How can a supermarket giant fall? I’m talking about TESCO, Britain’s largest Supermarket group. Tesco has reported a 6% fall in group trading annual profit to £3.3 billion and continues to lose market share to discount rivals.
Early this year, TESCO announced the closure of 40 unprofitable stores across Great Britain. 2,000 employees will be affected by the closures that will include seven TESCO superstores. TESCO also has alleged accounting problems while investigations on a £263 million accounting scandal is still underway.
Supermarket businesses are usually profitable and stable because the need for basic commodities increase in relation to population growth. Growing a supermarket, however, does not happen overnight. Moreover, sustaining it requires more than just hard work, knowledge in retail operations, and the right resources.
Smart business owners know that even driving brand awareness or increasing sales is not enough, but minimizing losses and waste is also equally important. Such is the main premise of Lean Six Sigma, a methodology that aims to improve performance by addressing gaps and redundancies in business processes.
Lean Six Sigma Up Close
Shocking stories such as TESCO’s collapse demonstrate the importance of applying Lean Six Sigma principles in pursuing sustainable business growth.
Lean and Six Sigma are two dynamic philosophies with tools for improving quality, productivity, profitability, and market competitiveness for any business organization.
Lean is about eliminating waste with proven methods to improve the work process while Six Sigma focuses on continuously improving strategies and disciplines that minimize defects and variations towards achieving a ratio of 3.4 defects per million opportunities.
When combined, Lean Six Sigma is results-oriented. It focuses on practical methods and strategic approaches that positively affect the leadership and culture of the company. It continues to evolve over time to adapt to standard business practices worldwide.
Discovering Bottlenecks and Profit Leaks
Could there have been a way for TESCO to avoid its unfortunate fall? Perhaps, there is.
Critical in the Lean Six Sigma methodology is the early detection of bottlenecks and profit leaks along the business process chain. A bottleneck is the most important limiting factor that stunts business growth. A business owner must see and react immediately to bottlenecks in production that stand in the way of achieving its operational and financial goals. He also must systematically work on improvements until that bottleneck is no longer obstructive.
Profit leaks fall into either one of two clear categories. The first, and most obvious, are those that relate to how a business interacts with the outside world. This pertains to the touch points with customers, potential customers, or anyone else who might encounter a business.
The second category are called foundation leaks, and they have far more to do with the business leader’s commitment and attitude to marketing. This is a little harder to define. But, if the business is suffering from such leaks, the fixes being made in terms of compensating for gross sales is not going to hold out for long.
Below are common wastes of production that usually hinder a supermarket or any business’ growth:
• Defects in supermarket facilities
• Overproduction or excess in inventory
• Transportation problems causing delay in product delivery
• Waiting such as exceedingly long queues at the cash register
• Inaccurate inspection of facilities and verification of stocks
• Improper movement of people, papers and parts
• Over-processing and long cycles on the workflow
The Magic Beans for Supermarkets
If executed properly and with appropriate documentation, measurement and tracking tools, Lean Six Sigma is expected to have a promising effect on multiple aspects of the business.
• Improved Customer Loyalty – Retaining loyal customers is an important factor on an organization’s success. Customer retention will only come into reality as a result of high level of customer satisfaction. Implementing Six Sigma reduces the risk of your company having dissatisfied customers. Once training is complete, employees will have the edge on quality customer service.
• Time Management – Six Sigma methodology can utilise time effectively and will result in efficient business functions and productive employees that have better work-life balance.
• Reduced Cycle Time – Most projects do not meet their given deadlines. Six Sigma implementation could determine the factors that negatively affect the project leading to long cycle times. Experienced employees in all levels of the organization will collaborate to find solutions to these problems.
• Employee Motivation – Motivating employees sufficiently will lead to business success. Organisations who are willing to engage their workforce have 25 to 50 percent increase in productivity. Six Sigma tools and techniques allow employee development and systems for motivating them.
• Strategic Planning – Six Sigma is at the core of any strategic vision. It can help any business to focus on areas for improvement. It can improve internal processes, increase yields, eliminate unnecessary complexity and gain or maintain lowest cost of supplier agreements.
• Supply Chain Management – As mentioned above, the aim of Six Sigma is to have a defect rate of less than 3.4 per million, and suppliers have a major influence on whether this target is met. Limiting the number of suppliers to business, in turn also reduces the risk of defects.
Success Stories in Retail
Is Lean Six Sigma a legitimate and worthwhile endeavour? We rounded up some case studies on successful implementations of Lean Six Sigma in the retail industry.
“Lean Innovation At Amazon – ‘Amazon is a natural place that applies lean principles.’ Since the day that Amazon was created by Jeff Bezos, Lean has always been part of the business culture and spirit. In this article, Geovanny Romero shares with readers that, Amazon has more people working in the fulfillment centers and customer-service centers than it does computer-science engineers. In addition, Kaizen is the center philosophy in the fulfillment center.
Nike’s five-year plan includes Six Sigma qualities. Nike is a popular seller of athletic footwear and gear. The company sells its products in nearly 190 countries around the world. While the company focuses on offering athletic gear for all ages, genders, and sports they also focus on generating value for shareholders.
Accenture’s help with the Staples Lean Six Sigma program has been the impetus for dozens of improvements that have generated tens of millions of dollars in benefit for Staples and produced a 10-fold return on the company’s investment in the process improvement program:
Target (TGT) claims more than $100 million in savings over the past six years from the program.”
After Lean Six Sigma, What’s Next?
While the impact of Lean Six Sigma may vary across organizations, a well-planned and properly implemented Lean Six Sigma program will generally yield this overall expected results in 12 months:
– 35% to 50% reduction in lost time / safety-related incidents and accidents
– 15% to 30% decrease in scrap and rework
– 25% to 40% reduction in total cycle time
On the surface, these results do not exactly create immediate revenue streams for a supermarket business. Nonetheless, these bottleneck and profit leak fixes are realizations to the famous adage “a penny saved is a penny earned.”
Regardless of the supermarket business size, the same Lean Six Sigma principles apply, the more a supermarket is able to save on resources, the more profit it makes and growing the business is easily attainable.