WINNING CUSTOMER LOYALTY WITH A DEMAND-DRIVEN WORKFORCE

Transcription

1 White Paper WINNING CUSTOMER LOYALTY WITH A DEMAND-DRIVEN WORKFORCE Now more than ever, profitable retailing revolves around the performance of the retailer s largest controllable expense and most strategic asset its workforce. In the midst of the sea of change taking place in retail, there have been some constants, too. Retailers still strive to differentiate their offerings from their competitors. Differentiation strategies that used to focus on some combination of product offering and price-point are quickly becoming extinct. Increasingly, the only battleground left is the war for customer loyalty. And it s here that today s retailers face the great catch-22 of modern retailing: In order to drive customer loyalty, I not only need the right product offering at competitive prices, but I also need to increase customer satisfaction while maintaining control of operating costs. While retail has always been, by definition, service-oriented and customer-focused, the fact is that now more than ever, profitable retailing revolves around the performance of the retailer s largest controllable expense and most strategic asset its employee workforce. Demand-Driven Workforce ManagementTM gives retailers the means to leverage this strategic asset and improve store profitability. By balancing all the demands that impact your workforce from corporate headquarters, customers, employee preferences, and production needs retailers can streamline operations to more closely align labor costs with fluctuations in this demand. And aligning the workforce more closely with demand is essential for increasing customer loyalty and gaining market share over your competitors. SPONSORED BY: An RIS White Paper

2 White Paper...workforce management technology improves how our associates spend their time... we can be assured that our associates are focusing on the highest value tasks such as helping our customers find the products and services that best fit their needs." David Zinman, Vice President of Corporate Operations at Best Buy Canada Ltd. DEMAND-DRIVEN WORKFORCE MANAGEMENT Profitable retailing involves a careful balance between delivering a superior customer experience that drives loyalty and minimizing store labor costs. Creating this balance is made complicated by the many demands that impact your store workforce. The primary sources of this demand on store operations can be grouped into four categories corporate demand, customer demand, employee demand, and production demand. As always, it s the store associate team that is ultimately responsible for balancing these demand streams to ensure the quality of their customers shopping experience. When demand from any source is unplanned or unexpected, execution becomes reactive, inconsistent, and potentially ineffective. But when all forms of demand are anticipated and aligned with the Workforce acquisition who s minding the store? More often than not, it s a new employee. Low rates of employee retention are a primary driver of store-level workforce costs for recruiting, training, and management. But the biggest cost of all is the cost of opportunity lost due to dissatisfied customers. While turnover of hourly employees is a fact of life in retail, it happens to be highly dependent on the type of employee hired. Automating and standardizing the decision-making process for new employee hires and thereby hiring the right employee for the right job at the right time results in higher levels of employee satisfaction and retention. Optimization of workforce acquisition can be achieved through solutions that standardize and automate the recruiting process by objectively evaluating each applicant s qualifications against defined job skill criteria. This not only reduces employee-related costs, but also results in higher service levels and overall customer satisfaction. workforce, store operations are optimized for maximum performance. Think of this as demanddriven workforce management. DEMAND-DRIVEN WORKFORCE MANAGEMENT IS FOCUSED ON HELPING RETAILERS ACHIEVE THREE PRIMARY OBJECTIVES: Focus on the customer experience: It s been said that it is cheaper to keep the customers you have than it is to acquire new ones. Now more than ever, customers need a reason to not take their business somewhere else. The quickest path to better performance is to positively impact the customer experience. This not only drives loyalty but also your store s average transaction amount. Satisfied customers buy more and shop more frequently. And the more a customer buys, the less your fixed costs take out of gross profit. Drive efficiencies to improve store productivity: The combination of revenue growth and cost reduction is a magic bullet. When costs decrease as a percentage of sales, profitability increases and provides fuel for further investment. Effective productivity initiatives are essential to any strategy that attempts to level (or change) the competitive playing field. Align and standardize store operations to achieve bottom-line results: Retailers need to effectively leverage the store s data-rich environment to create a Demand-Driven Workforce Management process. This means anticipating and optimizing demand from all sources, and providing managers with access to real-time visibility and control. Implementation of a demanddriven workforce management process across all stores will align your workforce to deliver on the critical objectives of store productivity and customer service. This paper will reveal how a demand-driven workforce management solution can help retailers achieve these objectives through an integrated process that supports business planning, labor allocation, store execution, and performance analysis. 2

