Bearing Point Workforce Efficiency


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Enhanced workforce efficiency offers a wide range of benefits – for example, improved working routines reduce time spent on non value-adding tasks, and when efficiency in scheduling is enhanced, stores can realize significant savings in payroll costs.

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Bearing Point Workforce Efficiency

  1. 1. Retail | Workforce efficiency Workforce efficiency— Improve your service level and productivity while reducing costsThis whitepaper In this white paperdiscusses the key Introduction 3enablers to enhance Goods flow 4workforce efficiency in Sales area tools and routines 6 Scheduling 8stores. BearingPoint experience 9 Management system 10 Conclusions 11 Contact persons 11Insight | White Paper
  2. 2. Enhanced workforce efficiency offers a wide range of benefits – for example, improved working routines reduce time spent on non value-adding tasks, and when efficiency in scheduling is enhanced, stores can realize significant savings in payroll costs.2 Insight | Perspective
  3. 3. IntroductionDemand-driven retailers want to provide high-quality customer service that reflects anddrives their strategy in the most cost-efficient way possible. Their employees are anessential part of this equation, given their impact on the overall customer experienceand their effect on sales. However, greater overall workforce efficiency is also a keyfactor given that the workforce accounts for a considerable share of a retailer’s costs.Enhanced workforce efficiency offers a wide range of benefits – for example, improvedworking routines reduce time spent on non value-adding tasks, and when efficiency inscheduling is enhanced, stores can realize significant savings in payroll costs.Having the ideal number of employees means that a store can reach its targeted servicelevel without being overstaffed. Ultimately, making sure that a store is operating withthe appropriate amount of personnel helps facilitate the delivery of a customer promiseat the required cost and service level. Enhanced workforce efficiency is thereforeessential not only for managing costs, but also for achieving strategic goals.A key starting point in enhancing workforce efficiency is to understand the considerableimpact of personnel costs on overall operating costs. In Western Europe, personnel costsmake up about half of a grocery retailer’s total operating costs (see Figure 1).Accordingly, by improving the balance between sales and costs, significant savings canbe achieved.Figure 1. Personnel costs of the largest retailers in Western Europe1 % 25 20% 20 4% 15 4% 10% 3% 10 5 0 Store Other Logistics General and Total personnel store costs costs* other operating costs administrative costs costs * Average retailer logistics cost as a percentage of companies turnovers from IGD Supply chain analysis databaseImproved workforce efficiency can be difficult to realize unless all the relevant factors Figure 2. Key elements of workforceaffecting it are taken into account. This whitepaper focuses on retail and discusses the efficiencykey enablers to enhance workforce efficiency in stores. The paper comprises four mainparts (see Figure 2) :1) Goods flow Management Goods system flow2) Sales areas tools and routines3) Scheduling Workforce efficiency4) Management system Sales area Scheduling tools and routines1. Company annual reports 2010, Institute of Grocery Distribution Supply-Chain analysis 2009, BearingPoint’s analysis 2011 Insight | White Paper 3
  4. 4. Retail | Workforce efficiency Goods flowFigure 3. Example of time spent per Workforce efficiency is highly driven by goods-flow routines in the store. The workforce iscategory at a Nordic mass- affected by goods-handling routines in the backroom and sales area as well as by themerchandizer2 amount of goods in the store. According to BearingPoint’s observations, overall goods- flow routines consume as much as 40 to 60 percent of a store’s total working hours, 2% 8% meaning that they are a significant part of the overall store routines and subsequently 9% its costs (see Figure 3). These routines can play an important role in reducing non value-adding time used to handle goods, while the amount of goods in the store 9% determine how much time is needed to process and organize the goods from delivery to shelf. The time that is freed through efficient goods-flow routines can be used to reduce 61% personnel costs or spent on other value-adding tasks that will drive sales and improve 11% the service level. Goods-receiving The efficiency of goods-receiving is not only dependent on the routines used in the store, Work related to goods flow but is also greatly affected by how the goods are delivered to the store. Because goods Customer service need to be quality-checked, in some cases counted and then ultimately distributed to Organizing the store the sales area, it is much faster to process them if they arrive in a store-friendly manner Breaks (for example, all goods for one department or one aisle are packed together, or pallets Price-tagging arrive as ready customer pallets). When goods are not received this way, additional work Other and time is spent on goods-handling, decreasing overall workforce efficiency. Therefore, it is important to analyze whether it is more cost-effective to add additional resources at the distribution center while reducing the number of personnel in stores or to do the opposite. The