Creating an accurate labor budget each year is one of the toughest challenges facing operations and planning teams in retail organizations. Fluctuating demand, variations in labor availability and economic disruptions force retailers to react to avoid costs spiraling out of control. At the heart of any agile planning process is a high-quality labor model that allows retailers to understand the changing relationship between business demand and workload and adapts their strategy to control costs and maximize performance.
A labor model -- or staffing model -- uses simple mathematical rules to determine how much workload is required by your team to service business demand, usually expressed in sales or a volume measure such as transactions or foot traffic. Using a bottom-up data-driven approach, staffing requirements calculated this way removes guesswork in the planning process.
With a more precise way of determining labor demand, retailers can produce more accurate labor budgets, provide more actionable recommendations to store managers as well as model the impact of corporate strategy on staffing requirements into the future.
Here’s how developing an accurate labor model for your business can dramatically improve productivity and protect profits as well as tips for building or upgrading your own.
How Retailers Can Build an Accurate Labor Model
What is a labor model?
Let’s start with defining a labor model, which describes the relationship between business demand, such as sales or volume and labor demand, expressed in hours or wages. This relationship can be complex, especially in large organizations operating different store formats. A labor model includes the following:
- Demand drivers –- the source of business demand in your business such as sales, orders, or foot traffic
- Business characteristics –- parameters that impact staffing per store, such as store size, location, or layout
- Labor standards -– the time it takes your team to complete each task generated by the business demand
- Staffing requirements -– minimum, maximum, or statutory requirements for staffing that limit the range of staff required
By combining these factors, a labor model can help you calculate the workload required to meet your future demand, as well as the headcount required in the business to get the work done. While a labor model is a powerful tool for calculating workload, the accuracy of these predictions rests entirely on the quality of the model. For a labor model to be useful, it must be able to accurately represent the complex relationship between business demand and labor demand.
How to build your own labor model
Building a bottom-up, activity-based labor model is a significant investment in time and effort, but it can be well worth it, particularly if the business experiences fluctuating demand or has large numbers of staff scheduled per store. With labor representing the largest controllable cost in the business, having greater control over labor spend can lead to improved margins and better operating performance.
Here are the steps you should take to build an accurate labor model for your company.
1. First, map out processes and tasks
Start by listing all the processes and repeatable tasks your employees do during their shift. Organizing these tasks by store, department or job can categorize these for use later. Ensure you make several walkthroughs of the store during various times of the day over a period of a few weeks to ensure you’ve captured tasks that may occur less frequently.
For example, for a brick-and-mortar store, the checkout process might include greeting, scanning a customer’s purchases, taking their payment, placing items in bags, and preparing for the next customer.
Additionally, if your company offers an omnichannel shopping experience, you will need to map each task to the relevant sales channel. Sales taken online for pickup in store may be processed by different teams and have their own specific set of labor standards, or they may share some with traditional in store shopping.
2. Next, determine labor standards for each process and task
After you’ve listed all the processes and tasks that occur during your operations, calculate the labor standards for each –- the time it takes to complete each process and task. Depending on your capabilities in-house, you may enlist the skills of a qualified industrial engineer, who can conduct a time and motion study to record and validate each labor standard.
Alternatively, you could hire a consulting partner specializing in model design and time and motion studies, who can provide a set of benchmarks derived from industry average numbers for tasks commonly performed in your retail niche alongside your own measurements.
3. List the business characteristics for each labor standard
If you organized your list of processes and tasks by category in the first step, this task should go quickly. Look at each labor standard and list business characteristics to determine when it should be used.
For example, each store’s layout might determine how quickly stock personnel restock the shelves, unlock a delivery, or perform routine cleaning.
Having the business characteristics or site parameters listed for each standard will make building your model logic in the next step easier.
4. Finally, build your labor model
Once you’ve collected and organized your processes, labor standards, and business characteristics, you can begin to create your labor model. By using a labor planning solution, like UKG Strategic Workforce Planning, it will handle complex calculations that are required for your model.
Such a system will need to describe in logic when labor standards should apply and run the calculations to derive workload from demand drivers. Once the workload has been calculated, pay rates can be applied to generate a payroll estimate for use in labor budgeting.
Overcoming common challenges to creating a high-performing labor model
In addition to the complexity and scale involved in labor scheduling for retail operations, here are two common challenges retailers face when building their labor model.
- Over-engineering -- Take caution not to make your model overly complicated with too many labor standards and business characteristics. Using too many variables can make the resulting model more challenging to test or debug if issues arise and may increase the time it takes to generate an output at scale. Instead, use the minimum number of labor and business characteristics your model needs to achieve a level of accuracy the business can be comfortable with and iterate over time to avoid introducing errors.
- Misusing labor standards -- When a business first builds their labor model and defines their labor standards, they can fall into a trap of using labor standards that are not granular enough. This can happen when a business uses a single labor standard for the checkout process, rather than breaking the checkout process into its individual sub-processes, such as loading items, scanning, and payment.
Because the labor standards in use can vary based on site or department level characteristics, this can lead to significant errors when standards are applied across sites with different properties, such as layout, size or the number of entrances. By definition, a labor standard should be the same whenever it is applied, so to avoid errors ensure labor standards are broken down to their lowest level of granularity and ensure accurate time measurements are recorded for each.
Predict, adapt, and be resilient by using UKG Strategic Workforce Planning
Building an accurate labor model will empower your company to accurately predict headcount and product labor budgets that avoid both overstaffing and understaffing. With the recent acquisition of Quorbit, you can streamline your workload and increase your labor model’s accuracy within your current UKG workforce management (WFM) ecosystem.
Designed to serve the retail, hospitality, and logistics industries, UKG Strategic Workforce Planning employs artificial intelligence (AI) to optimize staffing decisions and support managers on the front line to hit their labor targets while aligning to the company strategy.
Additionally, this solution can align management across finance, HR, and operations through dashboards that display real-time staffing information, along with suggestions on what types of staff to hire, when and where you need them, and whether you need full-time, part-time, or temporary workers. It’s the single source of workforce truth across the business, keeping everyone informed.
Are you ready to build an accurate labor model that accurately predicts the optimum number of staff and the budget it will take to support them? Watch our webinar replay and discover what UKG Strategic Workforce Planning can do for your organization today.
Watch the webinar replay Predict, Adapt, and Be Resilient: Introducing UKG Strategic Workforce Planning to learn how UKG Strategic Workforce Planning can help you better anticipate and plan for your future business and staffing needs.
Get information about the UKG Strategic Workforce Planning product to learn how it can help you achieve a long-term view into your future staffing and business needs and prepare for any scenario.
Learn more about the UKG acquisition of Quorbit.