How to Win the Battle Against Rising Labor Costs
The “How to Reverse the Trend of Rising Retail Labor Costs” webinar features insights and advice on how a proper workforce management strategy coupled with next-gen technology can help retailers keep labor costs low which still providing superior customer service.
Hosted by RIS News and presented by Kronos, it features industry experts Steven Strohecker, workforce management strategist, and David Spofford, management consultant, analytics both from Kronos. It is moderated by Joe Skorupa, editorial director at RIS News.
The thought leader panel goes deep on why retailers struggle with labor management today and offer concrete ways to solve it. The topics covered include: simplifying analytic reports and refocusing measurements of success, shifting to a mindset of compliance, creating a clear what-a-good-job-looks-like plan of action, and developing a make-it-happen approach.
The full transcript is below as well as the slides from the presentation.
Joe Skorupa: Welcome, everyone, to the “How to Reverse the Trend of Rising Retail Labor Costs” webinar, which is hosted by RIS News and presented by Kronos.
I’m Joe Skorupa, Editorial Director of RIS News, and I'm really glad you could be with us today. Labor costs retailers about 15% of total sales, and in today's marketplace turnover is high, unemployment is low, wages are rising, and younger employees are as demanding as younger shoppers. Well, this is a perfect storm for retailers struggling to solve rising labor costs and looking for answers. In this webinar, retail experts draw on years of experience to examine why retailers struggle to tame the labor tiger, and offer concrete ways to reduce costs. These include exemplifying analytic reports and refocusing measurements of success; shifting to a mindset of compliance, governance, and accountability; creating a clear what-a-good-job-looks-like plan of action; and developing a make-it-happen approach, rather than a wonder-why-it-didn't-work-approach. This webinar offers practical tips on how to transform an unpredictable workforce from a frustrating cost center into a valuable asset that drives sales and increases customer satisfaction.
Discussing this important topic today are Steve Strohecker and David Spofford of Kronos. Steve Strohecker, workforce management strategist for Kronos, has more than 15 years of experience working in retail. Steve was the director of labor and workforce management at two Fortune 500 retailers and has extensively consulted on labor and workforce management. He holds a BS in industrial engineering and an MBA in corporate finance and investment management from Penn State University. Glad you could join us today, Steve.
Steve Strohecker: Hi, it's my pleasure to be here. Thank you very much for the opportunity.
Skorupa: Also, joining Steve on our panel is David Spofford, who is a management consultant in the analytics division of Kronos Incorporated. David has over 30 years of knowledge and leadership experience in retail and business operations across many retail formats in such areas as assisted service and self-service retail environments. David's objective is to help and guide retailers to leverage and drive value from analytics in a business environment.
Welcome, David, glad you could be here as well.
David Spofford: Thank you very much, Joe. Really looking forward to the webinar. Thanks for asking me along.
Skorupa: Before we get started with Steve, I want to point out the RIS News has done two internal retailer poll studies in the past few months asking retailers to name the most pressing concerns, challenges, and/or weaknesses that require investment in technology to solve. For the first time in more than 10 years, the tight labor market and workforce management areas were at the top of the list. In one study, these ranked at the number one position, and in the second study, these were in the number two position. Clearly, this is a hot button issue, so let me toss a hot potato question to Steve. What can retailers do about these workforce problems today? And why do they seem so hard to control?
Strohecker: All right, well, thank you very much, Joe, that was a great introduction and a great hot potato question to start this out with.
David and I have had a chance to work together for some time now at Kronos, and before this webinar, he and I have had the opportunity to talk about performance management on a few different occasions. One of the things that we've come to find is that even in today's world with all of the data and analytics that are going on and all of the advancements in business intelligence, we still find retailers, large and small, that still have issues trying to wrap their hands around ― and formalize ― a performance management program.
In terms of being able to control rising labor costs, being able to effectively use a workforce management system that you have in place and leverage it and the data that comes along with it, is really one of the major benefits of even going through a workforce management implementation. The data that you have access to after its been installed is extremely beneficial for both helping you to forecast your labor needs in the future as well as controlling them as they're happening.
