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14-50 (Continued-1)
4. As with any new employee monitoring/performance-evaluation system, behavioral
considerations are important for the implementation success of the new system. In
the present case, one might anticipate the following employee and customer-service
problems associated with the newly implemented system:
employees manipulate the system (see the quote near the end of the article)
or customer satisfaction)
customers are “processed efficiently,” but at the expense of poor or
inconsiderate service
As indicated in the article, there are several steps that a retailer can take to improve the
success of the new system (by minimizing problems associated with the system):
education—employees, through various types of education programs, need to
understand why the new system is needed (i.e., what business problem is
being addressed) and how the use of the new system can benefit the
employees
5. It would seem as if retailers competing on the basis of cost (low-cost strategy) rather
the amount of staff required. It could also be used to determine peak-load periods,
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when increased staffing would be required. In all these cases, the retailer is able to
achieve a more efficient deployment of its labor force.
Below is a reproduction of the original article.
______________________________________________________________________
WSJ, November 13, 2008 (pp. A1, A15) By VANESSA O’CONNELL
SHELBY TOWNSHIP, Mich.–Daniel A. Gunther has good reason to keep his checkout
line moving at the Meijer Inc. store north of Detroit. A clock starts ticking the instant he
scans a customer’s first item, and it doesn’t shut off until his register spits out a receipt.
To assess his efficiency, the store’s computer takes into account everything from the
kinds of merchandise he’s bagging to how his customers are paying. Each week, he
gets scored. If he falls below 95% of the baseline score too many times, the 185-store
megastore chain, based in Walker, Mich., is likely to bounce him to a lower-paying job,
or fire him.
American retailers have come under tremendous financial pressure as beleaguered
consumers curtail their spending. At least 14 major chains have sought bankruptcy
protection over the past 12 months, and many others are struggling. With nearly all of
them under the gun to cut costs and improve profit margins, “labor-waste elimination”
systems like the one used by Meijer are sweeping the industry.
Daniel Gunther, who works at a Meijer megastore north of Detroit, says he has been
told ‘get people in and out’ of the checkout line to improve efficiency.
The brains behind Meijer’s system is a consulting and software company known for
decades as H.B. Maynard & Co., which last year became the Operations Workforce
Optimization unit of Accenture Ltd. Borrowing from time-motion concepts first developed
for U.S. steel mills and factory floors, it breaks down tasks such as working a cash
register into quantifiable units and devises standard times to complete them, called
“engineered labor standards.” Then it writes software to help clients keep watch over
their work forces.
The client list of OWO, as it is now known, has included more than five dozen retail
chains, including Gap Inc., TJX Cos., Limited Brands Inc., Office Depot Inc., Nike Inc.,
and Toys “R” Us Inc. A host of other “work force management” companies also offer to
help retailers improve worker productivity.
Interviews with cashiers at 16 Meijer stores suggest that its system has spurred many to
hurry up—and has dialed up stress levels along the way. Mr. Gunther, who is 22 years
old, says he recently told a longtime customer that he couldn’t chat with her anymore
Chapter 14 – Operational Performance Measurement: Sales, Direct-Cost Variances, and The Role of
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14-50 (Continued-3)
during checkout because he was being timed. “I was told to get people in and out,” he
says. Other cashiers say they avoid eye contact with shoppers and generally hurry
along older or infirm customers who might take longer to unload carts and count money.
Reactions from customers at Michigan stores vary. “Sometimes you like to get in and
get out right away,” says Barb Bush, who shops at Meijer stores in DeWitt and Owosso
and says she likes the current system. “A lot of [the cashiers] like to stop and chat, and I
don’t really have the time for it.”
Linda Long, 58, who shops at the Okemos store weekly, says of the cashiers:
“Everybody is under stress. They are not as friendly. I know elderly people have a hard
time making change because you lose your ability to feel. They’re so rushed at checkout
that they don’t want to come here.”
Meijer spokesman Frank J. Guglielmi said in an email that “as the retail landscape
became more crowded and competitive, Meijer has focused more intently on
maximizing efficiencies.” The engineered standards, he said, take into account all types
of customers, including the elderly. The system, he said, has enabled Meijer to staff
stores more efficiently, and has increased customer-service ratings. Meijer, a family-
owned chain with more than 60,000 employees in five states, doesn’t disclose its
finances.
Mr. Guglielmi says Meijer “expects employees to be at 100% performance to the
standards, but we do not begin any formal counseling process until the performance
falls below 95%.” If a cashier is “challenged in their position,” he says, the company
provides “training and counseling to help improve their performance. If this doesn’t help
them, there are various alternatives.” He declined to elaborate.
