How the labor waste stole profits

‘Tis the season of giving. And nothing pleases a company more than receiving gifts of gold in the form of wasted payroll being identified that can go directly to the bottom line. Or, when operations managers can show higher profit margins through accurate job costing. With bonuses and earnings results on the line, opportunities to reduce labor waste and improve cost allocations become the gift that keeps on giving all fiscal year! For many companies, these hot gifts of 2012 are the result of detailed labor activity tracking being added to their workforce management strategy.

Presents for payroll & operations – labor cost details

What is an activity? While most organizations use scheduling systems to put staff onto shifts and time & attendance systems to convert worked hours to payroll, many lack visibility into what each employee actually does on the job. In other words, what is the data between the punch-in and the punch-out?

tws9-600-reindeerAn activity is a work order, grants, task, project, job number or part number that is assigned to labor and has a measurable output. The results of a completed activity can include measurements of quantity, scrap, waste, or quality. Even greater detail can be tied to a labor activity, such as equipment used, location or campaign. Measuring “productive time” provides the foundation for labor expense tied to a job. Tracking activities within the workday tells how much direct time (and expense) is spent on work orders, by labor and equipment. You can tell how productive your workforce is, and if that productive output costs more than you expected – and if it’s impacting profit margin. However, what is often lost is the wasted pay for non-productive paid time.

There are some types of activities that cannot be tied to measurable output. And, whether it’s planned or unplanned, these indirect charges and labor variance (often lumped into “overhead”) can have a dramatic and costly impact on profits. Activity such as meetings, set-up time, training, downtime, clean-up, maintenance, and administration/paperwork can skew labor standards and forecasts, potentially impacting job bids, quotes or service quality. Organizations must ask – how is this time and labor cost allocated? Is it tracked at all?

Reconciliation, WIP Visibility, Validation,

The addition of automated labor activity tracking to your workforce management strategy enables organizations to reconcile every minute of every shift, and allocate all labor costs appropriately and accurately – direct and indirect, planned and unplanned, regular and OT. Real-time visibility into current activities and WIP, including labor, equipment and output, allows organizations to make data driven adjustments based on status and progress towards delivery times, output or utilization rates. And provide accurate, confident commitments to external stakeholders and customers. Activity tracking can also provide labor with real time validation on expected output, task duration or sequence of events, ensuring quality and timeliness.

Electronic data capture tracks labor activity

Workforce efficiency and labor cost control start with data collection:  You need information about the work, who’s doing the work, and the outcome of that effort.  Of course, collection of this information can’t be cumbersome- inefficient data-capture defeats the purpose of improving productivity.  Leading labor management providers offer a variety of data collection options as part of a workforce management solution. Timekeeping terminals that can capture activity information with a simple badge swipe, barcode read, RFID, or even a fingerprint ID. More advanced organizations are leveraging mobile technology – on-board computers, handheld scanners, smartphones and tablets, to provide even greater data capture flexibility.

Increase profits, reduce labor waste, and reconcile expenses

Successful organizations not only plan in advance, they execute in the moment with agility to react to real-time situations. Using accurate labor forecasts and budgeting based on detailed labor activity to plan ahead, but then leverage their workforce as needed based on changing conditions (increase in patients, higher store traffic, a slow manufacturing line, employee absence, power outages, etc.) Today’s workforce management systems provide new levels of visibility into the activity status, resources and staff on hand to identify areas that need to be addressed – allowing managers to optimize their workforce and drive higher profitability.

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How do you Manage in the Moment?

No matter what industry you are in, the status quo in the workplace has changed. As organizations are running leaner, looking to maximize productivity and efficiency with their existing (or reduced) workforce, the demands on labor have sky rocketed. The combination of routine incidents like unplanned employee absences, combined with the real-time influences of online change orders, social media marketing campaigns, and even unusual weather have caused chaotic management challenges for labor managers.

How do you (or your managers) react to changing conditions in the workplace? How can you redirect labor resources instantly, when and where you need it, and still keep schedules, paycodes and labor levels accurate and up to date? How can manufacturing line managers track work-in-progress in real time, and make adjustments in mid shift to ensure maximum operational efficiency and completion of orders on time and at a high quality?