Joe, going back to your question about what makes it so hard to control, in my opinion, it's not any harder today than it was 20 or 30 years ago. Labor costs have always existed for retail. Today, they continue to get more challenging as wage rates increase or as demands for efficiencies inside of retailers become more prominent. One of the things that really comes to fruition is leveraging that workforce management system that you have in place today, and if you don't have one, it really helps to go through that type of an implementation.
Over time as we talk to retailers, David and I have seen some of the main issues that they have in performance managing their labor expense. I'm going to talk about that first, and then David's going to talk about what a good performance management program looks like for managing your labor expense. I think he's going to provide some good insight into what some of the key labor metrics are that retailers should be focusing on and what some of the best practices are to deliver those metrics throughout your field leadership so that everyone has a consistent view of how you're performing.
As we talk about what makes labor management so hard, one of the things to think about ― and to talk about ― is that labor is an expense that happens at every moment during the day, during the hours of operation. As we sit here on the phone today talking about labor expense, your stores are spending it as each minute passes. It's a unique expense on every retailer's P&L in that way because it's very difficult to control.
If you look at rent, for example, the finance and real estate teams plan out lease or real estate expenses into the future, and they know when those expenses are going to happen. They know when they're going to fluctuate, and can predict it. Labor's a little bit harder to control. It's also a decentralized expense ― the control of it is decentralized. Despite the best efforts of most central support organizations to control and plan labor, it really falls on the employees in the field ― field leadership, store managers, individual employees to punch in and out on their schedule and come to work on time. That's really what makes workforce management or managing your labor costs so hard.
When we're out talking to retailers, David and I are still taken aback by where certain retailers are in their current state of performance management. What we'd like to do is go through some of the common pitfalls that we see. Despite all of the data that exists today, that can come out of a workforce management system, we still see that retailers, in some cases, are lacking access to the data.
I went through a recent case with a customer where we went in to do an advisory service with the customer, which is similar to business consulting to help customers gain value out of their existing workforce management implementation. One of the points that came up was from a high-level executive in the organization, "I really have no access or insight into how we are spending labor throughout the course of a period," he said. They went on to say, "I really don't see how we performed against labor until the period P&L comes out." In reality, that is a major pitfall. This particular customer had the Kronos Workforce Management system in place for both timekeeping and scheduling. All of the information that leadership is interested in, the performance management data is all there. In some cases it's just taking that existing data that you have and making it accessible to the field.
Even in situations where retailers have a robust performance management system in place, sometimes they're not always looking at the right measures of success. Retailers are looking at some of the more common metrics: labor hours, percent of sales, labor dollar expense, but in reality, there's one step beyond that where we feel retailers need to go, and that's looking at some success metrics that correspond to the opposite of what you'd expect your labor investment to be doing.
Sales is truly one of those. Retailers invest in labor to generate sales at the store, but if a retailer is looking to invest in a sales culture ― let's say you're not there today, but you want to get there in the future, and you want to train your employees on how to sell more effectively ― then look at KPIs and performance metrics for how well labor is being spent. Look at those success metrics and say, "Hey, you know what? I'm getting a better conversion rate than I did year-over-year, and therefore I can say, 'Hey, you know what? My labor investment, that extra investment I'm making in customer service, is starting to pay off.'" Not only are we looking at pure labor metrics, we also suggest looking at metrics that give you a perspective of the output of labor.
Leading versus lagging indicators. This isn't anything new, but looking at leading indicators is something that applies to workforce management as well. It's easy to look back and say, "Hey, last week, I hit my labor dollar budget, or last week, I hit my labor hour budget," but it's more important to look forward and say, "Hey, what metrics can I look at that are going to tell me what I expect to achieve next week." Looking at scheduling metrics is the best way to do that. Retailers that are on a more mature workforce management, performance management program are looking at schedules weekly to see how stores are setup for next week and to make sure that they're setup within the targets that they're expected to achieve. Looking at leading indicators, making sure those indicators are on reports or dashboards, those are important metrics to be looking at.
