lean retailing

LEAN RETAILING – COMPETITIVE TOOL FOR RETAIL DYNAMI CS

Sub theme : Retail marketing.

Dr. P. Chitramani

Associate Professor

Avinashilingam School of Management Technology

Avinashilingam Deemed University for Women

Coimbatore -641044,

Tamil Nadu , India

e-mail : [email protected]

Mobile No : 91 9843358352

And

B. L. Lakshmi Meera

Research Scholar

Avinashilingam School of Management Technology

Avinashilingam Deemed University for Women

Coimbatore.

Tamil Nadu , India


Abstract

Organised Retailing in India is experiencing a boom but is challenged by the traditional mom and pop stores on one hand and by the online retailers on the other. The first challenge facing the organised retail industry in India is the competition from the Mom and pop stores. Traditional retailing is a low cost structure, mostly owner-operated and has negligible real estate and labour costs with little or no taxes to pay but enjoys long term consumer loyalty that runs from generation to generation. This dynamics in the Indian retail sector have questioned the leveraging of store profitability to the high cost and low prices.

The general retail myths that directs the retail industry are that the retailers cannot predict the demand, product availability can be increased only through increased inventory and customer experience can be ensured by high labour cost. The modern retail practice of lean retailing has ensured predictability of demand, reduced inventory and increased labour empowerment, integration of ‘upstream’ improvement programs at the distribution centres and eliminated or simplified the task that are visible to the consumers.

The paper present the problems and prospects of implementing lean retailing systems and presents a complete solution of Lean retailing to the powerful retailers who insist on rock-bottom prices and refuse to carry inventory based on the experiences of Wal Mart, Starbucks and many more.

Key words: Lean Retailing, Retail dynamics, Upstream distribution centres, real time delivery, on-demand products.


Lean thinking is to produce more or do more with fewer resources while giving the end

customer exactly what he or she wants. This means focusing on each product and its value

streams. The most important to remember is that lean is not simply about eliminating waste-

it is about eliminating waste and enhancing value. Value in the context of lean, is defined

something that the customer is willing to pay for.

Lean principles focus on creating value by:

1. Specifying value from the perspective of the end customer

2. Determining a value system by

• Identifying all of the steps required to create value

• Mapping the value stream

• Challenging every step

3. Lining up value , creating steps so they occur in rapid sequence

4. Creating flow with capable, available and adequate processes

5. Pulling materials, parts, products and information from customers

6. Continuously improving to reduce and eliminate waste.

The concept of lean retailing found its roots from lean manufacturing. Lean manufacturing

means producing goods with less, without affecting the quality and quantity of the goods

produced. The Toyota production systems (TPS) focused on several sources of it :

overproduction is caused by emphasis on supply rather than demand, wasted motions due to

poor processes, waiting time generated by tuning the production system to be faster,

conveyance waste caused by poorly designed supply systems that delay transit of goods,

processing waste from badly designed systems, raw material waste from inefficient design or

ineffective supply strategies and correction waste caused by reworking badly made products.

The result of TPS include enormous advances in robotic manufacturing systems, and factory

design and just in time inventory management, the Kanban system of visual inventory

replacement cues, demand pull management of manufacturing planning and others.

Lean retailing combines the principles with the best practices of retail operations. According

to Mc Kinsey retailers develop a series of activities that would directly or indirectly improve

customer experience. Some of the activities are:

1. Rebuilt every work process from the customers perspective to save labour costs and

fund improvements in customer services

2. Made upstream improvements at the distribution centre, improved merchandising and

eliminating or simplified tasks that were invisible to customers.

3. Piloted process changes in a handful of stores and tested implementation

programs giving mangers intensive training, added support, easy to use frontline

tools and greater accountability for success.

4. Strengthening standard benchmarking approaches with rigorous performance

management tools to compare operating and financial metrics and achieve real

store level performance improvements.

