor to this has always been challenging, and Covid has made it much harder.
The majority of Quorso’s customers are seeing very different patterns of demand than they were prior to the pandemic (e.g. often seeing higher midday/midweek demand and lower evening demand) for which they’ve had to adjust. These patterns are also fluctuating rapidly week on week given volatility in State regulations and customer sentiment.
Yet at the same time, Covid has been the great humanizer, bringing compassion and community to the fore. Businesses that have kept employees engaged, secure, and safe throughout the turbulence have been widely praised by the public. Ruthless optimization risks the brand suffering in the long-term, and risks jeopardizing their future position against ‘kinder’ rivals. Although it may save cost now, it could mean dwindling sales later down the line.
So the challenge is to optimize labor while also engaging and motivating staff. Getting the balance right could define who stays in business, or who goes bust. And beyond that, those who excel at it to effectively scale ahead of competitors as normality resumes could find themselves rapidly capturing market share to lead and redefine their sector.
At Quorso, we’ve heard from our clients that running a well-oiled labor-scheduling machine means focusing on three fundamental elements:
Each of these stages have existing challenges where performance is leaked. Agile management helps fix this – and in a way that strongly motivates and engages staff.
People have a terrible tendency to believe that once a number goes into a spreadsheet it is certain to occur – an expectation that is compounded if you rely on sophisticated machine-learning algorithms.
Anyone who has revisited historic forecasts will know that the likelihood of reality perfectly correlating to your forecast is as likely as a chimpanzee hitting the bullseye on a dartboard. Seasonality, weather, and general volatility make the external environment complex.
However, it is also true that some managers are better at forecasting than others. At Quorso, we have found that forecast accuracy by location can vary by up to 40%, which can impact labor costs by $7,000 per week by location.
In most cases, this is never challenged. Despite personal biases, experience, and varying enthusiasm all being factors that sway forecasts, they aren’t often rectified. This creates an incredibly unmotivating environment where employees can feel like task robots in a machine outside of their control.
Even if we assume that we have the perfect sales forecast, we still have to build the optimum schedule to optimize takings.
Most businesses will have a rule of thumb for the perfect labor mix to optimize takings with a certain footfall. But we still have the reality of shifts, and it’s impossible for labor to rapidly scale-up and scale-down in line with demand like an electricity meter.
We again see big variations in how well locations are able to fit their scheduling to expected demand; 25% variation in scheduling accuracy can lead to $4,000 of additional cost. Whether you are running optimal shifts can also have huge implications. One of our hotel clients found that changing shifts by 30 minutes at one location, could save them approximately $200,000 a year.
Making sure shifts are also seen as fair is also important when motivating staff. Having a data-based and transparent approach to planning is important.
I visited a retail store that had just implemented a fancy new scheduling tool. On the wall was the print out of the perfectly calculated schedule, which had appeared from afar to have been attacked by a scribbling toddler.
On closer inspection, the scribbles were something entirely different: staff had rewritten their own preferred schedule over the top of the computer schedule. Technology is one thing, human beings are quite another.
The execution challenge is one of the largest problem areas of labor optimization. One of our transport clients discovered in Quorso that by reducing the clock-in clock-out time by 30 seconds could save them in excess of $1,000,000.
But it can also be a major symptom of poor motivation and engagement. When people don’t understand why they are doing what a central team has asked for, or can’t see the impact of their individual action on a outcome or result, they can become withdrawn and less likely to comply.
Test, measure, learn. We’ve already explored how this is the fundamental backbone of an agile mindset. With agile management, every week you see the impact of actions taken so you can iterate and adapt your way to success.
For most, running A/B tests is something only marketing teams do. The use of spreadsheets is to blame for this, as they aren’t dynamic enough to assess the right control groups and understand whether perceived impact is valid or just by chance.
An agile approach puts experiments at the heart of knowing what is driving true impact in your business, rather than hot air and hearsay. Even greater results can then be driven once it’s scaled from one high performer through your whole business.
This is possibly the most important of all three. A lot of managers will see scheduling as something done to them, either by a central team or by an algorithm. It removes autonomy over their actions and they can simply reject it with the oft used refrain, “they don’t understand my business”.
This is where agile management can be incredibly powerful. As agile management intricately tracks the impact of actions, and feeds them back weekly, individuals see their personal contribution and growth continuously.
If you're looking for ways to improve the forecasting, scheduling, and execution of labor, adopting agile management within your business will be key. See exactly how by downloading our in-depth use case below.