Another thing we see ― and this is almost the opposite of not having access to data ― some retailers find themselves in the situation of having too much data. Again, retailers that are on the more mature side of performance management for labor, in some cases, have a tendency to essentially overdo it. They provide too much in the way of reporting, or there's too many metrics to look at, too many reports that are accessible. I've worked on projects with customers where they've compiled lists of the reports that store managers get on a daily, weekly, or period basis, and they stack them up. Once they've done all that, they’re able to see that there's hundreds of pages of reporting for store managers to have to sift through. There's a lesson in all of this, which is the necessity to settle into the most important KPIs for business. What are the KPIs that align with the organization's foundations for success? Simplify those metrics and deliver them in a very concise fashion, and in a fashion that's consistent at all levels within the organization.
High risk of error. This is one that can be extremely frustrating for all kinds of companies, and retailers in particular. If a retailer is not delivering KPIs in an automated way -- not taking advantage of an analytics tool or a business intelligence tool ― and using it to produce automated dashboards and reporting. Retailers in this situation often have teams of analysts to generate reports on a weekly or period basis. Those are usually done in some desktop tool, like Microsoft Excel, and one of the things is dealing with risk of error in those reports.
If you're trying to performance manage your organization, and you’re delivering Excel reports, where a small error in a worksheet can ripple through the entire enterprise in terms of showing how each store is reporting -- that can cause a lot of distrust in performance management reports. A mistake once or twice can be gotten away with, but if it becomes a consistent or sporadic issue in the reporting, the field will not trust the information that they're trying to manage the business with. Again, the point of this is that this is seen quite often. In reality, to get over this, you must find a more automated process, where information is delivered consistently and without ― or with little ― human intervention.
In those situations where retailers are generating a lot of different reports or access to information is another pitfall we come across. If the same KPIs are reported on across different reports, and the values don't agree from report to report, the field leadership won’t know which report to look at to find out how they're truly performing.
A pure example of this is one report comes out and says to a store manager, "Hey, I spent 350 hours last week," and then another report comes out three weeks later and says, "No, you didn't. You spent 450 hours last week." It happens, it is something that retailers live through, and it becomes a key learning, which says, "Hey, make sure that when we're delivering KPIs to the field, there has to be one single source of the truth." If the same KPI is on multiple reports, make sure that the source for that information is the same. Quite often, one of the underlying causes of this is that a report might come out of, for example, the workforce management system. That report is built upon the information that the workforce management system has inside of it. Then another labor report might come out of the payroll team, and the payroll team is adjusting for accruals and other things that are true, but are presenting information in a different way to a store manager that has to go through and try to decipher why the numbers are different. Deliver KPIs that are understandable, that the field can believe and trust in.
Shifting criteria for success. This is one that hopefully you're not living through, but is often an issue. An organization decides what the key KPIs are that store managers need to focus on. For example, retailers may put out a mandate that says, "Hey, all store managers are receiving an hours budget, so let's be diligent about achieving against that hours budget." Retailers will shift that criteria for success, meaning that for the first three months of a fiscal year, they may say, "Hey, let's stick to our hours budget," but then come the next three months of the year, they may shift that and say, "Hey, let's now look at percent of sales. Percent of sales is our key labor metric. That's what we're going to stick to. Forget about managing to your hours budget."
This creates confusion across the field, and also a lot of work within the support center because now communications need to be adjusted, and the shift in success criteria must be clearly communicated across the organization. The message here is be consistent with KPIs, be consistent in what you're asking store managers to achieve, and plan for that. Plan upfront to say, "Hey, let's make sure the company is tied to the KPIs that we believe in," and then it takes a commitment to those to say, "Hey, this is what we're going to stick to as we manage our way through the fiscal year."
Managing to inverse metrics. This is a situation where store managers are asked to achieve on multiple metrics that they can't actually achieve successfully on all the time. An example of this is managing an hours budget and a percent of sales target. Store managers are told, "Hey, you can't exceed your hours budget, but we also want you to maintain a 10% of sales." If they have a good week and sales are up over what they were supposed to be, but they hit the hours number, but the percent of sales might be outside of a target range. Maybe the percent of sales is lower than what it’s hoped to be. In that situation, the store manager is set up for failure. Again, this goes back to how KPIs are planned and how consistent retailers are with them. Choose KPIs and targets that store managers can successfully achieve.
