How Lean Consumption can Transform Retailing and Supply Chains
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This document discusses applying lean principles to consumption and retail supply chains. It makes the following key points: 1. Current consumption processes are often inefficient and waste consumers' time with unnecessary steps and delays. Mapping consumption processes alongside supply chains reveals opportunities for improvement. 2. Principles of lean consumption include solving consumer problems completely, eliminating wasted time for both consumers and providers, providing customers with exactly what they want, where and when they want it, and continually improving solutions to reduce consumer hassle. 3. Rapid, reflexive replenishment loops can compress supply chains, eliminate excess inventory, and better meet consumer demand through frequent, small replenishments directly triggered by sales. This approach aims to optimize the flow
How Lean Consumption can Transform Retailing and Supply Chains
- 1. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org How Lean Consumption CanHow Lean Consumption Can Transform Retailing andTransform Retailing and Supply ChainsSupply Chains Daniel T JonesDaniel T Jones Lean Enterprise Academy, UKLean Enterprise Academy, UK andand James P WomackJames P Womack Lean Enterprise Institute, USALean Enterprise Institute, USA
- 2. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Our Background • We began our research by trying to understand what lay behind the consistent success of Toyota • We discovered the key was a relentless focus on creating brilliant processes, which flowed in line with customer demand with minimum wasted time & effort • We distilled some simple principles for lean design, production and supply chain processes • And we began to learn how these might work in the grocery industry with Tesco, starting in 1995 • Which led to my participation in the ECR movement
- 3. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Our Issues • We spent several years learning how to spread lean to every type of business - as it is now doing very fast • We are building a global network of non-profit institutes to write down, teach and disseminate lean • Much of the focus to date has been on learning to see processes and on eliminating waste • But we became convinced that lean has to start by defining value from the customer perspective • So we asked what lean consumption would look like as the complement to lean production & supply chains
- 4. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Our Proposition • ECR has been talking a lot about the consumer – but has not found a way to include them in the process • We think that the way forward is to apply the same lean process thinking to consumption • To learn to see consumption not as an isolated transaction between strangers but as an ongoing process for solving consumer problems • To see win-win opportunities for collaboration between consumers and providers to save time & money together • We are all consumers and providers - and our households are mini businesses – which we manage!
- 5. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org The Car Service 9 Drive Home 8 Queue, and Pay1 Search for Repairer 2 Book Appt. 5 Wait for Loaner 3 Drive to Facility 4 Queue, Discuss Problem 25m 5m 20m 25m 10m 15m 20m 16 Drive Home 15 Queue, and Pay 10 Book Appt. 13 Wait for Loaner 11 Drive to Facility 12 Queue, Discuss Problem 5m 20m 25m 5m 15m 20m Box Score Consumers Time 210 minutes Value Creating Time 58 minutes Value/Total Time 28% Second Visit 14 Authorise 7 Delay Call 6 Authorise Consumption take a lot of time, does not work very well and involves many frustrating interactions
- 6. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Is this Typical? • The custom built computer that fails to work with …… • The medical procedure that takes many calls, trips and lots of queues • The business trip full of queues, handoffs and delays • The long drive to the “big box” retail store without finding the one item we actually wanted • The exasperation of “help desks” and “service centres” that neither help or support ……. Yes! While products got better and cheaper – consumption did not! And it takes a lot of time!
- 7. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Broken Provision Processes • Growing spending on “new” products, features and options that fail to attract new customers • Growing spending to increase customer loyalty as customers become less loyal • High levels of out of stocks, lost sales and remaindering • Larger investments in bigger assets which have a shrinking ability to create competitive advantage • Outsourcing customer support so direct contact with the consumer is lost • Employee dissatisfaction and high staff turnover
- 8. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Pressures on Consumers • Mass customisation has added to our choices • The end of regulation has extended the number of things we have to make choices about • The self-service economy enables us to buy more personal capital goods to replace services • Two-income and single-parent households have less time to manage consumption • Ageing households have more time - but less energy • The internet is blurring the distinction between production and consumption – and has widened our potential supply base to the whole world
- 9. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org The Consumer’s Dilemma We all have more and more choices to make and more and more products to manage – but less time and energy to do so This situation creates a major opportunity for providers - through win-win collaboration with consumers
- 10. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org New Way to Think about Consumption & Provision • Quality does not cost more – neither should convenience • Even for the same consumer, there is no one best way – the one format (the Big Box) that must fit all • The end of the age of the Big Box (and Mass Consumption) does not mean the end of the big firm (retailer or supplier) • Indeed big firms will win, as big retailers reduce the number of supplies and serve all formats from an integrated fulfilment system tied tightly to suppliers, at nearly the same cost per item in every format
- 11. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Principles of Lean Consumption 1. Solve the consumer’s problem completely by making sure all the elements work together to do so 2. Don’t waste the consumer’s (or the provider’s) time 3. Provide exactly what the consumer wants 4. Provide value where it’s wanted 5. Provide value when it’s wanted 6. Continually aggregate solutions to reduce the consumer’s time and hassle Let’s take each one in turn – illustrating with examples