Mc Kinsey reports that lean principles help retailers increase the capacity for future

growth initiatives, improve the quality and consistency of frontline execution, enhance

the enthusiasm and motivation of frontline staff and create distinctive shopping

experiences for customers – all while improving margins.

Lean retailing is reality due to the development and application of information

technology in the retail sector. Information technology via bar codes enables retailers to

track products that have diffused into all retail sectors (Gill and Abend 1996).

Information technology that provide real time information on specific products at the

store , region and company level help retailers reduce inventory levels by substituting

information for inventory (Brown 1997, Black and Lynch 2001). Information has

changed the way in which retailers relate to their suppliers. Retailers having accurate

and timely information on product sales order more frequently and in smaller quantities

and demand faster order fulfilment (Fisher and Raman 1996).

Retail practices are being transformed to be lean by investment in information

technologies and automated distribution centres, and creation of pricing, inventory and

logistics strategies that draw on these investments. Innovative retailers reduce their

expose to demand risk by adjusting the supply of products at retail sites to match

consumer demand on the basis of daily, point of sale information flowing from bar code

scanners within individual stores. These retailers consolidate their data and send orders

to suppliers based on actual sales. These retailers demand suppliers to be competent

to meet rapid replenishment requirements that reduce the lead time between the

retailers order and delivery of goods to the retailer distribution centre. (Abernathy,

Dunlop, Hammod and Weil, 1996).

The demanding customers and revolution in information technology created a new

retail model that provided customers with variety of products while reducing exposure

to demand risk by constantly adjusting the supply of product offered to customers to

match actual market demand. Modern retailers attempt to incorporate into their total

cost functions both direct product costs and indirect costs associated with demand

uncertainty. They combine information technology to track sales on an individual style,

colour, fabric and size basis at the store level on a real time basis and manage

inventories store and firm level. Based on daily sales information, products are

replenished at the store level relatively quickly and order flows to suppliers become

more continuous and of lower volume but often greater diversity. In India organised

retailing is experiencing a boom but is challenged by the traditional mom and pop

stores on one hand and by the online retailers on the other. The first challenge facing

the organised retail industry in India is the competition from the Mom and pop stores.

Traditional retailing is a low cost structure, mostly owner-operated and has negligible

real estate and labour costs with little or no taxes to pay but enjoys long term consumer

loyalty that runs from generation to generation. This dynamics in the Indian retail sector

have questioned the leveraging of store profitability to the high cost and low prices.

In the organised sector the apparel retailing has modernised to meet the growing global

demand. With expanding global trade, there are more potential producers in a wide

variety of countries. With consumer demanding more variety, more fashion, more

product access and lower prices, pressure on suppliers to search for new source of

supply will increase. Modern retailers place greater risk arising from added variability

of product demand, forcing suppliers to balance the direct costs of sourcing against

indirect consequences of being left holding the inventory. Compounding these industry

specific issues decision makers are confronting currency volatility, impact of changing

policies regarding terrorism, the potential threats to location posed by transnational

diseases, and ongoing uncertainty caused by changes in the political climate between

trading partners (Arnold 2005). For the supplier, supply chain restructuring has led to

an increased focus on inventory carrying cost and risks and manufacturers making

global souring decisions have begun to account for these expenses (Abernathy et al

2000).

The complex business environment implies that apparel retailing will be driven by two

set of factors: for products with single seasons and limited prospects for replenishment

traditional cost of tariffs will frame the retail success and for products where retailers

and suppliers seek ongoing replenishment direct cost related to labour, textile inputs

shipping and tariffs are balanced against the cost associated with lead times, inventory

and their attendant risks (D Weil: 2006).

The research paper on “Lean retailing – Competitive tool for retail dynamics”, focuses

on apparel retailers in Coimbatore and Tirupur districts in Tamilnadu who have

implemented information technology via barcodes, EDI and e- commerce.

Research Methodology

The retail dynamics and challenges were short listed through interviews with the 20

retailers in the first phase of the research. In the second phase of the research 50

retailers who have implemented information technology via barcodes, EDI and e-

commerce were interviewed using a schedule to identify activities that will impact lean

operations, the expected benefits and the strategic actions that would lead to lean

retailing.