Too little accountability. This is one that I'm sure everyone knows very well in terms of how retailers hold the field to being accountable, but there are situations where that's not happening. When performance management programs are not in place or not enforced, they don't do what is expected. In a world of rising labor costs, accountability becomes extremely important. Once KPIs are designed, reports and delivery mechanisms are designed, that dashboard needs to be ingrained throughout all levels of the organization. The metrics that store managers are looking at managing day-to-day should be the same metrics that district managers are looking at, which should be the same ones that VPs and EVPs of operations are looking at.
If an executive walks into a store to hold the store manager accountable, it's as simple as saying, "Hey, how did you achieve on your dashboard? Let's take a look at your dashboard and see how you're doing." It's just enforcing, "Hey, there are the metrics that we have. These are the ones that you're being held accountable to," and having that executive-level come in and enforce that is extremely important to a good performance management program.
Those are some of the things that David and I see as we go out and talk to retailers. Hopefully, that provides some insight for you. I’d like to invite my colleague David to come on and provide some best practices for better labor management program.
Spofford: That's great. Thank you, Steve. We'll move on, and really think about some of those best practices.
So, you've heard the challenges. You've heard maybe what some of the opportunities are. In my experience there isn't a silver bullet that exists to flawlessly manage labor investment. However, there are some guiding principles or best practices that are worth sharing. Follow these to try and significantly increase the likelihood of your success.
Part of my job at Kronos is that I visit retailers and I always start with one question: Which metric do you rely on most to control labor and see labor in stores? Is it hours? Is it a dollar budget? Is percent of sales? The most common answer is: we use all three depending on what trading performance is like.
My history prior to Kronos has all been in retail ops, so I understand that, but if we look at them all in turn, if we think about labor as a percentage of sales as a metric, that's a flexible way to guide hiring headcounts, scheduling, and particularly comes into play when trading performance is strong. When sales are strong, it's a great one. The operators love it because as business goes up, they're able to spend more on labor, so it's great. It allows store managers to align the labor with the growing customer demand as those sales increase.
The real challenge with it begins when traffic starts to slow and sales start to slow down ― particularly when that happens unexpectedly. Then the stores struggle to contract the labor enough to get back in line with target.
Other retailers sometimes focus heavily on sales per labor hour. The SPLH metric, is interesting because it can be a useful indicator. If too much emphasis is put on that figure, it can cause managers to lose sight of the bigger picture. I recently visited a customer in the U.S., and spent the day with store managers. It became very apparent through this group of store managers that the one KPI they lived and died on ― it was bred into them ― was SPLH.
The first thing they did in the morning was get on the phone, look at the SPLH number for yesterday, and how it did for the week. While that's admirable and commendable, what disturbed me was that when you talked to them, they were in a mindset of, “the number's not good enough. What do I need to do when I get into work today to reduce labor? How can I reduce labor to get that number in line?” I understand that because of operational pressures, but they were looking at it the wrong way.
For me, it’s about saying, "What do I need to do to increase sales to get my SPLH number in line," not reduce labor because lots of retailers have a trading week of Sunday to Saturday, so by Wednesday, they start reducing labor. Thursday reduce a bit more, and then what they're doing is killing the golden goose because Saturday's often the busiest day, and we've taken labor out to get that SPHL number. So, while I understand it can be an important metric, it comes with a warning on it to be careful what you wish for because you'll get the SPLH number in line, but at what cost?
The best practice is really what's proven to work for the organization. However, I would say the commonality when you work with a lot of retailers, is that using an hours budget as a guiding metric seems to be transparent. It's a consistent and effective way to manage the labor at a store level and the field level, and really focus on allowing the corporate office to balance around the labor dollars, making sure those metrics line up. It ties back into what Steve said earlier about having a single version of the truth. I talk about that all the time, have a single version of the truth that exists through the organization.
