A Systematic Approach to Labor Economics

Foodservice operators can choose from countless ways to manage labor resources. Here consultant Juan Martinez outlines the 10 key attributes any labor management system should have, regardless of how a restaurant approaches this all-important topic.

My previous post explored the importance of labor economics. As a follow up, it seems like a good idea to wrap this topic with some suggestions on what to look for in a good labor management system. Any good labor management system allows restaurant operators to deploy the right labor, in the right place, at the right time.

Labor often represents one of the top two expense items in a restaurant’s profit and loss statement and a good management system will help streamline the use of this resource. This is important because labor’s overall purpose is to drive customer service and hospitality in order to drive sales. In other words, the best way to the bottom line is to drive the top line!

With that in mind, here’s a list of 10 attributes a good labor management system should have:

  1. Allow defining labor based on the actual work content each activity takes
  2. Link specific restaurant performance parameters, such as product mix, to the labor
  3. Facilitate creation of accurate sales forecasts
  4. Enable easy development of schedules
  5. Allow for changes of the schedules for the employees
  6. Allow for managing the labor and taking action on adjustments, as the business operates
  7. Provide reports that serve as good tools for the store management team
  8. Reward the right performance
  9. Provide remote access to the system
  10. Integrate into an overall management information system

Let me elaborate on each of these a bit.

While managing the financial impact of labor contributes to a restaurant’s performance, it remains equally important to appropriately manage this resource in such a way that the team can execute all the tasks that come with delivering optimum customer service. Financial metrics are important, but getting to these financial metrics using a bottom-up approach is important.

Knowing how much labor, from a work content perspective, it really takes to manage the business is the best way to deliver success. When based on real work content and not an arbitrary financial metric, this information can sometimes indicate which processes may require re-engineering to deliver the labor levels the business needs. I must say that when it comes to embracing and applying this requirement many restaurant concepts and systems fall short.

If you don’t believe me, try this out next time you are in a new menu discussion. Ask about the new menu item’s food costs and you will likely get a quick and pretty accurate answer. Next, ask about the true labor requirements that go into making the new menu item — e.g. prep, assembly, guest service, etc. — and you may get an asphyxiating silence. When it comes to delivering the right customer hospitality the answers to both questions becomes equally important.

A second requirement of an optimum labor management system is to tie the schedule to the actual product mix of a restaurant. A restaurant that sells more of an item that takes more time to do, should get more labor hours than a restaurant that sells items that take less time to do, regardless of the selling price of the item.

The system also has to have the capability to forecast sales. Accuracy represents the biggest challenge with forecasting. The one bit I can tell you about a sales forecast is that it will not be 100 percent accurate. Still, this does not mean a forecast is not necessary so use a method that gets you as close to the target as possible. After all, having a forecast is better than no forecast at all.

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Basic in any system is to be able to create an accurate schedule. Part of this should be the system’s ability to create the schedule using small time increments. We would recommend at minimum 30-minute increments; 15 minutes is even better. Anything shorter becomes almost impossible to manage. While developing the schedule, the system must show the labor needs and labor scheduled by these small periods. The goal is for all the 15-minute increments to have a net 0 when comparing necessary labor to what was scheduled.

The manager needs to be able to track progress and adjust accordingly, based on the dynamics of the business happenings on that day. Good systems will facilitate this using a just-in-time approach. The longer the operators wait to make adjustments, the more they will likely either impact profitability and customer service on that day, or end up doing the same from another day, by stealing from the future labor allowed.

Changing employee schedules to meet the needs of the labor resources represents another good feature of a labor management system. Employee needs change after staff members may have provided you with their availability and a good system must allow for these dynamic changes in the employee’s needs. Some systems allow employees to trade shifts between them, while others require management intervention. Whichever way it happens, the system needs to facilitate this.

Providing the right reports in the right place at the right time is an important requirement of a good labor management system. Not having the right reports or information is like driving a car without gages (e.g. speedometer, gas and oil levels, etc.). Some of the reports need to be accessible when developing the schedule, others when the business is happening, and others still, after the show has happened.

Rewarding the right performance represents another important attribute. Once you set up the right system then reward operators for following the system’s suggestions. You should not celebrate a manager beating the labor recommendations, since this would imply that something had to be compromised along the way. It could have been service, quality or employee stress (which can lead to turnover), among many other factors.

Good labor management systems also provide users with remote access. This access can be during the creation of the schedule, as well as just in time as the day is unfolding and then historically.

Finally, the labor management system must integrate with the overall operations and management of the business. Some concepts have “dashboard” type systems where labor, along with service, mystery shoppers and other metrics of the business come together to provide an integrated look and evaluation of the business at each location.

As you embark on managing the labor economics of your system optimally, keep in mind that as I stated in the original article in this series, labor is but one piece in the bigger topic of unit economics, so make sure that you go after the latter in a holistic and integrated well, to drive the most impact.

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