Understanding & optimising Labour Management in the hospitality industry (and beyond!)

At Nando’s my team looks after our online labour management product which helps our restaurants map out and plan shift patterns for our colleagues (Nandocas). As you can imagine, with COVID our business demand has fluctuated regularly, making labour planning more complex and harder to get right.

Recently this has prompted me to think through our approach to labour management beyond the digital product and into the modelling and business assumptions we use. This article explores some of my thinking and recommendations on how to think through labour supply planning and management.

Before we dive into how to improve your approach to labour management it’s important to understand why it is vital to get it right.

Why is labour management important?

Labour management is a key determining factor in the experience of any service. How well your labour supply meets demand will shape whether you are able to deliver service excellence. Take a restaurant experience for instance; if a restaurant fails to have the correct number of staff on shift, food orders quickly start building and wait times grow or food quality drops. It is this relationship between labour supply and the speed and quality of the service experience that therefore makes it so crucial.

Your supply’s ability to process demand at the right pace also shapes how much demand you can capitalise on. If you can’t process orders at pace it won’t’ be too long until you have to turn customers away, leading to loss of potential revenue and customer acquisition.

This has become more impactful now that many businesses operate through online sales channels that remove the physical constraints of an on premise led demand. Restaurants or Retail shops that have online channels are no longer constrained to the maximum number of tables or shop size they have in their physical location. Their primary constraint on demand is how much and how quickly their kitchen or warehouse can turn around orders. This lifting of the physical constraints around demand places a greater emphasis on the importance of effective labour management.

From the opposite perspective an abundance of supply where there is no, or limited demand, leads to waste in time, energy and money. If you have people on shift without customers’ orders to process, then the cost of that shift does not bring back any return. Too many of these instances quickly leads businesses into troubled waters where cost reductions or closure become a sad but inevitable prospect.

In summary, labour management can be seen as vital in enabling the right supply to meet demand to create service excellence and minimise labour waste/cost.

Now lets unpack how you can go about optimising it.

Where to start?

Before the origin of a new business or service, the relationship between a customer’s demand and the supply of a business is bidirectional. There are instances where customers did not know they wanted something until a business created a new product or service’ e.g the supply came first, and a new demand was created. There are also examples of businesses identifying an existing demand in the marketplace and creating the supply to meet it e.g the demand came first and supply followed.

However, after a business or service is created the relationship between supply and demand alters with demand taking the role of the initiating trigger. There is limited value in providing supply if demand is not present. Based on this relationship, any model that looks to determine and optimise labour supply and management should start with trying to effectively quantify and predict demand.

Understanding your demand

Demand for many businesses or services is often interwoven with so many forces and factors that it is impossible to truly predict to 100% accuracy. Nonetheless, the discipline of systems thinking can prove helpful here through its study of the nature of demand on systems/organisations. One of the key mechanisms used in the discipline is the control chart. The control chart is a graph used to study how data changes over time. Data is plotted in time order with Demand on the Y axis and Time on the X axis (see illustration below). Through it you can better understand the predictability and nature of demand that your business needs to serve.

Using statistical analysis (see here for details on statistical equations) you can determine an upper line control limit (UCL) and a lower line control limit (LCL) for your demand. These lines are determined from the historical data you have on your graph. The fluctuation between these two lines is referred to as common cause variance. What this tells you is that the forces and factors that shape your demand lead to a natural variance of your demand within these two lines. In other words, you can expect your demand to constantly fluctuate somewhere between the upper limit and the lower limit on your graph as this is the natural order of things. In the restaurant space for instance, it might help capture how seasonality, day of the week, time of day and location might lead to varying level of demand. You can use this as a baseline from which to start to plan and think about your supply requirements.

Whilst this will help capture the impact of some variable factors on your demand, it will not account for all. Within your graph there are likely to be points in which demand rises above or dips below the control limit lines. These are referred to as special cause variance where something outside of the normal forces and factors has led to an anomaly in demand. To build a labour management model that is predictive relies on building a deep understanding of the events, forces and factors that cause this deviation from the norm. Having this understanding and plotting average variance based on cause can help you develop your model. For instance, identifying that a 5% variance was caused by a sport event or blockbuster cinema showing helps enable you to build this into supply planning and modelling particularly when some visibility or data on future events may be available.