use of technology such as personal handheld computers (PDAs) can also decrease the time spent on goods receiving. With wireless technology, goods can be received in the enterprise resource planning (ERP) system simply by scanning the barcode attached to the roll-container or pallet. Automatically receiving goods in the ERP system is far more efficient than maintaining a log manually with pen and paper. Order in the backroom Backroom order is one of the most important factors in ensuring smooth goods-handling routines. All product groups need their own assigned space in the backroom, and all assigned spaces need to be clearly marked and labeled. Backroom order and proper labeling facilitates easy access to all items and reduces unnecessary time spent on searching for goods or removing goods from the backroom. Order and tidiness also have a positive impact on shrink and therefore reduce the time spent on shrink-handling routines. Similarly, in a messy backroom, goods are more prone to becoming damaged, and unnecessary time is used to locate the right items in the backroom (see Figure 4). Figure 4. Example of a disorganized and an orderly backroom A disorganized backroom increases non In an organized backroom, the goods are value- adding time spent on searching for easily accessed and easy to find. goods and may also hamper movement in the backroom. 2. BearingPoint’s analysis 20114 Insight | White Paper
  5. 5. In-store replenishmentFrom a goods-flow and workforce-efficiency perspective, the most important aspect of Figure 5. In-store replenishment timereplenishment relates to employee movement between the backroom and the sales for 10 delivery packagesarea. Replenishment routines must be designed in a way that reduces unnecessary 100%movement as much as possible. Especially in large stores, the movement time between 7% 84% 9%the backroom and the sales area can be significant. For example, the movement time ina large hypermarket can be, on average, 9 percent of the total replenishment time for aroll container that consists of 10 delivery packages3. This means that a single extra visit Replenishment Movement Extra visit Total timeto the backroom increases the movement time by up to 16 percent (see Figure 5). To time time to BRachieve efficient replenishment, it is therefore important to make sure that the goodsflow remains as simple as possible – the goods are replenished on the shelves andempties are thrown out (see Figure 6) in the most effective way possible. If goods need Figure 6. Replenishment processto be returned from the sales area to the backroom, or goods that are located on thesame shelf cannot be replenished at the same time, the procedure can probably be Goods-handling inimproved. the backroom Walking to the sales areaStock levels and orderingIn addition to the issues above, a store’s stock levels and ordering principles affect theworkforce efficiency. Having the right amount of goods in stock is the key to workforce Replenishing shelvesefficiency, as routines cannot be executed efficiently if there are too many or too fewgoods in the store. For example, excess stock results in non value-adding work throughunnecessary time spent on goods-handling both in the backroom and in the sales area. Collecting emptiesIn addition, stock values become more difficult to manage, backroom order is moredifficult to maintain and shrink increases, meaning that all stages of the goods flow are Walking to the backroomaffected negatively. Therefore, it is crucial to maintain efficient stock levels and manageordering principles effectively. Throwing away empties and handling returns3. BearingPoint’s projects and analysis 2011 Insight | White Paper 5
  6. 6. Retail | Workforce efficiency Sales-area tools and routines In addition to efficient backroom and goods-flow routines, it is important to make sure that the sales area operates as smoothly and efficiently as possible. Appropriate sales-area and checkout routines in combination with the right tools, offer significant potential for improved workforce efficiency. Retail-ready packaging (RRP) Retail-ready packaging refers to product packaging for retail goods that is ready to be placed on store shelves with little effort from store personnel. RRP has a major impact on workforce efficiency because it reduces total replenishment time. According to West Monroe’s studies4, the use of RRP reduces replenishment time by an average of 47 percent – a significant amount considering how much time is consumed for replenishment as a whole. RRP is widely used, but in many cases, it is not used to its full potential due to an unattractive appearance and lack of availability. If the RRP does not look appealing on the shelf, employees may be urged to unpack it. This, of course, harms workforce efficiency. In addition, some suppliers do not offer their products in RRP, limiting overall RRP utilization. Because RRP plays a key role in replenishment efficiency, it is therefore important to work together with suppliers to increase the availability of RRP. Packaging size, look and feel, and accessibility are all important factors to consider in RRP development. Attractive packaging can also enhance product appeal, leading to increased sales. According to studies by the Institute of Grocery Distribution (IGD)5, about 30 percent of consumers feel that RRP makes store shelves look more appealing. PDA utilization PDAs are used by store personnel at retailers in many parts of the world. They are important for