Reacting to Shifts in Demand
Like it or not, humans are creatures of habit. Our needs and wants can be predicted with surprising accuracy, which is useful for retailers. Using clever algorithms, and a wealth of historical data, customer demand can be forecast to an amazing degree of accuracy. However, unpredictable fluctuations do happen – especially during pandemics – and they tend to leave businesses scrambling to react to changing demands. In recent years, we have experienced sudden changes in consumer buying habits.
Over the last few years, grocery customers have changed again and again the way in which they shop, moving from larger less frequent shops, to smaller more frequent ones, driven by the change in our lifestyles. This has resulted in an ever-changing number of items being sold (revenue) and a varying number of transactions. In addition to this there were additional costs to service and protect customers.
How to best meet the new demands of the customer, whilst carefully managing labour costs often leads to the question of how to achieve the best mix of ‘contracted’ vs ‘non-contracted’ (flexible) labour hours.
Contracted vs Non-Contracted Hours
Due to the nature of demand and cost pressures on business, contracted labour hours are often not in line with what the store requires at that moment in time. At times, managers could be required to send employees home during periods of lower demand to cut costs. However, due to contracted hours employees may still need to be paid regardless. This refers to the disconnect between budgeted/demand hours vs contracted hours. Alongside overspending, over-contracting runs the risk of employees working in the wrong place. Specialists in one department may be spending too much time in a different department, just so managers can utilise the committed hours.
Under-contracting and Overtime
One potential solution to this issue is for managers to deliberately under-contract employees. During periods of staff turnover, taking the opportunity to either not replace roles, or hire people on shorter or more flexible contracts, could reduce the risk that the contracted hours outnumbering the demand hours. Where extra hours are required, overtime can be used to fill peak demand.
Although this option benefits management, as it allows for greater flexibility when managing hours and can potentially reduce the costs of over-contracting, it doesn’t come without risk.
Drawbacks to overtime reliance
If the contracts that we have in place do not cover peak trading times, a reliance on overtime can expose an issue scheduling cover at key times, due to unavailability of skilled employees, at the right time in the right place, with the right skills, leading to poor service and availability across the store.
Equally, another challenge could be ensuring that you can attract the right calibre of colleagues on smaller contracts and retain these colleagues as they look for larger contracts or a 2nd jobs to meet their living costs.
If managers greatly under-contract it could leave employees working overtime on a constant basis, which, depending on the rates of pay for overtime, may in the long term cost the business more money. Another significant concern regarding the overreliance on overtime is the health of the employees.
Regularly eating into employees’ time off decreases the time they have for exercise, sleep and healthy eating habits, all of which can make them more susceptible to illness. Exhausted employees are also more likely to experience workplace accidents with lapses of concentration, potentially leading to injury. As well as physical ailments, employees may experience mental trouble. A lack of sleep and seeing family less than expected can drain employees’ motivation and concentration at work, all of which will reduce the quality of the work that is performed, which may loop back around and cost the organisation money.
This leaves employers in a challenging position. How can businesses determine the perfect balance of contracted vs non-contracted labour hours?
Workforce Planning and Management
Workforce management systems, and their ability to accurately forecast demand and schedule labour, plays a key role in streamlining the labour planning and deployment processes. While retailers can produce a forecast using complex spreadsheets, it can be a time-consuming process that poses several risks.
One of the greatest risks is creating a ‘single points of failure’, should the person who created and owns the spreadsheet leave the business. Other risks associated with spreadsheet-based forecasting include: the size of data pools that can be accommodated, limited flexibility to test and react to changes in demand, the speed of processing, and the risk of unchecked formula errors buried in the sheets.
Workforce management solutions (WFM) that include AI driven demand forecasting modules are proven to build forecasts of far greater accuracy. And accurate forecasts enable managers to plan resourcing requirements, by automatically creating labour schedules that optimise resource deployment to meet demand. This streamlines the process of achieving the best balance of contracted vs overtime hours.
The only certainty for retail and hospitality businesses is customer demand will continue to change as technology, products and services evolve. Keeping pace will require organisations to engage the support of their people and their workforce technology vendors.