Many retailers have hundreds, or even thousands, of labor standards contributing to their overall labor model. While best practice is to keep these measurements maintained on an annual basis, this can seem like a daunting task. Similarly, when operational belt-tightening is required, whether it be to reduce expenses or reinvest payroll into customer service, retailers sometimes find themselves boiling the ocean to identify productivity improvements amidst a sea of standards.
But not all standards are created equal. In fact, we often find that a select few of our clients’ labor standards are responsible for a large part of the weekly workload in a given job, department, or store. So, if you’re smart about how you focus your efforts, you have an opportunity to maintain your labor model and drive productivity growth with more precision and impact, and you can do it in less time than you might think possible.
In this blog, we’ll explore the benefits of applying the 80/20 rule (also known as the Pareto Principle) to your labor model. You’ll learn the concrete steps you can take for each group – the 80 and the 20 – to help you to sustain the accuracy of your work measurements and target the most impactful process efficiencies.
The Substantial Some
Pareto analysis is a decision-making technique, based on the 80/20 rule that statistically separates a limited number of input factors as having the greatest impact on an outcome. It was first introduced into popular business thinking in 1941 by Joseph M. Juran, an engineer and management consultant. He drew on the work of the Italian economist Vilfredo Pareto, who observed that 20% of the Italian population was responsible for 80% of the overall income. Applying this principle more broadly, Juran posited that most results in any situation are determined by only a small number of causes.
Across the retail landscape, we see plenty of evidence of this principle holding true. One prominent rule of thumb suggests that 80% of a company’s sales comes from the top 20% of their customers. Turning the rule into sound business strategy, most retailers these days have worked to better identify the characteristics that make up their top customers with the goal of finding and converting more like them. Some retailers believe that this approach produces a higher return and saves their marketing department the time and expense of chasing the more fickle, infrequent, and ultimately less profitable 80%.
Another common truism in retail is that 20% of inventory tends to make up 80% of storage capacity. For example, if top-selling items are stored in more accessible areas, whereas seasonal items are tucked further away in the backroom (if at all), this can greatly reduce stocking and replenishment workload. Axsium has helped many retailers develop better backroom spatial utilization and inventory management practices.
But we began this blog by talking about labor model optimization. So how can the 80/20 rule apply to managing your company’s labor standards and driving productivity growth?
Now more than ever, retailers are focused on customer experience and engagement. This means that associates should be spending more time on activities dedicated to selling and supporting the customer, while reducing the workload of your team’s non-customer-facing tasks.
At Axsium, we employ the Kaizen philosophy within our workforce productivity practice. When people think of Kaizen, they typically picture a major remodel of their current system in a short period of time. But in everyday life, Kaizen represents a culture where companies steadily observe and suggest modest improvements. And if the Pareto principle is applied to your labor model—where approximately 20% of your labor standards drive 80% of overall workload—then even a small improvement to these key processes can lead to meaningful cost-savings and productivity increases.
Our retail-based industrial engineers are intentionally focused on the activities that have the most potential for impact. For example, we recently observed that at one retailer, the single task of go-backs was taking an exorbitant amount of an average cashier’s time. While the established process for this retailer was meant to keep the front-end clear of clutter, the execution of that process greatly depended on the individual cashier’s perception of “clutter”, where some cashiers traveled to and from the sales floor several times per hour with only a few items at a time.
This practice resulted in excessive travel and led to insufficient coverage at the cash register at inopportune times. Axsium engineers proposed a straightforward recommendation: why not return items to the shelves only after a certain number of items have been accumulated? By adopting a threshold of two-dozen items, the retailer was able to redeploy nearly $2M annually into more customer-facing activities and improve their overall coverage of the front-end.
Process improvement does not always require major overhauls or heavy financial investment; it’s often as basic as focusing on where most of the work takes place and how to make that work simpler.
Likewise, this mantra can be applied to sustain the work measurements that make up your labor model. Maintaining labor standards can be a cumbersome undertaking, and while Axsium recommends that retailers examine one quarter of their labor standards each fiscal quarter, this work can sometimes be placed on the backburner in favor of more operationally pressing tasks.
However, given today’s fast-moving retail environment, ongoing deferred maintenance of your labor model can and will require a much more dramatic overhaul of your standards at some point in the future, not to mention the costs of inaccurate store allocations and schedules in the interim. So, when time and resources are limited, Axsium suggests retailers apply the 80/20 rule and target the labor standards that generate most of their average weekly hours for annual maintenance. The below graphic shows a typical grocery store labor model breakdown, based on a consolidation of common department-level tasks:
Opus, Axsium’s proprietary work-measurement tool, now features a built-in Pareto Analysis report that enables users to quickly identify the percentage of weekly workload each standard represents. By focusing on the 20% of labor standards that generate 80% of the labor hours, maintaining labor standards can become a much more manageable and impactful endeavor.
The Modest Many
In sticking with the Pareto principle, we’ve allocated at least 80% of this blog to the 20% of inputs that make the most overall impact. But by no means are we advocating that retailers merely forget about improving or maintaining the rest of their labor standards. Below are some simple ways to address the small army of standards that make up the remaining 20% of workload.
Every retailer has their unique approach to setting best methods, whether it be centrally managed and highly measured or outsourced to the field or store leaders. But regardless of intention, employees tend to develop their own routines to perform their assignments. While individualized routines are not inherently problematic—especially in a decentralized operating culture—processes without standard operating procedures (SOPs) can result in more waste.
A recommended approach to identifying process improvements for the tasks that make up the 20% of your workload is to observe and try to eliminate redundant or wasteful activities. They can range from excessive travel and waiting/idle time, to over-processing, and can be easily identified by listening to employees’ pain points about processes and incorporating them into SOPs.
Another way is through fresh eyes—something retail-based engineers at Axsium offer to clients who need a new outlook on existing procedures. By directly observing workers performing their full spectrum of tasks and capturing work sampling results, our engineers can both look for process inefficiencies and assess how much time is spent non-value-added tasks.
Engineered labor models can be highly detailed, and some go perhaps too far (at least for a retail setting). But when it comes to refreshing existing standards, we find that there is almost always an opportunity to simplify or consolidate, especially among the tasks that make up the bottom 20% of labor hours. For example, a retailer might have separate standards for stocking lemons vs. limes. But this brings up two important questions: 1) is there really a meaningful difference between these tasks; and 2) who really wants to maintain driver data at this level of granularity? Generally, it makes more sense to consolidate these into one stocking standard. By identifying “low-hanging fruit” like this, the time and effort required to maintain your labor model can decrease significantly.
Maintaining your labor model is essential to successfully and accurately predict the labor hours required in a given week. But as you know all too well, this can be a significant undertaking. If sustaining your labor standards is becoming too large or complex a responsibility for your operation, Axsium offers managed services for labor models built in or migrated to Opus. In addition, if you feel that your labor model has outlived its shelf-life, Axsium can perform a gap assessment and assist with remeasurement of your labor standards where needed. And remember, we can also help you study the tasks which contribute the most to your overall workload, and help you find and implement process improvements. Please reach out to Luke Muellerleile (firstname.lastname@example.org) or your Axsium sales representative to find out more.