With virtually every workplace subjected to dynamic work conditions and unpredictable labor impact, the ability to manage in the moment is more important than ever; which is one reason why the iPad has infiltrated the workplace.

“Employee demand for iPad in the corporate environment remains strong, and CIOs continue to embrace iPad in an unprecedented rate. In just over a year since its debut, 75% of the Fortune 500 are testing or deploying iPad within their enterprises.” – Peter Oppenheimer; CFO, Apple April 2011

The iPad has evolved from a mobile device used to simply surf the Web, watch movies, and read ebooks into a professional, productivity-driving device used around the globe across many industries. Business managers who depend on enterprise software to do their jobs are now untethered from the confines of the back office with access to operational information wherever they are in the workplace. Businesses in turn have also realized that managers are much more productive when they can leave their office and work directly with employees and customers.

With a client-based, desktop computer application, managers are often faced with the challenge of addressing operational situations while being removed from the action – and often the reactionary changes can’t be made to the workforce management system until it’s too late to impact operations. To be most effective, managers need the ability to make informed decisions and take action on issues in real-time where and when the activity happens. Make adjustments to schedules on the fly when employees go home sick. Adjust staffing to cover visibly busy departments – or check to see if any other departments are overstaffed and can spare some coverage. View reports and drill down into information in the moment, to see how overtime is directly affecting your operations. Tablet-based analytics apps deliver on-demand visibility and insight into your workforce’s impact on business-critical metrics and trends like labor costs, sales per labor hour, overtime costs and more, allowing retail district or regional managers to make fact-based decisions from any location at any time.

Expect this trend to explode in 2013, as more and more enterprise software vendors extend their connectivity and visibility through the use of tablet applications.

Workforce Management Maturity Evolution Part 4 – Innovate

This is the final installment in a four-part series on workforce management maturity. With advancements in cloud-based technology, mobile applications and simplified enterprise applications, organizations are able to transform their workforce from a cost of doing business into a competitive advantage. Part 4 discusses the final phase of workforce management maturity – innovate.

In Jim Collins’ bestselling book Good to Great, those few companies that distanced themselves from the competition all had common traits among them. The concepts of “Level 5 leadership”, having the right workforce “on the bus”, and transformations that were the result of focus and continuous improvement over sustained periods of time eventually led to achieving greatness.

There are many organizations that have evolved through the first three phases of the workforce management maturity curve, getting the value of their workforce to one of a Flexible asset, and perception of their workforce into an “Agile Workforce.”  However, the best-in-class organizations that have moved into the Innovate phase now view their workforce as a vital workforce and a competitive advantage. For them, their employees are their most critical asset who, when provided with the right tools, training and support enable these organizations to achieve great results that their customers value and their peers and competitors envy.

Big Data and the Workforce

Throughout this series, the application of technology and process change has enabled organizations in each phase of workforce management maturity. Most organizations in the Innovate phase are embracing Big Data initiatives to identify triggers that influence growth, profitability, brand reputation, and operational excellence, as well as organizational transparency and accountability. In the Innovate phase, organizations incorporate labor metrics into their big data strategies, to transform their workforce into a network of individuals all working together to achieve a desired result. (Consider Southwest Airlines, where every interaction with their workforce is one that is focused on delivering a high level of customer service).

The correlation of labor data with operational measurements of inputs & outcomes can yield powerful insight into the impact of your workforce on business growth, brand perception and ultimately shareholder value. However, basic data mining does not equate to a big data strategy that will enable business innovation and continuous improvement. Lack of understanding of how to use analytics to improve the business is the biggest obstacle in achieving success with big data. Organizations must transition the analysis from an IT function to a business operations function – combining measurements, analytics and business intelligence tools with visibility and controls for business leaders to understand and act on.

Workforce Analytics drives Innovation

When workforce analytics is combined successfully with operational data, actionable information will lead to operational comparisons and adjustments. Initial tracking of labor metrics like absenteeism, turnover and overtime can evolve into industry-specific trends and analysis. Retail stores can see the impact in increased operating margins, profit per employee and a stronger brand reputation. Healthcare providers can correlate treatment procedures, provider education/training, and technology with patient diagnosis and outcomes. Manufacturing firms can achieve operational excellence through lean labor principles.