If we think about managing labor hours as a general rule, that's fine. In my retail experience, I was always taught that there's four pillars out there: people, process, customers, and finance. But if you get the right people following the right processes, delighting customers, the financial result really follows. A good labor performance management program supports that with the emphasis particularly on process. In all my time in the field I've never yet met a store manager who said, "I have too much labor, boss. Would you like some back?" In fact, they typically want more labor, not less, to avoid understaffing. It could hurt sales, and it's understandable because retailers lose customers quickly when there aren’t enough store associates. The colleagues, they're not available to help them.
Before we get into hiring of new associates or scheduling more labor hours, store managers need to take a closer look at how the labor that already exists is used. You can do this in a number of ways, but essentially by analyzing some of the scheduling metrics such as schedule adherence and schedule effectiveness, you can identify areas for improvement. This helps to provide a better balance and spread of what is already in place. When a store manager used to ask me for more labor hours or more labor dollars, before I’d answer I’d say, "Let me see what you're doing with what you've already got before we decide if you want any more."
If we move onto looking at schedule adherence, this is often referred to by my customers as schedule compliance. Here's an example of understanding schedule adherence ― it’s a measure of how well a store is keeping to the established schedule that's been produced. It provides insight into the hours that are scheduled and worked, the hours worked but weren't scheduled, and the hours scheduled but not worked. So, when retail ops generate four custom schedules, the last thing they want is for those schedules to be ignored at the store level. Failing to keep an eye on schedule adherence often results in missed sales targets or labor overspends that could have been avoided. Good tracking of the compliance allows managers, and particularly field managers, to identify problematic patterns, take action, and update employees' availability ― or if need be, coach an individual associate, whatever it takes to keep results on track.
If we look at schedule effectiveness, however, and this is a slightly different metric, and the visualization looks at forecasted hours, scheduled hours, and in this example, under coverage. Given the massive impact of scheduling on both cost and the customer experience, a manager needs to be able to analyze coverage by the day and by the hour, to determine where they're overstaffed or understaffed. Again, coming back to how well are you using the labor you've already been given.
Using analytics we can compare current scheduled forecasted labor hours by week. We've got analytics solutions that allow you to drill down by specific time of day, with data summarized as either percentage or number of hours over or under target. This kind of insight gives store managers and field managers the ability to spot trends and make staffing adjustments to try and avoid overspending the labor budget, or missing the sales targets due to poor coverage. Therefore, always look to get the maximum benefit from the existing labor that's available.
To keep with that theme, there is something that I call “mow-the-grass,” and this is just something we've used with a number of retailers. It's simple, but it resonates because it's so easy to interpret. What you see in the green is actual hours worked. In this example, it's broken down as a 15-minute level of granularity. The blue line is the actual customers, and that's why you can now adjust to the actual traffic to the store. When we talk about mowing the grass, it is absolutely about shaving off that overstaffing in grain, or over coverage in grain, and filling those gaps where customer footfall is falling short of the hours that are available.
As I said, easy to interpret. In this example, you can see traffic, you can look at actual hours worked. This is broken down by the 15-minute level of granularity, so analyzing here at the 15-minute grain. Really easy here to allow managers to pinpoint opportunities about how they can deploy the labor they already have. They already have this labor ― this isn't incremental spend ― this is labor they've already got, and to try and match that more fluctuating demand throughout the day. We could break this down by week or day level.
Another topic that comes up a lot, and I would say of all the customers that I work with, wherever they are in the world, this is one of the top questions that comes up is about understanding unplanned absence. It's a cost to a business. Getting to grips with it isn't always that easy because it's often at high cost and often seen as a hidden cost.
We all know the scenario. Someone ― a colleague, an associate ― is scheduled to come in, and for whatever reason, they let you down. Having the ability to track unplanned absenteeism and its impact on costs and services, and servership, allows managers to take steps to get to the problem resolved.
If the analysis then covers repeat offenders, managers can coach those associates, and if necessary, put them on a performance improvement program or an API. Human resources may need to help with that. If unplanned absences are high at a particular store or region, district managers can work with the local managers to address the issue, identify patterns of absence or trends ― this is a classic where the 80/20 rule applies. You get 80% of your problems coming from 20% of stores. When we go a level down, we see 80% of those problems coming from 20% of the employees. So, being able to get down to the employee level is really important.