3 INCREASING PERFORMANCE THROUGH DEMAND-DRIVEN WORKFORCE MANAGEMENT Demand-Driven Workforce Management provides a framework to improve store operations by: Automating employee-centric processes Standardizing productivity measurement and improvement Optimizing store labor This framework is built around the requirement that store managers must have sufficient visibility into the demands on operations and labor performance to make better business decisions. The demands on operations that impact labor performance can be categorized into four general categories corporate, customer, employee, and production demand. Regardless of the method used in your stores today whether it s all manual, or partially or fully automated a look at the workforce management process from the demand perspective identifies opportunities to increase visibility and business performance at every step. CORPORATE DEMAND: PLAN VERSUS ACTUAL IF IT S NOT PLANNED WELL, IT PROBABLY WON T HAPPEN Corporate demand takes many shapes, but increasingly there are two common objectives: Achieve (or exceed) budgeted sales and labor performance, and ensure a consistent store experience by executing on all programs and policies. Addressing these corporate-driven demands carries the benefit of more closely aligning corporate planning with store-level execution. Imagine an optimized store process that accurately determines everything from Monday replenishment hours to Saturday cashier requirements. Labor utilization and allocation are precisely calculated based on finely tuned labor standards that account for store characteristics, customer traffic patterns, and an overall business profile. Sounds good, right? It should this is a demand-driven forecast of sales and labor. But when this same methodology is not leveraged during the annual budget cycle there is disconnect. The potential is significant and can have a dramatic impact: Corporate management sets financial objectives from the top down, and the stores are left to reconcile that Store budget to their bottom-up demand-driven forecast. Standardization of budgeting and workforce management across an integrated demand-oriented framework ensures that budgets are first and foremost reality-based, including the same demand streams and metrics that the stores (in this example) depend on for good scheduling. This solves two problems: Any budget disconnect between managers at corporate and store-level is eliminated, and the overall accuracy of the budget is improved. CUSTOMER DEMAND: YOU DON T KNOW WHAT YOU DON T KNOW Does demand for customer service in your stores vary dramatically by time and location? The foundation of a demand-driven strategy is a thorough understanding of the individual workforce drivers that impact store productivity. Knowledge of these workforce drivers and their relationship to corporate, production, and customer service demands enables development of accurate labor standards for converting driver data into a forecast of required labor. Although many workforce drivers and labor standards will be common across an enterprise, it s just as common that no two stores will be exactly alike. And any variances in operating environment can severely affect true store productivity. A good example of this is self-service POS. Industry adoption is widespread at 30 percent and growing, but for many, ROI has been difficult to quantify and measure because cost savings 3