Whilst some of these special cause variances can be analysed and understood to enable more effective planning in the future there will always be unknowns that emerge and lead to a variance that is hard to predict. It is for this reason that a truly effective supply model will always have adaptability at its heart. The faster you can ramp up or down labour supply the more effective your business or service will be in dealing with demand.

There are two other scenarios around demand that it is important to understand to help with supply planning and modelling:

1.     Discontinuous shifts in demand (super relevant for the current COVID 19 period)

2.     Volatile demand scenarios

Let us take the discontinuous shift scenario first. A discontinuous shift occurs in response to an abrupt event or shock in the environment for which is there is no precedent. It will likely lead to sudden drastic change in the composition and nature of the forces and factors that shape your demand. A prime example of this is all over the world where we have seen countries go into lockdowns and behaviour, liberties and trends have changed overnight. In this scenario your previous data around demand is mostly redundant. The best you can do here is to provide a lower or higher baseline supply dependent on the nature of the shock and start tracking and analysing your demand data in an attempt to form a new common cause variance based on the new context and environment. Again, this scenario stresses the importance of flexibility and adaptability in your supply model.

The final demand scenario is volatile demand. In some instances, the common variance of your demand will be so wide that it becomes hard to stand by a stance that it is common. It could be so changeable that no baseline planning is possible from it. In these instances, there are two things to work on. Firstly, work on how you can build flexibility into your supply model. Alternatively, if possible, work on how you can make demand more predictable. Understand what causes your spikes and troughs and work on ways to perpetuate demand so a higher level can become the norm.

Thinking beyond volume of demand

Using control charts will help you quantify and manage the volume of demand, however, in many businesses demand does not come in one singular form. The emergence of new digital channels means that there are different forms of demand which might require different forms of supply or labour skills to meet it. At Nando’s, we now have 3 key sales channels:

1. Eat in
2. Click and Collect
3. Delivery

Whilst the demand is the same in that people are always after their Peri Peri fix, the way in which we meet that demand with supply and labour must be different. A restaurant that has lots of orders through delivery requires a greater focus on kitchen labour and needs to operate much more like a production line. In contrast, a restaurant where most orders are coming through our eat in channel might require more labour around hosting and customer service management.

Therefore, whilst understanding the volume and variance of demand helps model the volume of supply needed, it is clearly also important to understand the type of demand to help model the composition of supply.

Understanding your supply

On one level optimising your supply is about having the right number of people, at the right time with the right skills available to meet demand. Understanding the volume and variance of demand will help you with what the right number and the right time is, whilst understanding the composition of demand will help inform having the right skills.

However, Systems Thinking encourages us to think about the interconnecitivity of different factors and components in a business. Through following this approach a wider set of factors emerge that are important to understand if you are to master labour/supply management:

• Labour & talent availability
• Labour performance
• Labour location
• Labour flexibility
• Labour structure
• Labour automation

Labour & talent availability

Your ability to meet demand with the right supply depends upon your supply availability. It’s easy to assume your supply availability is something that is reasonably consistent, and your employees will be readily available. This assumption is wrong.

COVID has significantly increased the number of employees either sick or in isolation leading to supply shortages across many businesses. Health, safety and wellbeing in the workplace has never been more important. When it comes down to it you can’t meet demand with supply if a large percentage of your workforce is unwell and unable to work. It is a fair assumption that focusing on improving the safety and health of your workforce will boost your ability to consistently meet demand with the right supply.

Another example of a factor that shapes labour mangement effectiveness is talent supply. Whilst Brexit has taken a back seat for a while this year, it will inevitably impact the ability of companies to access talent pools and keep supply levels at what they need in both volume and skillset.