When your workforce evolves from a cost of doing business into a competitive advantage, your organization can make that leap from good to great!

The Role of Big Data and Managing Labor

CEOs, CIOs, CTOs and CFOs across the globe have been the target audience for Big Data messages for the past twelve months – putting the latest IT-related fear, uncertainty and doubt in their minds. “How will you survive the data tsunami that is looming unless you mine that data to find the actionable information to grow your business?” (Not bad huh?)

The truth is taking a closer look at the new data streams available to multiple roles in an organization is a natural evolution thanks to new data being collected and made accessible to a broader audience. Applying this to workforce management makes perfect sense, and is now much more of a reality.

Successful organizations make critical business decisions based on facts, not anecdotal information. Facts derived from sound empirical data. Whether it’s about generating revenue, building budgets or attacking costs, analytics drives business performance. So, why are most organizations still not leveraging analytics to control and improve upon their largest manageable expense – their workforce?

Imagine having the ability to prove that increasing labor dollars in a retail store can directly drive increased revenue?

Suppose a manufacturing plant could pinpoint the location, shift, line and staff that had the highest quality output in a given month, and correlate that to employee training and average hours worked at that time?

By analyzing today’s workforce data, hospital staffing levels can be linked to patient outcomes. Retailers can gain insight into the correlation between staffing for store promotions and sales. Manufacturers can understand the true margins for their product. And, government officials can apply to budgeting the Lean Principals that industry leaders have used for decades.

Now front-line managers have instant visibility to labor data that can help them proactively rein-in labor costs. At the same time, C-level business leaders can make fact-based decisions regarding the workforce to drive innovation and growth through continuous improvement and increased profitability.

Increasing Labor Productivity vs. Hiring

Guest blog contribution from Joe Hyland, Product Marketing Manager at Kronos and Brian Herr, Senior Product Line Director at Kronos.

According to Paul Ashworth, chief US economist at Capital Economics, domestic hourly economic output is on the decline – rising only 1.3% over the past 12 months, down from 6.7% in the previous year. So employers aren’t seeing the desired productivity gains from their workforce; what should they do? Ashworth, and other economists, believe this decline in productivity growth may be a sign that hiring is about to heat up as US companies will have no choice but to increase staffing in order to increase output. Ashworth adds, “We suspect that firms just ran out of potential productivity-enhancing measures.”

With the latest unemployment report released on May 6th showing an increase in unemployment, which now stands at 9% (US Department of Labor), a bump in hiring would surely help employ many unemployed and underemployed Americans. But stock market growth has been fueled, in part, by increasing productivity. Do companies and investors really want to give that up? Or worse, see it reversed and the economic domino effect on access to capital, inflation and profits?

One of the reasons behind the recent economic disaster was overspending and fiscal irresponsibility. With productivity hitting a plateau, Corporate America is at a cross-road and organizations have two options: get more out of the workforce you already have or increase hiring – and thus payroll. I’m all in favor of increasing hiring, but only once organizations have done everything possible to run their operations in a prudent, efficient manner. In many instances, additional workers are needed. Yet most organizations admit they are surprised they can’t get more out of their current workforce; they just don’t know how. The fact is that organizations are merely scratching the surface on productivity gains and lack the proper tools needed to fully realize optimal efficiencies. Imagine if you had a lens into work as it was being done allowing you to eliminate unnecessary bottlenecks from your work processes. What if you could identify payroll leakage or OT abuse and stay on budget while increasing productivity?

If we’re going to have sustained, long term economic prosperity it is in everyone’s best interest that businesses, plus local and state governments, are run as lean and efficiently as possible. Kronos offers Labor Analytics and Activities solutions that allow companies to truly do more with less and we have helped hundreds of customers reign in labor costs and maximize workforce productivity. The holy grail of getting more out of your workforce while keeping costs within budget is possible…it just requires additional emphasis on labor activity tracking and analysis to accomplish this goal.