Customers at several Michigan stores said managers appeared to be opening fewer
checkout lines than before, relying on faster-moving cashiers and self-checkout systems
to pick up the slack. “I do notice that the cashiers go a little faster, but it doesn’t
necessarily matter because there aren’t that many cashiers,” says Melissa Shoe, 20, a
regular shopper at the Lansing store. Before Meijer installed its system a couple of
The approach is rooted in the time-motion theories of Frederick Taylor from the early
20th century, which were used to break down tasks into units to determine the
maximum work a person could do. Harold B. Maynard, the company’s founder, began
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his career in 1924 as a time-study engineer at Westinghouse, then formed his own
company. For 70 years, that company worked primarily for manufacturers.
In 2000, after demand from manufacturing industries declined, the company shifted into
retail. These days, about 80% of its $20 million in annual revenue comes from retail.
“As manufacturing gets shipped overseas, many people thought that would be the end
of engineered standards,” says John Lund, a professor of industrial engineering at an
extension program for workers at the University of Wisconsin. “In fact, we are not seeing
that at all. We are seeing a renaissance of engineered standards in the retail industry.”
Hannaford Bros., a subsidiary of the Belgian Delhaize Group, says OWO helped it
At Bob’s Stores, a Northeastern clothing and footwear chain, the software revealed that
shaving one extra second from the checkout process for each shopper would produce
Engineering Meets Service
Unlike factory workers, most retail clerks deal face-to-face with customers, which raises
questions about how such labor standards can affect customer relations.
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14-50 (Continued-5)
“If it is the type of job where you can lay out every element of the job, then you might get
more output per hour” using such a system, says Barry Hirsch, a labor professor in the
economics department at Georgia State University. “But if it is a job that requires things
that can’t be quantified—special effort for a customer, or just being friendly—then
delineating things too carefully for how employees behave can decrease productivity,
because you’re just so focused on working to precise guidelines.”
OWO says retailers can, and should, adjust time standards to take into account
customer service and other variables such as store layout or sales volume, which can
affect how long it takes employees to perform certain tasks. In a study late last year for
pet supplies.
In recent years, it has faced mounting competition from discount supercenters owned by
Wal-Mart Stores Inc., which often offered lower prices on general merchandise. Meijer
adopted the new labor standards for cashiers to boost productivity. It added fingerprint
readers to cash registers so cashiers can sign in for work directly at their registers, not
at a time clock, “saving minutes of wasted time,” says Roy Smith Jr., the former director
of Meijer’s Benton Harbor, Mich., store. The chain also installed a system to monitor
how many cases per hour stock workers were loading onto shelves.
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“selling, general and administrative” expense, which includes labor, fell about 4%. The
company spokesman declined to comment on those numbers, but said that most Meijer
stores now employ between 250 and 400 workers.
In spring 2007, Meijer began disciplining cashiers who couldn’t keep up with its baseline
standards, according to Mr. Smith and several longtime cashiers. Hitting the baseline
Store managers used the scores to decide whether new cashiers still in the 90-day
probationary period should be transferred, or fired. Longtime employees also were
scrutinized. In a given week, up to one-fifth of the scores posted were below 95, current
and former cashiers say.
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Before the scoring system, “nobody knew who was good,” says Mr. Smith. Afterwards,
managers knew “this person isn’t as strong as that person. It becomes really obvious,
and you’re able to put a number to that.” Cashiers were counseled for as many as
seven weeks on improving performance; those who didn’t lost their jobs, he says.
Employees with scores below 95 are told: “Get your percentage up, and we’ll have a
manager watch you to see what you should do differently,” says Nastassia Gauna, who
worked as a cashier at the Adrian, Mich., Meijer store before quitting, she says, in
August.
The X Factors
The computer scores, Ms. Gauna says, don’t “take into consideration the many things
that can go wrong at a register to kill your time”–a customer who doesn’t have enough
cash and is “digging through a purse,” a credit card that doesn’t swipe through the
charge, or an item with no price or item number on it. Some customers ask for
cigarettes located in another part of the store, and the cashier has to get them. Others
forget items and retreat to the aisles to find them.
Buying Time
Operations Workforce Optimization (OWO), a unit of Accenture, breaks down tasks into
quantifiable units, devises standard times to complete them, then writes software to help
clients keep watch over their workforces. Here are some ways it trimmed time from
common tasks at an unnamed grocery retailer.