4 White Paper are entirely dependent on customer-usage patterns. These usage patterns vary significantly on a store-bystore basis, and also by day of week, time of day, and time of year. (In fact, the 2005 RIS Gartner Retail Technology study surveyed retailers on rapid ROI technology initiatives self-service POS finished last.) The common approach to figuring labor-savings ROI for technology such as self-service POS is to estimate the impact of the technology on productivity and to adjust the labor standards of all stores accordingly. While this cookie-cutter approach may be quick and will inevitably result in fewer hours scheduled, it s far from accurate. When it comes to workforce management, self-service POS needs to be treated like any other department in the store an independent business unit with its own shopping patterns and staffing needs. By using advanced forecasting tools that allow the definition, tracking, and forecasting of drivers as independent elements that roll up to a department and store totals (e.g., POS terminal groups, transaction tender, product class, etc.), customer-demand data is leveraged toward better service precisely where and when it s needed at lower cost. The benefit: This approach is responsive to actual customer demand on a store-by-store basis, and it self-corrects by reacting to changes over time. EMPLOYEE DEMAND: A HAPPIER WORKFORCE MAKES FOR HAPPIER CUSTOMERS How effective are you when you don t want to be at work? Having the right person in the right place at the right time is a great start. But if an associate had hoped not to be there in the first place, the probability of obtaining acceptable service levels for the shift if the employee shows up at all are sharply diminished. Of the many factors that can potentially impact employee productivity, perhaps the most commonly overlooked are employee work/life preferences. Employee requests for time off used to be a relatively simple matter. However, such requests are now frequently complicated by decreased overall associate availability and the need for many associates to work in multiple jobs, departments, and/or locations. Implementing automated processes that allow each employee to request preferred work-week scenarios for total hours scheduled, availability, and job assignments sends a strong message to the workforce: Your satisfaction matters to us it s critical to the success of our business and the satisfaction of our customers. PRODUCTION DEMAND: 15-MINUTE AND CROSS-JOB SCHEDULING I have two hours of work that needs to get done but my minimum shift length is four hours. Many retailers perceive optimized scheduling as their greatest opportunity for labor savings and rightly so yet it can be the hardest area to quantify, since scheduling is so dependent on the dynamic state of each individual store s environment. In an effort to ensure production and sales-floor coverage across the store and meet necessary requirements such as employee availability, legal shift durations, break placements, and shift start/end times, retailers often end up The path to optimization so many possible schedules, so little time Of all the possible solutions, how does a scheduling engine find an optimal solution without evaluating every possibility? First-generation scheduling systems were shift-based first calculating a set of shifts to meet demand and then attempting to find employees with skills and availability to work them. Today, innovative retail scheduling technology uses advanced heuristics to simultaneously determine optimal coverage and employee assignment for each store while balancing the influences of many other variables, including skills, seniority, availability, cost, and even individual employee work/life preferences. The biggest challenge to programmatically solving for an optimal schedule is to ensure that the engine delivers the best possible overall coverage, puts the top performers on the floor at the busiest times, and doesn't require a supercomputer to finish the job on time. To do this, the engine needs to figure out where to start. The answer is simple start with the most difficult time of week to schedule. For example, you may think that the most difficult time to schedule your store is on Saturday afternoon at 2:00 p.m. when you need 14 associates. But since you actually have 20 available, it may not actually be the most difficult time to schedule. The most difficult time might be on Tuesday morning at 9:15 a.m. when you need four associates but you only have five available. By starting here and then iteratively finding the hardest point to schedule, advanced optimization engines quickly learn the right path to the optimal schedule. The result is higher performance, increased scalability, and most important, a better schedule. 4

5 SCHEDULING GRANULARITY (30 minute versus 15 minute scheduling) Workload Demand Ideal labor 30 minute scheduling 15 minute scheduling 12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM Time of Day Total hours scheduled Ideal labor minute scheduling minute scheduling Variables Average cost per hour of labor $10.00 Number of stores 100 Days open a year 360 Percent improvement from 30 minute to 15 minute starts: 3% Annual labor savings: $3,924,000 adding unnecessary labor costs to their operations by over-scheduling. Over-scheduling occurs when any part of a store schedule results in employee capacity exceeding demand. There can be many causes for this, including inaccurate labor forecasting and habitual manual scheduling practices. However, the two most frequent causes are 30-minute schedule granularity and the inability to optimize employees across multiple departments. Scheduling granularity is the level of detail at which employees are scheduled. With almost all manual and many automated systems, 30-minute granularity (each shift starting or ending at :00 or :30) is the norm. Although the potential payback here can easily exceed one percent of labor costs, taking scheduling to the 15- minute level provides additional opportunities for better workforce utilization. Let s look at the numbers: In a 30-minute scheduling environment, a store that operates 9:00 a.m. to 10:00 p.m. has 26 possible start and end times for shifts and breaks. If the duration of a legal shift is between four and eight hours, the nine possible legal shifts result in a total of 135 potential shifts from which a schedule can be created. In a 15-minute environment, these constraints increase to 52 possible start/end times, 17 legal shifts, and 297 potential shifts. The lower level of granularity exponentially increases scheduling flexibility, which opens the door to better optimization. The result is a schedule that uses fewer hours, more closely matches business and customer demand, and provides maximum service at minimum cost. The benefit of 15-minute schedule granularity is even further enhanced when it is used in scheduling employees across multiple jobs and departments. In environments where employees are capable of working multiple jobs, the retailer can potentially cover more of its operating needs with fewer employees. However, employees who work multiple jobs often work in different departments or locations for managers who write separate schedules, so an employee may end up scheduled for a minimum shift in both departments when a combined shift across both departments would have been far more efficient. Advanced scheduling technology that automates 15- minute scheduling of employees across multiple jobs and departments takes the heavy lifting out of store scheduling and enables optimization of the workforce to production demand across the whole store. [Our employees] are the people who create the customer experience at our stores, which leads to our success. So, if we can find a way for our managers to find an extra 45 minutes in their day to focus on exceeding customer expectations or to go home on time, we will do it. Rich Kuipers, Senior Vice President, Store Operations at Discount Tire Company 5