Again, in my experience, most companies, organizations, retailers, have good absence management policies in place, things like return to work interviews. There is what I call a toolkit ― you'll all have toolkits in your toolbox. The problem arises when the store managers aren't using those tools that they’ve been given to try and enforce those policies. If you look at this example, looking at unplanned absence versus scheduled hours, one of the things we call the outliers ― you can see this one store 4150, and store 4150 was losing 6.5% of their hours to unplanned absence.
Going back to store managers always asking for more labor, I'd take a guess that any store manager would be happy if I said to them, "Do you want a 6.5% increase in labor for free?" Any retailer would take that. There's a lot of debate about what the industry standard is. Of course, we're realists. Of course, we understand you will never eradicate unplanned absence, but the chat around the industry is that anything under 3% is a good result. Again, how many of you are going out and increasing labor by 3.5% or more this year? It's about getting to grips with those opportunities.
If you think about what I call the Good Job, what a good job looks like. Setting the Good Job standard for a good performance management starts with breaking out and trying to group those metrics into three key areas around labor hours, scheduling, and performance.
Retailers have a need to keep the reporting formats and data consistent at all levels. I know it's boring to be repetitive, but always coming back to this single version of the truth. That's one thing that you see time and time again interacting with customers, we look and see the VP is looking at this report, the regional director is looking at this report, the district management is looking at this report, the store manager is looking at this report, and getting that single version of the truth is really crucial. Then you have the organization making decisions based on one single version, which is really important.
So, sticking with what a good job looks like, if we think about labor hours, managing labor hours is all about making things happen, taking a proactive approach rather than a reactive approach and wondering what happened. However, if you think about taking control and making proactive decisions, retailers need visibility into which stores work within the budget and forecast and which don’t. In retail, it's all about who are the golden children, who are the problem children, and being able to spot those outliers. Who is delivering a great job and understanding what's driving that great job, and those who are really bringing up the rear.
Which stores overspend their labor budget, and if they are overspending, is that driving sales and conversion? There might be good reasons for overspend. Which stores under utilize the labor budget? How does that affect performance? We've all met the store managers, and we say they're great people, they never overspend, and so they always deliver a savings. Yet again, at what cost is that coming through to the business?
When we look at scheduling metrics, they help measure that compliance across the organization, assess the impact at regional district store levels. Additionally, scheduling metrics can be used to gain insight around deployment, the effectiveness in sales performance, helping retailers understand how much bang they're getting to labor bucks.
Sticking with scheduling, when we look at coverage, we look at our forecast. We look at a forecast at the 15-minute level of granularity by the job, and then we look at the scheduling at the 15-minute of granularity, also by the job, and look at the mismatch. If you've got under coverage, you might have a forecast that says, "We need to schedule four people on the checkouts or the tills or the registers at 10 am, but we've actually only scheduled two." That would result in under coverage. If we'd schedule six, it would result in over coverage, so that's a very granular level around coverage.
If then you look at the mow-the-grass chart from earlier, that takes a slightly more holistic view and certainly easy to explain to people because that's about share of hours deployed versus what's happening in the store. Whether you look at share of sales, transactions, or traffic.
Just finishing up around performance. Retailers need to start with the sales versus the budget and the sales versus forecast. That drives the foundational understanding of the relationship between labor and performance because it all starts with the forecast. You can gain further insight by adding in such metrics as: ATV, average transaction value, often known at ADT in the U.S., as average dollar transaction, and patrons per transaction, the conversion rate ― which personally I still see as biggest influence of sales because that's something you can articulate to anybody if you've got this much foot flow through your doors, and you're converting 30 out of every 100 customers who are coming through, and if the average transaction value is, let's say, $20, if you convert another two per hour, that is actually another $40 per hour you're going to get. It's simple to translate, and it's easy to action, making it consumable by the store manager.
Increasingly, we also see customers talking -- particularly in service assisted environments in retail -- about looking at a customer-to-staff ratio as well. That's probably a bit more of an emerging or becoming a more popular metric.
Skorupa: Thank you, David, and yes, I definitely intend to send over some hot button questions before the panel discussion is over. We're entering our panel discussion period here, and some questions are coming in from the listeners.
