Wal-Mart made waves last month when it announced that it would increase the starting wages of its workers so that all of its associates would make at least $9.00 per hour. That’s not exactly the kind of pay that makes you rich, but it is 24% higher than the federal minimum wage of $7.25 per hour. TJX followed Wal-Mart’s lead and announced a similar wage policy.
But why should these large firms be upping their pay? That is the question examined in a recent Bloomberg article (Why Retailers Are Suddenly Desperate to Keep Their Least-Valuable Workers, Mar 6). As the article notes, it is not clear that firms need to be paying more. Yes, labor markets have been firming up, but the unemployment rate went up last month because a number of workers returned to the labor force. So there are still a good number of workers available. Why then make a move that’s going to increase costs by a billion dollars per year?
The article’s answer to that question? Turnover!
Turnover in the retail sector has been steadily rising and now stands 5 percent a month. At that rate, if Walmart’s workforce were to hold to the national average, over a full year it would be losing 60 percent of its sales staff. Employee churn at fast-food chains is even worse: Almost 6 percent of all fast-food workers left or were laid off in December, according to federal data. An individual worker won’t ever command anything like the salary-bargaining powers of a baseball player, of course, but service economy employers tend to notice a rising tide of worker defections. Plugging all those gaps in the workforce is hugely expensive. Here’s how the math breaks down:
- The average retail sales employee in the U.S. earns an annual income of about $21,140, or $10.16 an hour, according to the Bureau of Labor Statistics.
- The cost of replacing an employee earning less than $30,000 per year is about 16 percent of that person’s annual wage, according to the Center for American Progress, a left-leaning think tank.
- A retail employer would therefore need to spend almost $3,400 every time a worker defects.
That adds up quickly. Walmart has about 500,000 low-wage employees. The cost of replacing each one, using the rough estimate from above, comes to roughly $1 billion—the cost of the just-announced wage increase to $9 per hour.
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Whenever there are stories about Uber or TaskRabbit or any other “sharing economy” platform, the benefit of scheduling flexibility is inevitably mentioned. These firms may not offer their workers (more accurately, contractors) benefits or guarantees of employment, but they allow workers to craft a schedule that fits their own needs. Does granting such flexibility work in a more conventional setting?
Zappos, it seems, is out to answer that question with its call center workers (Zappos is bringing Uber-like surge pay to the workplace, Jan 28). Zappos’ incumbent system had call center agents signing up for their preferred shifts on paper once a quarter based on seniority. That obviously limits flexibility. Further, Zappos (not surprisingly) faces some predictable patterns in its call volume that are challenging to meet. For example, there is a spike on weekday mornings as people call from the East Coast — which is way early at Zappos’ Las Vegas call center. The solution? A bit of Uber-like surge pricing.
[CEO Tony] Hsieh was not available for an interview for this article, but as Goldstein recalls, he asked the Labs team, “‘How do you feel about looking at something like Uber for the call center?’ It was definitely not something we’d actively been thinking about,” Goldstein says.
That conversation sparked the development of what is now known as Open Market—referred to as “Om” internally—an online scheduling platform that allows workers to set discretionary hours and compensates them based on an Uber-esque surge-pricing payment model: hourly shifts with greater caller demand pay higher wages. The goal of Open Market was to create a “free-market system,” Goldstein says, and strike a balance between the rigidness of customer service center scheduling and what the company says is its dedication to giving employees time to pursue other opportunities at Zappos, like extra training. “We wanted the [customer service center employees] to work more flexible hours, eventually 100% flexible, and reward them based on how much or how little customers need them to work,” he says. …
Zappos limited the Open Market pilot to the 213 employees who work the customer service center’s phones. Everyone received at least 10% flexible time, so during a 40-hour week, employees would have four hours to play with. They could choose to not work during those hours or they could fulfill them whenever they liked by tacking them onto the start or end of a workday or by coming into the office on a scheduled day off.
Employees decided when to work with the help of Open Market’s real-time customer service center metrics algorithm and historical data that showed customer demand, as measured by the wait time of the longest-holding customer, and the accompanying compensation rates. The longer the hold time, the higher the customer demand, the more the employees working that shift would get paid.
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When should phone calls go to front-line service personnel and when should they go to a call center? The best arrangement obviously is going to depend on the setting so let’s consider the case of a car dealer considered in a recent Automotive News article (Call center keeps the service bays packed, Jan 23). The dealership in question has two stores — a Honda dealership and an Acura dealership. The status quo had service calls going directly to the service advisers, i.e., the folks who speak to customers when they drop off their cars or call them with news about what problems were found and how much it would cost to fix it. The proposal would route inbound calls looking to schedule appointments etc to a call center instead of the service advisors.
Now, it seems upfront that there are some real benefits of pulling these calls out of the service department. The call center would keep advisors from having to ditch in person customers to take call. It would also allow for some pooling across the stores. However, these efficiency gains are not what sealed the deal for the dealership. Rather, it was the opportunity to gain better control over scheduling.
“We were able to regain control of scheduling appointments in the service drive, and that’s important because we’re only open a certain amount of hours, so we want to load our shop,” says Proctor, managing partner of Metro Honda and Metro Acura in Montclair, Calif. “The service advisers didn’t see it that way.” …
By creating the call center, Proctor took service scheduling away from service advisers. They are often reluctant to book small jobs, such as oil changes and tire rotations, because they earn smaller commissions on those jobs compared with, say, a three-hour brake repair, he says. …
Proctor’s inspiration for the call center came about 21/2 years ago. He was listening to recordings of randomly selected inbound dealership calls, and one especially disturbed him.