6 White Paper CLOSE THE LOOP ON PRODUCTIVITY The essential question to continuous process improvement: What actually happened? As much you depend on your managers to maintain store operations and service levels, their value to the organization ultimately depends on their ability to make good business decisions which more often than not depends on the availability of real-time performance data. Time and attendance has long been viewed as just part of the payroll process, but by leveraging the timeclock and calculation of hours worked, Enforcement of schedules Pay employees for time actually worked Restricting punches at the clock allows retailers to strictly enforce schedules by preventing early or late punches from inflating actual hours worked. This practice is most common in environments where employee schedules have varying start/stop times and shift lengths, and the schedules are generated based on detailed business and labor forecasts. The high degree of accountability for managing actual hours worked against hours forecasted and scheduled underscores the substantial benefits of schedule enforcement at the clock. For large retailers, this practice can amount to significant annual savings. In fact, schedule enforcement is frequently cited as a primary ROI driver, as full project ROI is often realized in less than one year. In a report on retail workforce management, AMR Research states: Integration between time and attendance and scheduling can save significant labor costs. One grocer saved $300 per week per store more than $1 million in savings per year by enforcing labor schedules through an integrated time and attendance system. The savings accumulated by preventing early punches, a minor leakage that store managers had allowed. 1 retailers can automate and streamline repetitive processes and improve visibility into productivity, resulting in reduced costs, increased productivity, and empowered managers who are able to make better decisions. For example, managers know that as difficult as it can be to manually create next week s store schedule, it s often even harder just to manage the one on the wall. When an employee calls in and says he can t make it in for a scheduled shift, a manager using manual systems has much to do: update the schedule to indicate the call-in, update the timecard to record the absence, and most important, find a replacement to ensure proper coverage. When scheduling and timekeeping are integrated, the manager s responsibilities are consolidated into a single edit. An automated system ensures that the schedule and the employee s timecard are always in synch. The same system also simplifies the manager s dilemma by identifying the best replacement based on skill, availability, and actual hours worked. The payment of unauthorized work time, or payroll inflation, remains a primary source of unproductive labor costs and is another issue that can benefit from the integration of timekeeping and scheduling. Payroll inflation occurs for a simple reason: It s against the law to pay an employee for fewer hours than are recorded on his timecard. Since employee-punch transactions are typically rounded to the nearest eighth- or quarter-hour, employees who clock in a little too early or clock out a little too late effectively add hours to their paychecks. This problem is eliminated when timekeeping and scheduling systems are integrated. This way, the terminal collecting actual employee punches knows the time each employee is scheduled to begin and end a shift and will restrict any punch that falls outside the shift. An additional benefit of this functionality is the ability to strictly enforce applicable minor labor laws. The potential violation of labor laws related to minor employees has been a big problem for retailers to solve over the past several years. Restricting punches at the clock ensures that no minor employees are working more than their allowable hours. 1 Robert Garf, Lindsey Sodano, and Greg Girard, Stretched Store Operations Find Relief with Workforce Management, April 10,

