Thursday, July 30, 2015

Category Management Series: Lean Retailing: When Less Is More

Another very interesting article about lean retailing. Indeed, in the FMCG world the past 2 decades have seen the number of skus and products skyrocketing, in an effort to better suit customers' needs. By segmenting the offer, suppliers tend to believe they would make a better work at fulfilling the needs of customers. Furthermore, the rise of Ecommerce has also helped this trend, as the square meters available to display the offer is not much of a problem.

But that brings two issues:
  • The number of stores and the square meters available for retailers is growing slower than the number of products, causing some issues on how to retail such a large product range.
  • The costs of good sold is exploding, as the complexity of the offer requires more information system, more people to deal with the display on shelves, more merchandising, and more inventory cost (with a higher probability of stock out).
  • As the book the paradox of choice point out, too much complexity while making the purchase decision is causing customers disatisfaction.

It shows well the problem. It exposes how retailers could adapt the Toyota Production System, aiming at a lean process production for cost efficiency purpose. 

"In general, the application of lean approach allows the company to reduce costs, increase efficiency, reduce execution time, reduce waste of all kinds, increase profitability and keep low inventories. It also contributes to customers' satisfaction, improving product quality and increase staff morale."

"According to research carried out in practice, quantitatively speaking, the effects of lean thinking in retail are: increased comparable sales by up to 10 percent, reduced labor costs by 10 to 20 percent, reduced inventory by 10 to 30 percent, and stockouts by 20 to 75 percent (Lean Retailing: Achieving Breakthroughs in-store profitability, McKinsey & Company). It significantly contributes to improved customer satisfaction. All this, in return, reflects the increased store profitability."