Labour performance

Supply and labour performance are also key. At the beginning of this article we referred to importance of labour management: ‘how well your supply meets demand will shape whether or not you are able to deliver service excellence’. This phrase not only points to the need for the existence of supply but also to its performance. Supply can be present but if it doesn’t contain people with the right skills or who are equipped with the right processes and environment then your ability to meet demand will still fall short. You can have the right number of people in the kitchen but if they are not trained to cook or do not have the right company procedures and tools to help them then the quality and service is still likely to be poor. It is important when thinking about your supply to inspect the capability levels across your company as well as the efficiency and effectiveness of the processes that underpin your supply. It is easy to focus on the people in these examples and land on the requirement that further company training is required to boost performance of supply - systems thinking would caution us against this. It is often system conditions like company processes and policies that have the biggest impact on human behaviour and ultimately shape the effectiveness/performance of your supply.

Labour location

Whilst the physical constraint around demand has been lifted many companies still face physical constraints around their supply. In the restaurant industry the Kitchen is a prime example of this. You are limited to the number of staff you can have in a kitchen by it’s size and the equipment you have available. COVID 19 social distancing has put even more constraints on the hospitality industry in this space and at the beginning of the pandemic companies rushed to try to understand how to run a social distanced kitchen.

In contrast, other companies have been able to lift the physcial constraints through the adoption of remote working having no physical constraint on demand or supply. However, a long term shift to remote working comes with challenges around culture, wellbeing and human connection, all of which if not managed could impact labour performance.

Ultimately, to do effective labour management, you must understand the impact your labour location will have or look for ways to minimise it's impact.

Labour flexibility

As our exploration of demand showed the importance of flexibility in your supply model is imperative. The quicker you can ramp up or ramp down supply the better placed you are. The evolution of the gig economy and freelancing enable some form of supply flexibility but often fall short in enabling true responsiveness and are not active across all industries or role types. A move towards a future on-demand workforce model or a ‘just in time skills model’ is yet to emerge and will require innovation in employment contracts as well as a re-imagination of the employee-employer relationship. Businesses that move to leveraging a more flexible workforce will have to grapple with how they maintain culture and performance both of which if not kept strong could undermine the benefits of a flexible supply. It’s not an easy problem to solve but the principle still holds strong; seek to add maximum flexibility to your supply model and you will be best placed to meet demand effectively.

Labour structure

When thinking through your supply and labour model it is important to consider how you need to structure and manage your supply. What tasks does your overall experience rely on and what role types are needed? Do you want to keep your teams small to keep communication smooth? How many managers do you need per employee on shift? These questions are important in understanding how you will ensure you not only provide supply/labour but ensure performance stays high when you scale and demand is continually met– remember too many cooks may spoil the broth as the old saying goes.

Labour automation

In most supply or labour model’s technology is starting to play an increasing role in the way supply meets demand. From smart kitchens to warehouses full of automated robots constructing and packaging products, it is clear to see that technology’s role is increasing at a rapid rate. Automation can play multiple roles in your supply:

• increase speed enabling more demand to be captured
• drive consistency and quality improvements
• replace human labour and reduce cost
• enable greater flexibility and move closer to an on-demand supply

When thinking through your labour model don’t forget to consider the impact of the machines – they are part of your team now!

Concluding thoughts

Now, more than ever, we face into an uncertain world where customer demand and legislation are changing constantly and hindering companies’ ability to provide effective services, make money and keep operating. Companies will survive on their ability to not only react and act quickly but to also retain a sense of strategy and well thought through approaches. It is with this in mind that I wanted to help provide some thoughts and frameworks on how companies can understand their demand and supply to better optimise for labour management. I hope you find it useful and do feel free to reach out to me on LinkedIn if you wish to discuss any of the ideas or thoughts referenced in this article.

Photo credits:

Photo by Aleks Marinkovic on Unsplash

Photo by Annie Spratt on Unsplash

Photo by Markus Winkler on Unsplash

Photo by Louis Hansel @shotsoflouis

Photo by Brett Jordan on Unsplash

Photo by Cater Yang on Unsplash

Photo by Drew Beamer on Unsplash