workforce efficiency, since they reduce manual reordering and other paper-based routines and improve accuracy and reliability of store data. They can be used for various store operations such as inventory and cycle-counting, price-checking, stock-checking, printing price tags, ordering and receiving goods. PDAs are powerful tools in improving workforce efficiency and data accuracy. PDAs are used widely, but often not nearly enough to reach their full potential. To maximize the usage of PDAs, it is important to ensure the availability of the devices but also training in their use. In addition, the PDAs must be connected through a wireless network to the ERP system, so that the information available is always up to date and new information can be stored automatically. Each of these aspects is important for ensuring that PDA use actually reduces the total number of employee hours spent. 4. West Monroe benchmark 5. Institute of Grocery Distribution: International SRP Report 20066 Insight | White Paper
  7. 7. Cashier efficiencyCheckouts are also an important part of the sales area. Whether retailers have Figure 7. Service time step-by-steptraditional or other checkout models, it is crucial to understand how cashier efficiencycan be improved. It is also important to realize that the work of cashiers is an important Minimal time neededpart of the overall customer experience. Therefore, cashier efficiency improvements Greeting the for this step customershould always be tightly linked to service-level targets. Depends on: - Number of itemsCashier efficiency is driven by service time, which includes greeting the customer, Scanning items - Cashier scanningscanning the items and payment time (see Figure 7). Greeting the customer is an speedimportant part of high-quality customer service, although it plays a minor role from an Depends on: Paying - Payment methodefficiency perspective. The importance of this step should not be underestimated, as thecashiers may well be the only store personnel in direct contact with the customer. Whilescanning and payment do affect total service time and should be improved as much aspossible, an appropriate greeting and cashier attitude can increase the likelihood thatthe customer leaves with the right impression of the store and brand promise.To improve scanning time, it is important to have efficient routines in place, butscanning speed also plays a key role. These routines are easy to adjust, but scanningspeed depends more on cashier motivation. Surprisingly, although efficient cashier workis relatively straightforward, there are usually significant variations in scanning speedbetween cashiers. It is therefore important to motivate cashiers by measuring cashierperformance (for example, items scanned per minute or equivalent) and having rewardsystems in place.Cashiers’ work speed is also dependent on the server response time in card payments.According to BearingPoint’s project experience, server response time plays a key role inoverall cashier efficiency, meaning that when server response time is reduced, fewerpersonnel will be required at the checkout. For example, one of BearingPoint’s projectsconcluded that a 25-percent reduction in payment time would neutralize the effect ofremoving one cashier. A similar reduction in personnel would require a 50-percentimprovement in scanning speed.Correct scheduling can help stores maintain the appropriate number of cashiers atvarious times during the day, but in reality there will almost always be some dailyvariation in workload. Therefore, it is important for the cashiers to be flexible and able tocarry out other tasks when the number of customers is low. Similarly, sales personnelshould be able to help out at the checkout during peak hours. To achieve this flexibility,it is important to train employees to work with different tasks but also to know whenthese idle times and peak hours may occur. These factors should also be considered inthe scheduling process. A good example of benefits achieved from cashier scheduling isat Tesco, where improved cashier scheduling across Central Europe has led to a75-percent reduction in administration of schedules, a 20-percent reduction in idle timeat the till and a 20-percent increase in sign-in time6.6. Tesco, Deploying the Tesco Operating Model, 2011 Insight | White Paper 7
  8. 8. Retail | Workforce efficiency Scheduling Workforce efficiency can be improved and maintained through proper scheduling processes. With an improved schedule, stores are able to achieve improvements in productivity at the lowest possible labor cost. Costs can be reduced by allocating the right amount of labor hours to each task, while revenues can be increased by consistently meeting the target service level. When scheduling is improved, a store will have the appropriate number of employees with the right skill profiles for each task performed. Even if this seems self-evident, it is surprising how many retailers do not utilize scheduling to its fullest potential. Labor standards and workforce drivers To create an effective schedule, it is important to understand how much time is needed to perform a specific task. This can be determined through the development of labor standards. Labor standards facilitate standardization of store operations and are a way to communicate industry-leading practices to employees. All key store processes should be standardized. Without labor standards, there is a risk that not all employees are working