As we look at the key points that we're covering, I want to ask Steve about performance management. Steve, you brought up that concept, I know performance management is a broad concept. It can include employee performance management, department performance management, company performance management. So tell us the context in which you were using performance management, why that's a key and important point for us to bring up today.
Strohecker: Actually, that's a great question. It's funny when you talk to different people in the industry about performance management, sometimes they have a tendency to interpret it a different way. An HR professional might think of it as an individual performance, whereas an operator might think of it as overall store performance. In our context today, we're referring to how to performance manage your labor expense? Everything that we talked about is really managing it from the store level up. Clearly, there's individual employee performance ― adhering to the schedule that they're being asked to work, showing up on time ― but really, conceptually, what we're talking about is how does an organization performance manage their labor dollars?
Skorupa: Labor dollars, that's a good way to get specific on that. Let me follow up with another question. You were talking about the importance of using leading metrics as opposed to lagging metrics. I was wondering if a lot of those leading metrics are really seasonal or promotional, or things that are under the control of the retailer, depending on what the segment is, but they know when their seasons are shifting and when traffic is going to be rising because of that seasonality. It could be a holiday. It doesn't have to be an actual weather season, it could be a holiday, or something that's neither a season nor a holiday, but a promotional effect. So, how do you identify those and use those for your performance management?
Strohecker: Another great question. Lagging indicators for labor management expense are critical. They're going to show you how you did in the past, but you can't control what you did in the past. So that's why leading indicators become an important part of performance managing labor expense.
With respect to seasonality, seasonality is going to play a role in the particular metrics that you're using to control your business. If future schedule cost is a labor metric that is used in the performance management program, that's definitely going to have to adjust seasonally. Most retailers, when planning labor, plan for seasonal fluctuations, and in some cases, they even pre-plan for it -- meaning they're front-loading labor spend in advance of the season to make sure that they can handle things such as more inventory that's coming into the store. There's more logistics that have to happen at the store level. Or maybe you're ramping up seasonal hires so that you have enough coverage during the seasonal timeframes.
If scheduled costs or scheduled hours is a leading indicator as an example, that's something that would have to fluctuate seasonally, you'd have to plan for it, both in your budget as well as in your performance management program. If budgeted hours is a KPI, then you need to look at how you're scheduling against that future budgeted labor hour expense.
Skorupa: That was an important point to dig into because I am a big fan of working with leading metrics rather than lagging, but that doesn't mean to ignore lagging metrics. You have to monitor those as well.
David, I want to go back to under coverage hours. We can understand the impact of over coverage hours. We can see that we're going to be out of compliance with the forecast. We can see that there's probably a dashboard metric that's blinking in red associated with that. But under coverage, that's a lot harder to measure because the forecast is calling for a type of coverage, but if the store is hitting its targets and sales targets, and it's associated with realistic traffic ― if we have those metrics, what are you looking at to determine what under coverage is?
The reason I ask is the famous example of Starbucks at the airport. If you're going on an early morning flight, and the Starbucks has under coverage and the line is out the door, and then people can't make their plane, they leave the line. They go to the next shop, whatever. You never really know what under coverage is producing, so how do you define that and discuss that and have a best practice associated with it?
Spofford: Thanks, Joe. I tried to touch on it a little bit, I think there's a couple of things. If you think about the example you gave, which is a good one of Starbucks, you're on the early morning flight. The line is out the door, and you think they've got to be under covered. There's a whole load of math and science that goes into driving a forecast here. It's not just a finger in the air. There's a whole load of modeling. There's historical data, there are special events, and all of those things, so really the forecast becomes the Holy Grail from that point of view. One of the things we look to measure always is forecast accuracy as well, which is a self-check. You've got to make sure you police the policeman almost.
If you take your forecast as being the Holy Grail, and then your forecast at labor level is at the job level. So if you look at Starbucks, as an example, there'll be a barista, somebody warming food, somebody on the register, and somebody clearing tables, I guess. There's maybe four jobs there. In a big DIY store, there will be maybe be 100 jobs, but we'll stick with Starbucks.