- 12. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Solve Consumer Problems • It is not the object consumers buy but the use they get from the object or service – in relation to its context • Has it solved the problem completely? What were they trying to do? What else did they have to do to solve the problem completely? Was that a hassle? • Fujitsu Services reversed the logic of outsourced customer service and technical support – getting experienced staff to ask about customer purpose, offer a fix, redesign to eliminate the root cause and discover additional value for future products • We need a dialogue to discover purpose and hassle
- 13. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Don’t Waste my Time • The assumption is “the consumer’s time is free” – so consumers should do more of the work! • In reality, both customer’s and provider’s time is wasted by poorly designed and disconnected consumption and provision processes • Mapping both processes and their interactions reveals this wasted time and cost and identifies opportunities for win-win collaboration to cut time and cost for both • By creating a dialogue with consumers to pre-diagnose the problem, planning and preparing, separating job types and creating standardised lean processes
- 14. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Car Repair 8 Drive Home 7 Queue, and Pay1 Search for Repairer 2 Book Appt. 5 Wait for Loaner 3 Drive to Facility 4 Queue, Discuss Problem 6 Authorise Repairs 25m 5m 45m 10m 35m 2 Book Appt1 Answer Enq 3 Check in 12 Pass to SA 4 Car to store 5 Fetch loaner 6 Pass to WC 7 Pass to Tech 8 Diagnose problem 9 Check parts 10 Car to store 11 Pass to WC 14 Pass to WC 13 Ring Customer 21 Pass to SA 15 Pass to Tech 16 Collect parts 17 Repair car 18 Road test 19 Car to store 20 Pass to WC 25 Park loaner 22 Invoice 23 Hand over 24 Fetch car 5m 5m 25m 38m 14m 85m 35m Total Time VC Time Consumer 120 mins 64 mins Provider 207 mins 55 mins
- 15. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Lean Car Repair 12 Road test 1 Appointment 15 Hand over 16 Park loaner2 Discuss Problem 3 Order Parts 6 Confirm Diagnosis 4 Park Loaner 5 Hand over 7 Park car 8 Update Plan 9 Deliver Parts 10 Collect car 11 Repair car 14 Invoice 13 Park car 5m 15m 20m 54m 7m 7 Drive Home 6 Hand over1 Appointment 2 Discuss Problem 5 Wait for Confirmation 3 Drive to Facility 4 Handover 5m 10m 32m 22m 120m 69m 60% Right First Time Wait 2nd Visit % Fulfilment Provider Consumer 101m 201m Lean Fulfilment 95% Right First Time
- 16. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org What Consumers Want • Fulfilment levels lower than we think in most systems:- – 98.5% availability drops to 92% on the shelf and 55% for a basket of 40 items in the grocery store – 80% availability for the shoe with 150 day order window leads to 40% being remaindered – 52% of consumers get the cars they wanted on time and 64% of service jobs are completed RFTOT • Better IT, RFID and stocks are not the answer – but rapid, reflexive, replenishment loops back upstream • And compressing the length of the supply chain
- 17. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Toyota’s Supply Chains • Toyota spent 30 years developing lean in house and spreading it up and down its supply chain • The most impressive example is their aftermarket parts distribution system – supplying 500,000 SKUs to dealers • It operates as a series of tight replenishment loops – dealers call off parts from Distribution Centres every day – these shipments trigger daily orders to be picked up from suppliers the next day – most of whom can also make every part that is required in a day every day • The result is the highest availability, lowest stock levels and the smoothest order signals
- 18. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Lean in Grocery So Far SupplierSupplier RDCRDC StoreStoreNDCNDC ContinuousContinuous ReplenishmentReplenishment FlowFlow ThroughThrough StoreStore FlowFlow ThroughThrough ProductionProduction LeanLean SchedulingScheduling FlowFlow ThroughThrough WarehouseWarehouse PrimaryPrimary DistributionDistribution ContinuousContinuous ReorderingReordering ConsolidationConsolidation WarehousesWarehouses
- 19. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Rapid, Reflexive Replenishment • Toyota distinguish between cognitive and reflexive pull systems • Which separates capacity and materials planning from production and shipping instructions • Rapid, reflexive replenishment is based on four key principles:- – Only one scheduling point or pacemaker – Greatly increased frequency of replenishment – Replenish only exactly what was sold – Where possible compress the vale stream • The objective is to optimise the flow not each asset
- 20. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Many Process Industries • Are stuck in the world of short term plan changes • And a need to respond flexibly to demands from customers • Actually they are caught in a vicious circle – data errors, forecast errors, demand amplification, constant rescheduling, expediting, loss of capacity, finished goods shortages and excess stocks etc. • The breakthrough is to see where you can flow and create stability and build on that to achieve increased responsiveness to demand
- 21. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Where and How to Flow? VolumeSKUs
- 22. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Where and How to Flow? Volume Sequential Pull Replenishment Pull SKUs
- 23. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Progression over time SKUs Volume Fixed sequence, fixed volume Fixed sequence, unfixed volume Unfixed sequence, unfixed volume
- 24. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org
- 25. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org
- 26. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org The Logic of Location • In this case value stream compression eliminates storage at the plant, and at the container port, customs delays, storage in DC, the entire cost of the store, overstocks, lost sales and remaindering – as direct touch labour is only a tiny fraction of total costs • Make customised products close to customers and make standard products within the region of sale – using trucks – not boats that always lead to planes • No one has an adequate cost of location model across functions to make these decisions
- 27. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Where Consumers Want Value Total Travel Product Time Cost Cost 195 m $12.00 Low 160m $12.00 V Low 95m $5.00 Low 50m $4.00 Medium 15m ----- High 25m ------ Low + Delay + Delivery Hypermarket Discount Store Supermarket Retail Shop Convenience Store Home Shopping Order Delay Receive Which is actually the cheapest? Is the price v. variety v. time trade-off inevitable?