effectively, leading to reduced productivity. In a retail chain, difficulties also arise when setting proper target hours for individual stores if the working methods used are completely different. In addition to how tasks should be performed (labor standards), the concept of “how much or when” is important. A variety of different workforce drivers affect the workload in each store, including the number of customers in the store, number of sold items and number of incoming deliveries. These workforce drivers may also vary from store to store or within a single store on a daily or a weekly level, meaning that schedules need to be adjusted based on the workforce drivers (for example, daily customer peaks or delivery schedules). Accordingly, all relevant workforce drivers must be considered if an appropriate schedule is to be developed. Sales per man-hour Sales per man-hour (SPM or SPMH) has become a key metric for scheduling and workforce efficiency. The SPM can be improved by developing more efficient routines (labor standards) and by taking into account the workforce drivers that affect the store’s service level and sales. Better working routines and operational improvements can help improve the SPM, but it is not enough to have an appropriate target if that target is not reached. Appropriate scheduling can make the difference. Creating an efficient schedule allows a store to maintain its SPM target, and following the schedule will help stores meet their SPM targets. Improved scheduling enhances the SPM without a negative impact on service level or store appearance. This means that, during scheduling, the objective should be to improve total sales. To realize this goal, the SPM should neither be too low nor too high. If the SPM is too low, the store is spending too many hours compared to its sales, meaning that too many labor hours are used in relation to the store’s sales volume. In contrast, if the SPM is too high, the store is selling very well with a relatively low number of labor hours but could have sold even more if labor hours had been higher. This factor is often forgotten in efforts to enhance workforce efficiency because too much time is spent studying the figures without understanding what is behind them.8 Insight | White Paper
  9. 9. Scheduling softwareWhen determining the ideal number of working hours, several factors in addition to Figure 8. Example of variables to belabor standards and workforce drivers should be considered. These include store considered in the scheduling processcharacteristics related to workforce requirements, customer profiles and expectations,and the activities of competing stores. Legislation and regulations, labor contracts, the LIMITING FACTORS: WORKFORCE FACTORS: Legislation Customer countavailability of employees and the availability of data required for scheduling also affect Contracts Number of sold items Employee availability Number of incomingefforts to enhance workforce efficiency. In addition, workforce drivers tend to fluctuate Data availability deliveriesin ways that cannot be adequately predicted (see Figure 8). The combination of all thesefactors makes workforce scheduling a challenging task that requires adequate attentionand proper tools. Scheduling process in storeWith the appropriate scheduling software, labor hours can be predicted, planned andreported. If the software is used effectively, retailers can realize savings in payroll costs Monthly scheduleand may be able to increase sales through improved service levels. Nevertheless, a newand sophisticated tool does not automatically mean enhancements in labor hours. Tobenefit from enhanced scheduling routines, it is important that the store’s labor RESULTS: Service levelstandards are based on industry-leading practices. If they are not, the scheduling Store appearance Salessoftware will be unable to calculate the actual need for employees, resulting in aschedule that includes an unnecessarily high number of hours. Similarly, if the laborstandards are developed but not followed, the schedule will be too tight, resulting in adeteriorating service level and unattractive store appearance. It is also important toobtain data for all other relevant workforce drivers; without this data, attempts toenhance workforce efficiency will not be successful.To achieve the benefits of scheduling software, retailers must invest sufficient time andeffort into the process. An experienced team will need to work on the development oflabor standards, and software support from the vendor must be available. In addition, itis vital to spend sufficient time on the rollout process and make sure that stores areoperating according to labor standards and staff have had adequate training in the useof the software. BearingPoint Experience A large specialty retailer in the Nordics was experiencing increasing personnel costs in relation to total sales. The main cause of this challenge was increased competition in the marketplace, resulting in reduced sales, and the stores had limited opportunities to adapt the workforce to suit customer flow. During workforce planning and scheduling, store managers relied primarily on their “gut feeling” – which became increasingly unreliable as the market changed. BearingPoint assisted the company in defining its critical workforce drivers and target levels, taking the limiting factors of the highly complex specialty-retailer environment into consideration. In this case, it was important to understand the intensity and