The lean retailing activities included in the study related to Process, Supplier,

Warehousing, Transportation, Customer and IT activities. The impact of these activities

on lean retailing was measured based on the influence of these activities on waste

reduction and value addition to the customers across a three point scale namely ‘highly

influential, influential and not influential’ and the mean scores reflects the level of

impact of these activities on lean retailing.

The retailers were asked to rate the benefits of carrying out lean retailing activities in

relation to the speed and responsiveness to customers, reduced inventory and increased

customer satisfaction across a three point scale highly beneficial , beneficial and not

beneficial and the mean score reflects the customer value addition due to strategic

implementation of lean retailing. The consolidated data is presented as research

outcomes and the managerial implications

Research Outcomes and Managerial Implications.

The apparel retailing sector has evolved a multifaceted dimension over the years. In the

early markets many sellers designed their goods for specific men and women and

shoemakers custom made shoes. These craftsmen did not produce for inventory but for

order, because they did not know in advance what sizes or materials their customers

would require. Even today some people order customised suits, shirts and shoes to fit

their individual requirements. But generally the advent of mass production led

producers to produce standard sized goods for inventory. Today, customised marketing

is coming back in a new form that Stanley Davis calls as "mass customisation”.

Phase – I Retail Dynamics

Apparel industry is highly driven by fashion and the revolution in readymade apparel saw the

growth of apparel retailing. The revolution of readymade apparels, piles-up assorted varieties

in retail outlets and the acceptance of the Westernized fashion apparel in India does not mean

that marketing strategies be based on the needs, desires, lifestyle and drives of Western

customer. Apparel purchase decision which is highly imagery led will be effected by the

complexity in Indian consumer purchase decision. To be successful it is essential for retailers

to pinpoint the individuality expressed by their target segments and build and add value to the

customers. In this scenario the retail challenges identified through the expert interviews with

20 retail managers and supply chain partners were:

Table -1 Challenge in Retailing

Challenges Percentage

Direct relationship with the end user/ customer 90

Large number of fragmented stores 70

Low labour productivity and high labour turnover 80

Low profit margins 85

Dynamic changes among suppliers and channel partners 95

Combating consumer shifts in lifestyle and demographics 75

Changes in global fashion and textile trends 90

Dynamics of costing due to exchange rates and inflation 75

Inexperienced associates 65

Lack of store autonomy and empowerment 65

Indian consumer’s decision are outcome of the complex interplay of environmental factors

like culture, social class, personal influences, family, situations and of individual differences

in resources, involvement levels, knowledge, attitudes, personality and values, so an

important parameter for success of retail outlets, the organised retail chains and multi brand

apparel stores find it difficult to establish direct customer contact.

The retail outlets find it difficult to improve frontline customer services and frontline

employee satisfaction due to the low productivity and high employee turnover. This has

increased the cost of recruitment and training to a great extent leading to low margins.

Further the changes in the global trends and changes in the consumer lifestyle and

demographics with dynamics of exchange rates have challenged the predictability of overall

demand and force the retailers to find effective practices to reduce inventory levels and out of

stocks.

The organised retail sectors function as franchises in most changes and are defined by the

standardisations set by the parent retail brand owners, this when not coupled with

empowerment of local retailers endanger the advantages of consistency and standardisation.

This coupled with empowered channel partners and distributors and inexperienced associates

affect the efficiency of retail chains. The challenges of retail chains have been experienced by

manufacturers and lean manufacturing strategies were looked upon as competitive weapons,

hence the implementation of the lean concepts of manufacturing in the retail industry can

address the challenges faced by the retailers today.

Phase – 11

Lean Retail activities and benefits

In today’s apparel retail segment retailers control only pieces of the supply chain and the

companies and divisions that control those various components may be located just about

anywhere in the world. The value added processes by apparel retailer’s stretch across the

entire demand chain management and supply chain management processes which includes

the entire flow of product , starting with raw materials and ending at the retail outlets, it is a

large business process and the retailer has to manage it.

