Why labor productivity matters and how to improve it
5 ways to improve workforce efficiency
- With margins under enormous pressure, improving labor productivity is critical.
- The first step in improving productivity is measuring it; you can’t improve what you don’t measure.
- Improving productivity requires identifying unproductive processes and finding the root causes that hurt output.
- Ways to improve labor productivity include improving the quality of data entry, improving dispensing efficiency, using auto-refill, engaging in bin management and adopting med sync.
Importance of managing labor costs
After the cost of goods, which over the past decade has consistently accounted for about 77% of revenue for independent pharmacies, labor costs are an independent pharmacy’s second largest expense, representing around 13% of revenue.1 Independent pharmacy owners have had some success managing labor costs, as labor expenses declined from 13.6% of revenue in 2006 to 12.8% in 2015.
However, with margins under constant pressure, owners of independent pharmacies are looking for every opportunity to maintain or improve margins. When looking at expenses, labor costs are the most significant expenditure that is controllable, which makes improving labor productivity critical.
Productivity is a measure of efficiency. Common measures of labor productivity for retail pharmacies include:
- Prescriptions filled per labor hour
- Labor expense per prescription
These are measures of how efficient a pharmacy is at filling prescriptions. Other measures of labor productivity are revenue per employee, and revenue per hour of labor.
For any independent pharmacy it is important to measure labor productivity.
In measuring productivity, important steps are to:
- Define the key measure (or measures) of productivity that will be used
- Communicate these measures to everyone at the pharmacy
- Create a baseline that provides a starting point
- Measure progress monthly to see what actions lead to productivity improvements
Increasing productivity is done by identifying efficiency problems and opportunities for improvement. Approaches for identifying problems and opportunities include:
- Observation. Much can be learned simply through observing employees and teams as they work. The key is to take the time simply to observe and to notice ways to improve efficiency.
- Interview staff. Engage staff in improving productivity by asking them what they are doing that is wasting time and what could be done better and more efficiently.
- Focus on quality issues. If there are quality issues, such as errors and mistakes, it is a sign that there is something wrong with the process. By focusing on quality issues it is often possible to decrease re-work and errors.
- Asking “Why?” A technique used in Six Sigma — which focuses on improving quality by reducing variability and eliminating non-value-added activities — is to ask “Why?” five times. When posing a question, continue to ask “Why?” This will get to the root cause. Once the root cause is identified, it can be fixed.
5 ways to improve labor productivity
- Ensure quality in data entry. Labor productivity can be improved by making sure that the data in the system is correct; this prevents errors and re-work downstream.
- Improve efficiency in dispensing. If the dispensing process involves manually counting, it is inefficient. Use tools — such as a counting device — and processes to improve the dispensing process.
- Use auto-refill. This will improve productivity in the refill process.
- Engage in bin management. If it takes minutes to find a prescription, it is too long, meaning that productivity can be improved. Process improvements in bin management can improve workforce productivity.
- Adopt med sync. Bundling prescriptions improves customer satisfaction, operational efficiency and labor productivity. Adopt med sync and enroll as many patients into it as possible.
By measuring productivity, identifying productivity problems and opportunities, and engaging in actions to improve productivity, it is possible to improve the efficiency of labor and maintain margins in a challenging environment.