7 "[Workforce management] solutions allow us to standardize and automate our employee-centric processes across all stores. The benefits that we have recognized from these solutions on the front-end of our stores convinced us that we needed to leverage them at other points of customer contact as well." - Bill Homa, Chief Information Officer at Hannaford Bros. Co. PUT REAL-TIME INFORMATION IN THE HANDS OF DECISION MAKERS Make real-time decisions with real-time data. Weather, call-ins, promotions store managers need to react to a myriad of changes that affect the demand streams in their environment every day. These managers make decisions based on their experience, their intuition, and the knowledge they have at their fingertips. Analytics and decision-support tools convert demand and performance information into actionable data that helps managers make better decisions. This ability of a software package to analyze data almost as quickly as it enters the system is called real-time performance. The data is transformed into configurable reports, key performance indicators, intelligent suggestions, and exception-based alerts that isolate the critical information for managers from a sea of current data, historical data, and corporate standards. Store managers are then focused on the relevant information that identifies issues and assists with the decision-making process for the day-to-day operation of their stores. As a result, more time is spent on issue resolution rather than sifting through data. The value of real-time performance to store management is in two areas. First is the ability for software to uncover new demand trends and alert managers long before major issues arise. The second area of value is that real-time availability of the data allows managers to respond immediately quickly correcting emerging issues rather than having to wait for the bad news from corporate (long after the window for making adjustments has closed). For example, a regional manager at a major bigbox chain receives alerts on a Wednesday that warn of actual labor costs as a percentage of sales are above budget in four stores. Through her management dashboard, she reviews the earned to actual labor trend and notices that as a group, her stores are only 85 percent effective for the week sales are off and labor has not been adjusted. Using advanced forecasting tools that support regional management and mid-week correction, she makes minor adjustments to the regional sales forecast, which updates labor for all stores. An to her store managers informs them to adjust schedule coverage for the remainder of the week accordingly. The workforce as a strategic resource: challenges and opportunities Organizational resources that provide high potential for strategic value are often coupled with a high cost and/or risk of deployment. This no pain/no gain principle applies to everything at the store level. From a cost perspective, commodities such as fixtures, utilities, and even most products are simply bought and sold. Truly strategic resources real estate, supply chain and POS infrastructure, the employee workforce are not so easily acquired, managed, or retired. When you think in terms of the value that all these resources deliver, there is a similar trend. Commodity resources are a fact of life. They are essential to business, but they rarely set you apart from your competitors. The impact of strategic resources, such as the employee workforce, extend far beyond maintenance of the sales floor and stockroom. They actually affect the entire operation, including product availability, quality of customer service, and ultimately overall business profitability. Management of strategic resources is further complicated by the distributed nature of the retail enterprise, which even at the best of times is more like many businesses than one. 7

8 White Paper CONCLUSION Labor costs have always been, still are, and will always be the retailer s largest controllable expense and this reality is only magnified by today s challenging market conditions. The underlying irony is that corporate and production demands do not contract proportionally with declining sales, nor does customer demand decrease if department staffing is scaled back. To succeed in this challenging environment, retailers need to achieve three main goals: Enhance the in-store experience to increase customer satisfaction and drive average purchase amount Level the competitive playing field by implementing effective productivity initiatives that streamline operations and reduce costs Leverage the store s data-rich environment to align store operations with all forms of demand and provide managers with real-time visibility and control Demand-Driven Workforce Management enables retailers to balance all the demands on their businesses corporate, customers, employees, and production demands through an integrated process that supports business planning, labor allocation, store execution, and performance analysis. The result is an improvement in customer loyalty and overall business performance regardless of current market conditions and a sustainable advantage over the competition. About Kronos Kronos Incorporated is the most trusted name in workforce management. Kronos helps organizations staff, develop, deploy, track, and reward their workforce, resulting in reduced costs, increased productivity, better decision making, improved employee satisfaction, and alignment with organizational objectives. More than 20 million people use a Kronos solution every day. Learn more about Kronos solutions at Kronos Incorporated 297 Billerica Road Chelmsford, MA (800) (978) , Kronos Incorporated. Kronos and the Kronos logo, are registered trademarks, and, Improving the Performance of People and Business and Demand-Driven Workforce Management are trademarks of Kronos Incorporated or a related company. All other product and company names mentioned are used for identification purposes only, and may be the trademarks of their respective owners. All specifications are subject to change. All rights reserved.