What is shrinkage and how should it be managed?
Shrinkage is a normal part of business operations. A helpful analogy from a business perspective is the way grocery stores handle fresh produce, which cannot remain in inventory indefinitely. As these products expire, the stores incur expenses when they are discarded. Contact centers that employ frontline associates also need to account for shrinkage in their P&L statements.
In simple terms, an associate cannot be expected to be fully productive for 40 hours a week (8 hours a day, 5 days a week) due to factors like vacation, unexpected emergencies, illness, breaks, and lunches. The appropriate amount of shrinkage varies depending on circumstances.
Shrinkage can be divided into two main components:
1. Out of Office Shrinkage: This accounts for the time when associates are not working for the entire day, typically due to vacation or sick days.
2. In Office Shrinkage: This considers the time when associates are in the office but unavailable to work, such as during breaks, lunches, team meetings, coaching, training, or other miscellaneous activities.
Determining the correct amount of shrinkage depends on organizational beliefs and culture. Some companies offer generous vacation benefits, while others follow standard policies. Certain companies prioritize employee development and are willing to bear the expense of in-office shrinkage, believing that it will enhance the overall customer experience by having a well-trained staff.
Calculating shrinkage can be done using straightforward methods. For out of office shrinkage, determine the number of working days within a timeframe and allocate a specific number of days for employee time off. For example, if there are 260 working days in a year and the company provides 10 vacation days, the vacation shrinkage would be approximately 4% (10 Vacation Days /260 Working Days).
To calculate in-office shrinkage, consider the number of hours an associate works in a day and decide on an acceptable amount of non-productive time. For instance, if an associate works 8 hours and takes a 1-hour lunch break, the lunch shrinkage would be approximately 12.5% (1 hour lunch / 8 in office hours).
As an operator, it's crucial to strike a balance. Allowing excessive shrinkage increases expenses and negatively impacts profit and loss. Conversely, allowing too little shrinkage can result in employee burnout and other uncontrollable forms of shrinkage, such as absenteeism. Networking with operators in the industry and seeking their shrinkage targets can provide additional guidance. It's important to establish a standardized method for calculating shrinkage, as different companies may approach it differently. The provided examples offer an easy way to standardize shrinkage calculations.
Wishing you the best in determining the appropriate amount of shrinkage for your contact center!