Produce
Bananas, a top-selling item, are stocked by grasping inverted bunches by the
tips. Flipping the box over prior to stocking allows the employee to grasp
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multiple bunches at once by the stems. Projected savings: $100,000 per
year.*
Bakery
Some breads and rolls are packaged in plastic bags and closed with twist
rather than bringing the rack to the workstation. Projected savings: $20,000
per year.*
(*Savings generally vary according to the number of stores in a chain.)
14-50 (Continued-7)
“Recovering” Items
At clothing retailers, OWO defines “recovery” as collecting an item that has been left
behind or disturbed by a shopper. Tasks vary, depending on the scenario — re-hanging a
garment that’s on the ground versus one that’s not on the ground — and the store.
Handling an item and looking for a tag should take about 1.8 seconds. Buttoning or
zipping a garment should take about 2.4 seconds.
To help a large clothing chain figure out efficient staffing, OWO’s analysis found that in
high-traffic stores, for every 100 customers purchasing something, 50 pieces of
This kind of behavior, of course, tends to tick off other shoppers waiting in line, but
some of them sympathize with the cashiers. “I am 84, and I get behind some old person
and I can’t stand it,” says one shopper at the Owosso store. “They go into their purse
and they are counting out a penny, and I am thinking that poor clerk, and people are
lining up. But it’s not the clerk’s fault.”
Kristine E. Barry, a cashier at the DeWitt store, says she began to see cashiers hurry
along elderly customers by telling them to put their items on the belt more quickly
Education.
Chapter 14 – Operational Performance Measurement: Sales, Direct-Cost Variances, and The Role of
Nonfinancial Performance Measures
Jacqueline Sue Hanning, 25, took a job as a cashier in the Adrian, Mich., store for $7.15
an hour, in July 2007. She says she was “written up” three or four times last spring for
hurry,” recalls Ms. Long, the regular customer at that store. “And he was saying, ‘When
you’re afraid you’re going to lose your job, you’re going to make more mistakes.’ “
The United Food and Commercial Workers Union, which covers about 27,000 Meijer
employees in Michigan, including 3,000 cashiers, has filed a grievance against the
company in connection with the cashier-performance system, saying it has found flaws
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in it. The union says the matter is headed for arbitration. The Meijer spokesman
declined to comment.
Ms. Barry, the DeWitt cashier, who says her weekly score usually hits or exceeds the
stay in the cart. Ms. Barry sometimes uses the remote scanner for non-bulky
merchandise.
“It is pretty much survival,” she says. “You have to learn the tricks of the trade.”
Write to Vanessa O’Connell at vanessa.o’connell@wsj.com
______________________________________________________________________
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14-51 Master Budgets, Flexible-budgets, and Profit-Variance Analysis (60 minutes)
1.
Flexible- Sales Master
Actual Budget Flexible Volume (Static)
Results Variances Budget Variance Budget
Unit sales 100,000 0 100,000 10,000F 90,000
Sales $500,000 $-0- $500,000 $50,000F $450,000
Variable costs 375,000 75,000U 300,000 30,000U 2870,000
Contribution margin $125,000 $75,000U $200,000 $20,000F $180,000
Fixed costs 55,000 20,000F 75,000 0 75,000
$55,000U $20,000F
2. Profit variances for December:
a. Total Master (Static) Budget Variance = actual operating income master
budget operating income = $70,000 − $105,000 = $35,000U
b. Total Flexible-Budget Variance = actual operating income − flexible-budget
d. Sales Volume Variance, in terms of contribution margin = flexible-budget
contribution margin − master budget contribution margin = $200,000 −
$180,000 = $20,000F
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14-51 (Continued-1)
e. Selling Price Variance = actual sales revenue flexible-budget sales
3. The labels “favorable” or “unfavorable” in the context of the type of profit-variance
report prepared above have a very narrow meaning: impact of the variance in
question on the short-run operating profit of the organization. Whether individual
4. The total flexible-budget variance contains the net (or composite) effect of selling
price per unit being different from planned, variable cost per unit being different
from planned, and total fixed cost being different from planned. In the calculation
of both the total flexible-budget variance and the three component variances (viz.,
selling price variance, total variable cost variance, and total fixed cost variance),
5. The purpose of this question is to encourage students to think critically about the
use of traditional financial-control tools (viz., standard costs, flexible budgets, and
standard-cost variances) as part of a comprehensive management accounting
and control system. These criticisms are especially pronounced in an “advanced
Criticisms of Standard Costing
1. Variances are too aggregate and too late to be useful. The notion of aggregation
means that the organization may achieve local optimizations (various subunits of
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