Value adding activities required to design order and provide product from concept to launch,

order to delivery and raw materials to customers, and define the competitiveness of retailers.

To design a value chain for a product, retailers need to select a product family and collect

process information. The process map pictures the processing steps and information flow for

the process as it exists today. Next the improvement opportunities through the use of lean

concept are mapped. The current state map includes product flow, transportation links,

defects and delivery time and steps and information flow. The flow within facilities is well

defined, transportation methods between facilities are tracked to scrutinise the bottlenecks

waste and process improvements.

Lean business systems are used to organise and manage product development, production and

logistics operations, suppliers and customer relations. It is used to create precise customers

value- good and services with more variety in lower volumes with higher quality and fewer

defects – with less human effort, less space, less capital, and less time. The retail challenges

of today demands these changes and the manufacturers with their forward integrations to

support the lean manufacturing and agile supply chain strategies expect their retail partners to

be lean too.

The technological advancements which enable the customers to exercise global access to

products and services have enforced the retail environment to be dynamic addressing the

unique combinations of service and product needs while maintain the process standards. The

customer touch zones, product cannibalization and brand substitutions have challenged the

retailers to address demand predictability, strong employee enthusiasms, brand

standardization, frontline execution, in store processes and logistics.

Retailers struggle to tackle the changing customer needs without increasing the labour cost

and by reducing inventory levels and out of stock situations. Lean retailing is a strategic

solution, as Lean works with a twin objective of cost reduction and quality improvement to

meet the customer needs.

Lean is a cooperative process and requires an attitude of continuous improvement.

Coordination of all departments to reduce waste, duplication and lack of appropriate timely

communication are problems cited by the retailers. Retailers focused on store profitability

with techniques such as simplifying work design, using “pull” to drive replenishment,

removing bottlenecks throughout supply chain and eliminating wasted efforts, wasted time,

material and wasted motions. These techniques apply to the retail environment (McKinsey &

Company). Some of the retailing activities that were found to have influence on waste

reduction and led to quality improvement are:

Table -1 Influence of activities on Lean retailing

The aim of lean retailing is to create flow between facilities, levelling pull within each facility

and eliminating waste. Customer lead times are shortened. The method of levelling pull

might be to install frequent transport runs, information flow could be improved by installing a

ACTIVITIES Level of influence High Moderate Low Mean

Process Related Stop defective products at sources. 45 5 2.9 Combine processes together. 30 18 2 2.56 Change the physical relationship of process components . 24 22 4 2.4 Eliminate excess material handling steps. 42 8 2.84 Eliminate pointless process steps. 28 15 7 2.42 Reducing waiting time for orders, people or information. 38 12 2.76 Supplier Related Suppliers ability to respond to changes. 16 29 5 2.22 Suppliers who ensure on time deliver 13 35 2 2.22 Suppliers with a culture of continuous improvement. 18 22 10 2.16 Suppliers with lower prices and efficiencies of Processes 10 28 12 1.96 Procurement Related E – procurement 42 8 2.68 Automated e- procurement conducted transactions 6 34 10 1.92 Strategic sourcing 28 13 9 2.38 Bidding and reverse auctions using web applications 8 12 30 1.56 Warehousing Related Reduce Defective products which creates returns 48 2 2.96 Avoid overproduction or over shipment of products 39 9 2 2.74 Reduce excess inventories requiring additional space and reduce warehousing efficiency

