LEAN RETAILING COMPETITIVE TOOL FOR RETAIL DYNAMICS 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 : chitra.palaniswamy@gmail.com 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

LEAN RETAILING COMPETITIVE TOOL FOR RETAIL DYNAMICS 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 RETAILING COMPETITIVE TOOL FOR RETAIL DYNAMICS 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 wasteit 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 ecommerce 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 Direct relationship with the end user/ customer Large number of fragmented stores Low labour productivity and high labour turnover Low profit margins Dynamic changes among suppliers and channel partners Combating consumer shifts in lifestyle and demographics Changes in global fashion and textile trends Dynamics of costing due to exchange rates and inflation Inexperienced associates Lack of store autonomy and empowerment Percentage 90 70 80 85 95 75 90 75 65 65

Indian consumers 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 todays 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 retailers 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 ACTIVITIES High Process Related Stop defective products at sources. Combine processes together. Change the physical relationship of process components . Eliminate excess material handling steps. Eliminate pointless process steps. Reducing waiting time for orders, people or information. Supplier Related Suppliers ability to respond to changes. Suppliers who ensure on time deliver Suppliers with a culture of continuous improvement. Suppliers with lower prices and efficiencies of Processes Procurement Related E procurement Automated e- procurement conducted transactions Strategic sourcing Bidding and reverse auctions using web applications Warehousing Related Reduce Defective products which creates returns Avoid overproduction or over shipment of products Reduce excess inventories requiring additional space and reduce warehousing efficiency Avoid Excess motion and handling Reduce Inefficiencies and unnecessary processing steps Optimise transportation distances Reduce waiting for parts, materials and information Improve information processes Transportation Related Include core carrier programs Improved automated transportation processes Optimized mode selection and pooling orders Combined multi stop truckloads Cross docking Improved Import/ export transportation processes Inbound transportation and backhauls Customer Related Effective partnership with customers Demand value from the products they purchase Improve customer interaction processes that adds value 45 30 24 42 28 38 16 13 18 10 42 6 28 8 48 39 34 23 17 10 32 27 38 32 48 10 30 48 36 48 36 17 Level of influence Moderate Low Mean 5 18 22 8 15 12 29 35 22 28 8 34 13 12 2 9 9 22 29 31 9 20 12 9 2 28 12 2 14 2 14 27 2.9 2.56 2.4 2.84 2.42 2.76 2.22 2.22 2.16 1.96 2.68 1.92 2.38 1.56 2.96 2.74 2.54 2.36 2.26 2.02 2.46 2.48 2.76 2.46 2.96 1.96 2.44 2.96 2.72 2.96 2.72 2.22

2 4 7

5 2 10 12

10 9 30

2 7 5 4 9 9 3

9 12 8

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

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 Moderate Low 11 29 2 14 26 32 32 17 9 4 12 21 7 9

High Speed And Responsiveness To Customers Rapid response as the culture Speedy response is the norm and expectation Minimal procedures to meet customer demands Quick delivery and reduced lead time Reduced Inventories Inventory is considered waste Stock directly into trailers No inventory due to defective products, out of demand products or product returns Less space designated for non moving stock Improved Customer Satisfaction Minimises new product development time and expenses Delivers the product to market faster Incorporate current requirements into the product Shorter product life cycle Build loyalty and profitability by being innovators 32 12 48 36 20 12 17 23 41 46 31 13 50

Mean 2.5 2.06 2.96 2.72 2.32 2.12 2.32 2.26 2.82 2.92 2.34 1.74 3

4 6 1 10

7 6

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 customers 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 companys 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 peoples 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