variety of the stores’ customer encounters, which were more labor-intensive than those of general retailers. A special staffing and scheduling model was developed based on point-of-sales data combined with workforce drivers and limiting factors. BearingPoint implemented the new model in collaboration with the client and succeeded in reducing personnel cost in more than 100 stores by approximately 8 percent during a six-month period. BearingPoint also assisted the company in developing a workforce-planning support system which was based on the same logic as the staffing and scheduling model. In addition to cost reductions, the implemented model increased the store managers’ understanding of how to improve workforce efficiency. The managers now have a fact-based tool for enhancing workforce efficiency, balancing the service level and managing personnel costs. Insight | White Paper 9
  10. 10. Retail | Workforce efficiency Management system An efficient management system allows retailers to improve the way they plan, control and review everyday store performance to drive ongoing enhancement in sales and in delivery costs. Workforce management is a key part of this system. It involves tracking employees’ time and attendance, planning the store’s operations and scheduling the employees to do the work. Successful workforce management requires that all management-system elements are in place: clear roles and responsibilities, appropriate daily management routines, key performance indicators (KPIs) and reporting structure, and effective meetings. When these elements are missing, it is difficult for managers to know what employees are doing, when and for how long, and the result is that it is extremely difficult to manage the workforce effectively. These store-management system elements are discussed in more detail in the BearingPoint whitepaper “Key management elements to increase store performance”. As discussed above under Scheduling, the most important KPI in workforce efficiency is the SPM. From a management-system perspective, it is important to understand how to manage the SPM target. This target should be based on industry-leading labor standards and sales, but setting only one fixed target value can be problematic, as neither sales nor workforce drivers are completely stable and predictable, and some variation in the SPM will nearly always take place. Few retailers have considered this issue. Rather than setting a fixed target value, it is recommended that retailers set their SPM target as a range within which it is acceptable to operate. This will give store-management personnel clearer guidelines on when to take corrective actions. The use of an acceptable range for the target value will also make it easier for management personnel to decide whether to increase or decrease labor hours.10 Insight | White Paper
  11. 11. ConclusionsIn Western Europe, retailers face considerable personnel costs, so workforce efficiency isa vital factor for success. To avoid excessive costs related to labor hours, it is essential tohave the right number of employees working in stores. It is also important to realize thatenhanced workforce efficiency is not only a way to manage costs, but also a way toaffect the stores’ service levels.Workforce efficiency can be improved by implementing efficient working routines in thebackroom and sales area. It is important that all significant processes are defined andthat employees know what is expected from them. In addition, the use of a properscheduling system and planning routines is vital. Without them, it is much more difficultto predict the need for workforce and to prevent changes in labor hours from having anegative impact on the service level. A structured management system is also a key partof the equation, as it allows management personnel to plan activities and manageemployees. To achieve measurable results, it is important for these elements to work asa whole.Delivering value is a balancing act between controlling costs and driving sales whileensuring that all stores in the chain deliver a consistent customer experience.BearingPoint can help you achieve this objective by offering advice and help with allaspects of store efficiency.To learn more, read our other retail-related whitepapers:• Key management elements to increase store performance• Effective day-to-day category managementAuthorJari LaineSenior ManagerNordic Retail leaderjari.laine@bearingpointconsulting.comContact personsDenmark FinlandSune Vorre Jari LaineDenmark Retail leader Finland Retail jari.laine@bearingpointconsulting.comNorway SwedenRichard Carter David MagnussonNorway Retail leader Sweden Retail Insight | White Paper 11
  12. 12. We are BearingPoint.Management and Technology ConsultantsBearingPoint is an independent management and technology consultancy managed andowned by its Partners throughout Europe. Serving commercial, financial and publicservices clients, BearingPoint focuses on offering its clients the best possible value interms of tangible, measurable results by leveraging business and technology expertise.Its seamless cross-border approach, an entrepreneurial culture, long-standing relationswith reputable organisations, profound industry and functional knowledge as well assolutions customised to clients specific needs make the company a truly trusted adviser.BearingPoint has European roots, but operates with a global reach.To get there.© 2011 BearingPoint. All rights reserved. BENO11107Insight | White Paper