They will be able to forecast at the level of granularity they go to ― and if it's Kronos, it's 15 minutes ― what the labor requirements is by job, by 15 minutes, and if not by 15 minutes, rolled up to the hour. You can then see, when you overlay the schedule against the forecast, you can see that shortfall. You can see that it says I should have had five hours worth or five people doing the barista job at 6:30 am, but I only had two in this hour, or the forecast said I should have had five. So that's how you start to quantify this under coverage and over coverage, and the two aren't mutually exclusive. They don't cancel each other out. That's really what led to the mow-the-grass chart that we looked at earlier, where we can look at coverage in much more simple terms, just transactions or footfall versus hours deployed because it's easier to articulate.
Actually, if you want to get into the science, looking at schedule effectiveness and understanding the under coverage and over coverage gets down in the weeds about understanding where you are. We talked about leading metrics and lagging metrics, so the leading is looking ahead. This is the forecast. This is the schedule. We can also use it in the lagging metric to look backwards and say, "This is what we planned to happen, and this is what actually happened." Again, it becomes that check of the forecast to see how well did we do and did things turn out the way we wanted them to.
In summary, you're looking at the forecast by job at a low-level of granularity and overlaying the schedule there, and that's really where we can start to quantify that under coverage and under coverage.
Skorupa: You led into another area I wanted to talk to you about, which is the unplanned absences area, which seems to me something that is chaotic to control. In other words, it's something that, well, the very term unplanned means that they're not planned, so getting a handle on that. I believe you suggested coaching, identifying the ones that have a particularly high level of it as opposed to those that seem to be within compliance, that might even be an 80/20 rule there, that 20% of the managers or the stores are providing 80% of the problem. But the unplanned absences would go a long way, if you could get control of it, to making sure you have the best customer experience and are achieving the best possible conversions in sales for those stores. Any more tips you can provide in that area would be helpful.
Spofford: I think it's a love of mine trying to delve into this and understand it because the ramifications of this in-store, depending on the size of the store, can be huge. In some cases, a store can't trade. It just locks them down. So really getting ahold of it is important. But what I think it uncovers is lots of issues. Actually what you can see is that there are examples where actually there is no absence. The reason we have absence, these unplanned absences about employee availability can be as simple as, "I've got to drop my kid off at the school bus, and the bus comes at 9:00, and I'm scheduled to start at 8:45. They won't change my schedule for me." Sometimes the interventions you have to make as a retailer or as a manager, as a leader of those people can be very simple, and that's where I refer to most great organizations.
Most retailers have good tools in the toolbox to help them manage absence, sitting down and saying, "Joe, do you realize that you've been late or you've missed a shift three times every Wednesday in the last two months?" And you'll pick out those trends and be able to spot those trends, what happened, where it happened, and when it happened, allow you to get, again, into the weeds of understanding it.
In my experience, we do see that 80% of the problems come out of 20% of the employees, and indeed 20% of the stores, but it's a hot topic. We'll never eradicate it. We'll never get rid of it, but getting it to an acceptable level, understanding those outliers and facing into them, facing into the challenge, can make a massive difference.
Skorupa: Well, that was a great answer to that question, and unfortunately, we are running out of time. I thought we had a great webinar, which could be summed up in a few ideas of concentrating on performance management strategy, using leading metrics, making sure reports are automated to reduce errors and increase the speed of the reports, focus on analytics, try to mow-the-grass, and trim overstaffing when compared to traffic, tackle the problem of unplanned absences by focusing on the outliers, and clearly, looking into each case to see if there's interventions that can help the problem, and have a 15-minute granularity of forecasting and coverage.
I want to thank our outstanding panel for the great insights into what is truly a timely and important topic. Steve, thanks for being here today and glad you could shed some light on it.
Strohecker: It's my pleasure. Thank you for having me on.
Skorupa: And David, thank you as well for providing some best practices and some key concrete steps that retailers can take to control their labor costs.
Spofford: Thanks, Joe, and like Steve, my pleasure. I really enjoyed it.
Skorupa: One more thank you, and that goes to all of our audience who was here today to join us. Please join us again for the next RIS web session, and have a great day.