Labour is the largest controllable expense for retailers. They put a lot of time and resources into labour scheduling. In a business where the bottom line is usually between 1-2.0% effective labour scheduling can make a huge difference. One key metric retailers focus on is sales per labour hour (SPLH). When retailers put a lot of emphasis on something suppliers should understand it and perhaps even explore implementing a similar practice in their own business. Google can provide definitions, but it does not always help you understand the importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Sales per labour hour (SPLH) is the sales dollars that go through the cash register divided by the total labour hours used. Retailers will look at this by store and by department. It is a measure of effectiveness. Labour rates change but the total hours required to deliver the total sales helps them understand where they are most productive.
SPLH is used for scheduling
To ensure labour expenses are managed properly many retailers use SPLH to schedule their labour. Each department will have a SPLH target. When they go to create their schedule, they will forecast the weekly sales and then use the SPLH target to determine the number of hours they can schedule. This process happens in each store and each department.
Department managers use sales from the previous year, promotion activity planned, seasonal changes and their YTD increase or decrease to forecast their sales. Some store managers will use their total store forecast and department penetrations to ensure the department manager’s forecast is realistic. Department managers are judged on their ability to forecast sales. Store managers then review the department forecasts to ensure the total sales are close to their store forecast and budget.
Department managers own their department labour and the store manager is responsible for the total store labour expenses. This process happens in every store, every week. Retailers put a lot of emphasis on getting the labour budget right, every week.
Labour gets a lot of attention at retailers. The operations group are responsible for ‘delivering’ the labour numbers. It is a constant battle to find the right amount of hours to deliver a good shopping experience and the bottom line.
Why suppliers should be concerned about SPLH
We know there are cost increases in almost every input to food production and processing. Suppliers are faced with managing cost increases in their business. Retailers are also trying to manage these increases to keep retails as low as possible. Despite the entire market moving up and media stories about food inflation, retailers want to keep prices as low as possible.
Retailers understand labour is a large component of the price they pay suppliers. They want to believe suppliers are doing as much to manage labour costs as they believe they are doing. Retailers believe they are good at managing labour and important in their effort to keep retails as low as possible. Whether this is true or not, the old saying ‘perception is reality’ probably applies. They believe they try hard and succeed in this area and they want their suppliers to do the same.
It is important to share some of the practices within a supplier’s business being used to manage labour and keep costs as low as possible. Retailers will respect suppliers who illustrate they are ‘doing their part’ to keep prices as low as possible. You do not have to share all of your secrets but if you have some examples of initiatives in your business to manage ongoing costs or improve efficiencies let them know.
Suppliers should also be aware of the labour required for their products at store level. Ideas as simple as a tear away top on your shipping case can improve labour efficiencies. Easy to read cases in the back room are another example of helping retailers be more efficient. In some categories this can be the difference of getting on the shelf.
Even package size can impact your relationship with retailers. If it is possible to get more sales dollars for your package it will improve their sales per labour hour. Think of all the tasks in a retailer and a store to get your product in the back door and out the front door. It costs the same for a $4.99 product as it does for a $5.99 product. The following tasks need to be accomplished to get your product in and out of a store:
1. List the product
2. Price the product
3. Change the plan-o-gram
4. Receive the product in the warehouse
5. Pick the case in the warehouse
6. Ship the product to the store (unless you use direct store delivery DSD)
7. Unload the pallet
8. Open the shipping case
9. Merchandise the product
10. Put any back stock away
11. Put the product through the cash register (unless they use self-checkout!)
Retailers will treat suppliers differently when they believe the supplier is managing labour properly.
If you have any questions or require help with your labour story, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
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