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ICI Luncheon at the ECR conference in Barcelona on June 4, 2009 with Wharton Associate Professor of Operations and Information Management Serguei Netessine
Up one levelNearly forty senior executives from the consumer goods industry joined with leading academics at the International Commerce Institute luncheon. Serguei Netessine, Associate Professor of Operations and Information Management at the Wharton School, University of Pennsylvania, spoke about research conducted in the frame of the ICI – Unilever Research Grant:
Labor Planning, Execution, and Financial Performance
“After the cost of goods, store labor is the largest cost component in the retailing industry. As a result, developing and executing labor plans is a key task for retailers. This presentation reported on the results of a multi-year study using data provided by several national US retail chains. Using this data, we assess the relationship between labor planning and execution practices and the financial performance of the retailer’s stores. Attempts to optimize the planning of store labor are much publicized and a variety of optimization tools exist to help managers with this task. Nevertheless, in our experience, even the best in class labor scheduling systems lack one crucial ingredient: the ability to determine the impact of the staffing level on the revenue. Further, few retail executives know or have ways to assess how store managers execute these plans. The oversight over store managers’ execution of the plan is often limited to making sure that stores do not exceed the allocated payroll budget.
In our research setting we find that store traffic is largely unaffected by labor practices and it is mostly determined by variables that are beyond the store manager’s control (e.g., customer demographics and product variety). On the other hand, we find that consumer basket value varies greatly from store to store and that there is an association between labor practices at different stores and basket value. Namely, stores that better schedule full-time employees to match customer traffic patterns in the store as well as stores that execute the schedule well achieve significantly larger basket values. This approach results in significant improvements over current labor practices that focus on predicting sales and matching staffing with the sales forecast. We show that such approach is problematic because labor availability drives sales thus making accurate sales forecasting inherently difficult. Further, we find that poor execution of labor plans has even bigger impact on sales than poor labor planning does. Our findings suggest that modest improvements in employee scheduling and execution of the schedule can result in a 3-4% sales lift at moderate, or even no, additional cost.”
An article on this subject will appear in the next issue of the International Commerce Review: ECR Journal.