34 9 7 2.54

Avoid Excess motion and handling 23 22 5 2.36 Reduce Inefficiencies and unnecessary processing steps 17 29 4 2.26 Optimise transportation distances 10 31 9 2.02 Reduce waiting for parts, materials and information 32 9 9 2.46 Improve information processes 27 20 3 2.48 Transportation Related Include core carrier programs 38 12 2.76 Improved automated transportation processes 32 9 9 2.46 Optimized mode selection and pooling orders 48 2 2.96 Combined multi stop truckloads 10 28 12 1.96 Cross docking 30 12 8 2.44 Improved Import/ export transportation processes 48 2 2.96 Inbound transportation and backhauls 36 14 2.72 Customer Related Effective partnership with customers 48 2 2.96 Demand value from the products they purchase 36 14 2.72 Improve customer interaction processes that adds value 17 27 6 2.22

web based process to allow real time flow of information between all supply partners. This

will create benefits of reduced cycle time, reduced labour expenditure, improved product

quality, space saving, reducing inventory and quicker response to the customers. The success

of lean retailing again depends on all channel partners intention to reach new levels of

efficiency and effectiveness.

It is clear from the activities carried out by the retailers that the overriding objective of lean

retailing is to eliminate waste of materials, manpower and processes to create value for the

customer. Their focus is on reduced stock keeping units, reduced returns through all quality

inspection and checks performed within the process, adaptation of true demand to order

scenario and minimisation of stock holdings by linking shipments to next line of supply

chains, and optimisation of warehousing and transportation space and distance.

The benefits of the retailers who have adopted the above said lean retailing activities was

analysed based on the response to the value addition created by the lean activities across the

three point scale high , medium and low and the results of the same are presented table -3.

Table -3 Benefits of Lean Retailing Practices

Value addition High Moderate Low Mean Speed And Responsiveness To Customers Rapid response as the culture 32 11 7 2.5 Speedy response is the norm and expectation 12 29 9 2.06 Minimal procedures to meet customer demands 48 2 2.96 Quick delivery and reduced lead time 36 14 2.72 Reduced Inventories Inventory is considered waste 20 26 4 2.32 Stock directly into trailers 12 32 6 2.12 No inventory due to defective products, out of demand products or product returns

17 32 1 2.32

Less space designated for non moving stock 23 17 10 2.26 Improved Customer Satisfaction Minimises new product development time and expenses 41 9 2.82 Delivers the product to market faster 46 4 2.92 Incorporate current requirements into the product 31 12 7 2.34 Shorter product life cycle 13 21 6 1.74 Build loyalty and profitability by being innovators 50 3

Lean Retailing Strategies for Meeting Challenges of Retail Dynamics

The retailers are facing challenges of ensuring meeting dynamic customer demands dictated

by global trends and local purchase behaviours while increasing the value proposition

through effective forecasting, reduced inventory and stock out situations. Retail chain need to

develop an environment which ensures that the products are pulled by the customer and

design processes that support supply chain processes or information flows with a thorough

understanding of the demand destination of the final product that will complete the cycle.

Retailers overcome the challenge of delays and discontinuities in the supply chain process

caused by starting and stopping processes or information streams by optimising the

transportation and warehousing activities while reducing wastage due to inefficient

operations in processes and by establishing effective supplier and channel partnership. Hence

the strategic solution to meet the retail dynamics is the effectively implement lean principles

to retailing.

The principle of lean holds good for lean retailing too and the major implementation

guidelines are:

Retailers have to

1. Define from the customer’s point of view not retailers. This eliminates the waste

caused by such things like making the wrong product, making the product at a

unsuitable quality and packing in unsuitable assortments, delivery too slowly or

through the wrong channels.

2. Ensure that supply chain should flow continuously and so should information that

supports it.

3. Make sure that the entire organisation continue design and manage activities and

culture towards perfection, concentrating on eliminating the waste and the addition of

value in all its supply chain processes.

The operational strategies to ensure the lean retailing strategy are:

1. Demand Chain Management: The activities and practices of marketing and supply

chain need to manage and co-ordinate the whole demand chain management. The

retailers need to integrate the demand processes ( market /customer analysis, target

market approval, forecasting, segmentation , designing value proposition, transaction

delivery services, cross selling and up selling offers) and the supply processes

(designing supply chain and service packages, order receipt and fulfilment, physical

distribution services and monitoring of supply network) with the customer buying

cycle. It includes receiving demand signals from customers and turn signals from

customers into components of the final saleable product.

