Business Operations/Management

Labor - Management and Operations

By Robert Roman |

08/01/17

Over the years, I’ve been employed by well over a dozen organizations plus I’ve enjoyed over two decades of self-employment.

During that time, I have been remunerated in almost every possible way including consulting fees, hourly wages, sales commissions, salary with bonus, referral fees, publication fees, business revenues, and even bartered services for services.

Of all the forms, salary with incentives was my favorite. The reason is stability. Most career and management positions come with a salary that usually can be counted upon week after week, month after month. Whereas consulting work is like a seesaw, you are either up or down, not often in between — sort of like the seasonality in car washing. So, if you are not a good saver, it’s possible the well runs dry.

Arguably, this principal also applies to certain car wash employees. For example, I’ve operated a car wash that needed 20 employees or more a day during the busy season but only eight to 10 employees a day during the slow periods. So, the wages for about one-half of the crew was imperiled about one-half of the time. Compare this to the relative stability of working in a convenience store or fast food joint.

Of course, if the wash is an express exterior, the labor burden is stable, whereas flex-serve is more stable than full-service but less so than express. However, regardless of wash, a $15 minimum wage is most likely for all.

Arguably, stability created by salary would mitigate instability of rule promulgation that results in higher minimum hourly wage. Examining this notion begins with understanding the nature of the work and facilities.

 

Figure 1 – Staffing models
Figure 2 – Customer Arrivals
Figure 3 – Employee schedule
Figure 4 – Labor efficiency

VARIABLE STAFFING MODELS

Employee staffing models vary by location and type of wash.  Generally speaking, we can divide conveyor facilities into express exterior, flex-serve, and three variations of full-service. Each facility configuration requires a specific staffing model and as many as 10 different positions or workstations, each requiring varying degrees of skills and knowledge.

For example, full-service employees who vacuum are usually entry level and make minimum wage and tips. On the other hand, key staffers, such as greeter (table server’s wages plus sales commission) and supervisor (high hourly wage and monthly bonus), are semi-skilled positions.

Facility configurations are categorized according to characteristics such as pre-vacuuming versus vacuum on-line versus vacuum post-wash.

The plot in Figure 1 shows the relationship between cars washed per hour and the number of employees working for each facility configuration.  Of course, these are employee staffing models and not what occurs in the real world.

The principal constraint in applying these models is the arrival rate of customers. As shown in Figure 2, demand varies throughout the day.

Figure 3 shows the exact number of employees required to match the arrival rate.

Figure 4 shows the objective of employee staffing which is labor efficiency. This is represented by a flat trend in cars per man-hour between 11 a.m. and 5 p.m. However, this is a static rather than dynamic analysis.

Table 1 – Labor cost

If we calculate labor cost based on matching customer arrivals and employee staffing model, the result would look like Table 1. In practice, however, it is virtually impossible to exactly match supply with demand.

For example, as shown in Figure 3, fewer than 10 employees are needed before 11 a.m. and from 2 p.m. till close whereas as many as 16 are needed mid-day. Here, operators may resort to scheduling in a step-wise manner and/or blend in some part-time help to ensure adequate coverage.

For example, we could plan for a split schedule, each employee working an eight-hour shift. This would include eight employees during morning hours, 16 during mid-day, and eight during afternoon hou

Table 1 – Labor cost

Table 2 – Reality

Table 2 shows the difference between a model and what usually happens in the real world. The model requires 92 man-hours; reality requires 128 man-hours. If we annualized the result, the difference in labor cost between the model and reality would be $135,000.

Moreover, when the weather goes south, all these models and labor efficiency go out the window greatly affecting the profitability of the wash. Consequently, the prospect of a $15minimum wage would only make matters worse for certain car wash operato

Table 2 – Reality

SALARY VS. WAGE

So, how would paying employees a salary instead of hourly mitigate this? Let’s consider the exterior-only conveyor labor model, which consists of two persons per shift, two seven-hour shifts per day, seven-days a week, rain or shine plus on-site manager. So defined, labor is a fixed cost or overhead to cover business operating hours.

Fixed cost is analogous to salary. Fixed cost can be counted upon week after week, month after month. So, could we not count on salaried employees in a similar fashion and improve on the cost and profit pictures?

For example, researchers find that salaried employees get more satisfaction from their jobs, which translates directly into greater productivity. They also find salaried employees tend to work longer hours (no overtime) and have greater responsibility and accountability than hourly workers.

We can calculate and measure the change in productivity with operational measures for throughput and operating expenses. Throughput is sales less production cost. Operating expense is everything poured into the system to keep it operating such as labor, overhead, depreciation, etc.

To illustrate, the throughput for our example wash is $3,500 (240 cars X $17 less cost). Operating expense, labor, is $1,830. So, productivity is 1.91 ($3,500 / $1,830).

If salaries drop expense to $1,398 (cost of theoretical model), productivity would increase to 2.5. This is a 33 percent increase in productivity. The cause of this effect is the benefit created by employees working 50 hours a week as salaried rather than 40 hours a week as hourly.

Arguably, this savings would mitigate a $15 minimum wage across the board.

ADJUSTMENT IN CULTURE

In the final analysis, there would need to be a shift in theorganizational culture to pay salary instead of hourly wages.

This means moving from tasked-oriented, low-paid hourly work to a staff that constantly looks for ways to improve their performance, make more money, and contribute to the success of the company.

In other words, the constraint that would limit a car wash company from paying salaries instead of hourly is not physical like the capacity of a machine but non-physical like a person’s particular way of looking at the world.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.

 

 



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