3 Ways to Fractionalize Labor Costs to Drive Profit

by | May 24, 2016

Recently, I was speaking with an Australian client who introduced the term “fractionalization” to me.  The concept is pretty simple: how do you maintain or decrease costs while increasing volume.  While Australian retailers like Woolworths (grocery) and Myer (department store) have relied on fractionalization and applied it to all aspects of their business, this client wanted to understand how fractionalization could be applied to labor costs, specifically.

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Fundamentally, the solution is all about increasing productivity.  How do you increase throughput (customers, transactions, items, cases, etc.) without increasing hours? There are three ways to fractionalize labor costs:

  1. Streamline processes.

It seems like every organization has undergone some form of process improvement.  So, I expect the reaction from some readers will be “been there, done that” and skip to the next bullet, but do not jump ahead too quickly.  I guarantee you that there is opportunity in your stores right now.

Watch how your associates work during peak times or during holiday seasons.  Associates will stop following standard operating procedures (SOPs) to deal with the high demand. They will skip or change steps to increase productivity.  They intentionally break process.  Sometimes this is a good thing, sometimes it is not, and, often, it depends upon your perspective.  For example, placing high demand items in a central location on palettes rather than constantly replenishing and re-facing shelves reduces stocking labor while making more product available to the customers.  But, does the adverse effect of clutter on the sales floor outweigh the benefit?

Observing stores at peak times helps identify processes that can be streamlined as well as those that should not.  Operationalize those that can be streamlined to help fractionalize costs, and coach associates on tasks that you want performed to SOP even at high volumes.

  1. Eliminate tasks.

While observing your stores operating at peak times looking for tasks that are being streamlined, you should ask yourself what tasks are not getting done at all?  As volumes increase, good managers and associates focus on getting the important work done while letting go of less important tasks. This natural prioritization is a great source of inspiration for task elimination.

Every retailer wants their associates to be selling.  However, you know that your managers and associates are asked to do much more than just sell.  In fact, retailers face an epidemic as selling time is eroded, while corporate puts more and more work on stores which has taken a larger percentage of time away from selling.  While every one of the non-selling tasks was put on the stores for a good reason, we need to constantly ask if they are necessary?

  1. Work harder.

When things are busy, associates pick up the pace. They scan more. They stock more. They sell more.  Their productivity increases because the customer demands it.  But, when things slow down, they slow down.  How do you keep your associates working at peak efficiency all of the time? The good news is that there is an answer.  The bad news is that the answer is not easy.

First, it requires the right level of staffing. This is a matter of balancing overstaffing and understaffing in your schedules.  Your scheduling system can help you strike that balance, but it relies on a tight labor model.  And, both your scheduling system and your labor model need constant tuning to stay in sync with your ever-changing business.  Second, it requires good managers.  Your managers are the most important people in the company.  They set the pace for your stores.  They detect idle time and find ways to keep associates productive, not just busy.  Third, it requires engaged associates.  Engaged associates work with purpose and are motivated to do the right things.  If they have time on their hands, they will find something productive to do.

Wrapping up, retail labor costs can be fractionalized, but there are only a few levers to pull. Deliberately pulling those levers is important.  Too often, retailers freeze or reduce payroll costs without telling their stores how to be more productive.  Knowing which levers you are pulling and communicating that to your stores will ensure your fractionalization is effective.

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