2. Product and Process Standardisation: Dealing with standardised product

specifications prevents the retailers from being locked into one vendor of component,

can use same component in many products component standardisation reduces

required inventory levels standardised software for accounting processes enables

meeting requirements of multiple suppliers and customers. Process that

standardisation across many of the company’s product may be used to produce

whatever product is currently in demand.

Industry standardization enable the retailer can shift from one supply partner to

another; standardized information flow facilitates shifts in products and suppliers,

standardized information and financial processes support demand management and

supplier relationship. Industry standardisation reduces complexity and development

costs of products and product variation through interchangability.

Improved information processes like EDI, barcodes ensures communication and

documentation efficiencies. Industry standard information system reduces the

complexity of required supporting information, cost of acquiring and processing

information. Improvisation of retail processes by Barcoded sales utilizing Uniform

Product Code (UPC) barcodes, order processing via electronic data interchange

(EDI), shipments supported by Barcoded shipping can ensure successful

implementation of Lean retailing.

3. Collaboration: Retailers have to maintain a portfolio of profitable customers and this

means selling and delivering on the basis of a thorough understanding of customer

needs, profit potentials and supply capabilities. Customer collaboration enables

demand signals to be transmitted efficiently and supplier collaboration promotes

efficient flow of components and products, minimises the inventory levels and costs.

Digital integration which supports CRM and SCM need to prioritize customer

partnership through customer management systems should be implemented.

4. Value systems: Lean retailing requires changes if people’s behaviour, business

processes and technology. The twin goals of Lean retailing - continuous quality

improvement and cost reduction led to conflicting interest within the organisation.

The retail efficiency increases when every participant concentrates on waste reduction

and quality improvement. A culture of continuous improvement need to be set forth

through proactive sharing of information for mutual understanding of the individual

roles for improving the retail efficacy and efficiency.

Lean retailing as a competitive weapon must aim at aligning employees, departments, supply,

channel partners and customers to align themselves with each other and coordinate their

continuous improvement efforts. It enables retailers and channel partner to participate

multiple procurement functions through commitment, planning and collaboration.

Reference

Arnold Dennis (2005), “Textiles and apparel sourcing: the Complexity behind low cost

labour in supply chain”, Asain Labour Update Issue no 54, pp 1-8.

D: Weil : 2006 Lean retailing and supply Chain restructuring : implications for private

and public governance, Weil: Draft, pp 1-24

Gill , penny and Jules Abend (1996) “ Wal- mart : the Supply Chain Heavyweight

Champion” Supply Chain review (summer ) ; 8-16

Abernathy, Frederick h., John T Dunlop, and Janice H Hammond and David Weil, 2000,

“Control your inventory in a world of Lean Retailing”, Harvard business review, November /

December , pp 169 -176.

Black, Sandra E and Lisa M Lynch 2001, “ how to compete: the Impact of workplace

practices and information Technology on productivity” , The Review of Economics and

Statistics 83 ( august ), 434-445

Brown , Stepen 1997, revolution at the checkout counter : the explosion of the bar code,

Cambridge , MA: Harvard University Press.

Fisher, Marshall and Ananth Raman, 1996, “Reducing the Cost of Demand Uncertainty

through Accurate Response to Early Sales,” Operation Research 44(Jan-Feb):87-99.

Tony Curtis, Jin An and Robert Gett, 2008, “Applying Lean Six Sigma Principles in Retail Stores”,www.accenture.com Frederick H. Abernathy, Anthony Volpe, and David Weil,2005,The Future of the Apparel and Textile Industries:Prospects and Choices for Public and Private Actors”, Harvard Center for Textile and Apparel Research Lynn Oxborrow,2000,” Beyond Needles and Thread:Changing Supply Chains in the UK”, Harvard Center for Textile and Apparel Research

lean retailing

Documents