- 28. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org The Keys to Convenience • Tesco has triggered the convenience store revolution in the UK – and others are following • The key is to have a common rapid replenishment fulfilment system – based on smaller small pack sizes • That uses spare capacity in stores to pick small orders • And running “water spider” replenishment systems to local stores and consumer’s homes • Add to this knowledge of what local consumers want • It should be possible to give consumers cost competitive and convenient access in every format to the full range available in the largest stores
- 29. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Lean in Grocery So Far SupplierSupplier RDCRDC StoreStoreNDCNDC ContinuousContinuous ReplenishmentReplenishment FlowFlow ThroughThrough StoreStore FlowFlow ThroughThrough ProductionProduction LeanLean SchedulingScheduling CustomCustom StoreStore RangingRanging LoyaltyLoyalty CardCard DataData HomeHome ShoppingShopping MultiMulti-- FormatFormat ConvenienceConvenience FlowFlow ThroughThrough WarehouseWarehouse PrimaryPrimary DistributionDistribution ContinuousContinuous ReorderingReordering ConsolidationConsolidation WarehousesWarehouses
- 30. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Replenishment Loops
- 31. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org When Consumers Want Value • Is everything purchased on impulse? No! But is there any incentive to plan ahead in current retailing? No! • To deal with this, production must either be infinitely flexible or we have to dispose of unwanted stock • Reversing this logic – How can providers plan ahead with consumers while offering price incentives to smooth the demand for production slots? • This stability creates the possibility of responding to the “got-to-have-it-now” consumers at much lower cost • This realistically takes us beyond “build to order”
- 32. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Aggregate Solutions • Lean producers are decreasing the number of suppliers, each with a deeper knowledge to solve bigger problems on a continuing basis • Why are consumers (and retailers) increasing the number of suppliers – often one-off strangers – to acquire the elements of the solution to their problems? • Why can’t someone provide continuing solutions to integrate the elements to solve consumers’ big problems: communications, mobility, shelter, healthcare, financial management, and routine shopping?
- 33. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Two Kinds of Shopping • Experiential for the categories and items we enjoy spending time selecting • Instrumental (routine) for the many categories and items we need to solve life’s repetitive problems • Why can’t one provider – a “water spider to the world” – solve all of the consumer’s instrumental shopping problems with frequent deliveries at attractive cost of just the items needed? • Why do consumers need to go “stores” at all for most instrumental shopping?
- 34. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Mass Versus Lean We are moving beyond the era of Mass Consumption in which one format fits all at ever higher scale – bigger boxes – as ever increasing variety is substituted for true customer desire To a world of Lean Consumption in which consumption and provision become a shared process that is clearly visible to everyone and in which problems are jointly defined and resolved with minimum time and cost
- 35. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Conclusions • Consumers are under growing time pressure • Current consumption processes are full of waste (so are provision processes) • We know that quality does not cost more – we discover that convenience does not cost more either • The “Big Box” will no longer be the dominant retail, distribution or production format • It will give way to multiple formats offering greater convenience (local stores, pick-up points and home delivery) matching consumer circumstances rather than consumer attributes
- 36. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org Implications • The key is treating consumers as partners and no longer as strangers – through dialogue with intelligent feedback • And a common fulfilment system – optimising flows not assets – with rapid replenishment loops upstream and “water spider” routes to local stores and customer homes • The scope for innovation in convenience formats is huge • The scope for removing layers of cost by compressing supply chains is also huge • Buying power suggests large players could lead the way – but challenged by innovative niche players
- 37. ECR Conference – Paris April 27, 2005 www.lean.org & www.leanuk.org How Lean Consumption CanHow Lean Consumption Can Transform Retailing andTransform Retailing and Supply ChainsSupply Chains Daniel T JonesDaniel T Jones www.leanuk.orgwww.leanuk.org andand James P WomackJames P Womack www.lean.orgwww.lean.org