“A customer wanted a warranty-repair appointment, and our associate said no appointments were available for three weeks,” Proctor says.
The customer wanted it done sooner. Proctor listened in shock as the service adviser gave the customer a competitor’s phone number to do the work, he says. ..
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Marriott has been in the news this week for launching new program to prod its guests into leaving tips for its cleaning staffs. The hotel chain is not acting alone on this. It is working with Maria Shriver’s non-profit called A Woman’s Nation (AWN) to highlight the difficulties faced by hotel cleaning staff. Here is a bit from AWN’s website about the program.
A Woman’s Nation (AWN), together with Marriott International (NASDAQ: MAR), announced today that Marriott International will be the first partner in AWN’s The Envelope Please™ initiative, which is designed to encourage and enable hotel guests to express their gratitude by leaving tips and notes of thanks for hotel room attendants in designated envelopes provided in hotel rooms.
Hotel room attendants often go unnoticed, as they silently care for the millions of travelers who are on the road at any given time. Because hotel guests do not always see or interact with room attendants, their hard work is many times overlooked when it comes to tipping. The Envelope Please makes leaving them a gratuity simple and secure.
Or as a headline in New York magazine summarized the program: Multi-Billion-Dollar Hotel Chain Encourages You to Tip Its Workers
There is a no question in my mind that being a hotel maid is a hard way to make a living — particularly at nicer hotels like the typical Marriott. Guests want their room serviced on their schedule; management wants workers to be efficient and service rooms as quickly as possible; and if all goes well, the room attendant gets no real recognition. Combine that with low entry requirements (basically a clean background check and the ability to do physical work), and you get low pay. Tips then would be much appreciated. Even if a maid only gets two dollars per room and services just two rooms an hour, that extra four bucks would be a significant percentage increase. According to the Washington Post, “maids and housekeepers earned a median salary of $19,780, or approximately $9.51 per hour, according to the U.S. Bureau of Labor Statistics.”
But is tipping room attendants a good idea? (more…)
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Today’s Wall Street Journal has a special section on “Unleashing Innovation in Manufacturing”. Among the more interesting pieces is a report on Roland DG, a Japanese manufacturer of industrial goods like wide format printers, milling machines and vinyl cutters. These all sound like boxes of metal filled with electrical components that should be built up by a team of workers as they move down an assembly line. But that is not how Roland DG rolls. Instead, they have each machine built by one person guided by a computer that displays instructions, makes sure the correct hardware is presented, and monitors what is done through a networked screwdriver (Japanese Firm Uses a Single-Worker System to Make Its Products, Jun 1).
On a recent day in Roland DG’s factory in Hamamatsu, a city in central Japan, one employee was assembling from scratch an industrial printer that ultimately would be more than twice her size and weigh almost 900 pounds. Another worker who had just joined the company’s fleet of part-timers was making a prototype milling machine. Yet another was assembling the dental-crown milling machine.
A computer monitor displays step-by-step instructions along with 3-D drawings: “Turn Screw A in these eight locations” or “Secure Part B using Bracket C.” At the same time, the rotating parts rack turns to show which of the dozens of parts to use. Meanwhile, a digital screwdriver keeps track of how many times screws are turned and how tightly. Until the correct screws are turned the correct number of times, the instructions on the computer screen don’t advance to the next step.
Workers are rarely confused, but when they are, there’s a button to press that will bring the floor manager running to help.
This video gives an idea of the system in actions.
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Reshoring has been a popular topic. It’s a lot more fun to talk about optimistic stories of manufacturing and its associated jobs returning to the US (or to high wage developed nations in general) than to focus on companies sending jobs overseas in search of cheaper labor. But how does reshoring go in practice? Once a company commits to bringing work back to the States, how easy it to get a factory up and running?
As the Wall Street Journal tells it, reshoring is not a walk in the park, at least not for United Technologies’ Otis Elevator (Otis Finds ‘Reshoring’ Manufacturing Is Not Easy, May 2).
The company’s move to relocate an Otis elevator plant from Mexico to South Carolina in late 2012 was hailed as a sign of a small renaissance in American manufacturing. The relocation was supposed to save money and help fill orders faster by putting the people who make new elevators next to the engineers who design them, and their customers.
Now, it’s clear the reality hasn’t been so smooth. Production delays created a backlog of overdue elevators. Some customers canceled their orders after being left waiting months, people in the elevator industry said. The plant Otis was leaving behind in Nogales, Mexico, had to stay open for half a year beyond its planned closing date to deal with the backlog.
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We have posted in the past on how the burrito-chain Chipotle has increased the rate at which it moves customers through its restaurants, or as an article on Quartz terms it, its burrito velocity (Chipotle continues to refine the science of burrito velocity, Apr 21). The numbers are pretty remarkable.
Over the first three months of 2014, the US Mexican-food chain saw an average increase of seven transactions per hour at both peak lunch and dinner hours—12 to 1pm and 6 to 7pm, respectively. On Fridays, one of its busiest days of the week, Chipotle fielded 11 more customers per hour at lunchtime on average across its stores, a roughly 10% increase. …
Some of Chipotle’s fastest restaurants currently run more than 350 transactions per hour at lunchtime, which equates to a ludicrous near-six transactions per minute. The nationwide average is currently somewhere between 110 and 120, according to Moran. But they’re getting faster, and faster, and faster.
So how do they accomplish this increase in speed? (more…)
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