Operational Innovation: Lean Principles
Applying Lean Thinking in Supermarkets
Sarah Finegan, IMBA 2018, J4

Background to the problem statement – The world population is expected to increase to 9 billion by 2050. This growth, along with rising incomes in developing countries are driving up global food demand, to anywhere between 59% to 98% by 2050. This will shape agricultural markets in ways we have not seen before. Alongside this, new trends in technology and globalization is continuously changing market places around the world, businesses now need to adapt to these trends in order to remain competitive. Introduction to the Lean Concept – Lean thinking reminds me of the famous quote by Albert Einstein ““The world we have created is a product of our thinking; it cannot be changed without changing our thinking”. I have chosen this topic as I am completely unfamiliar with the territory and want to deep dive into a practical example of how this is changing the world we live in today. The term ‘Lean’ can be used in a range of different settings, which normally consists of striving towards continuous changes and improvement in order to eliminate business activities that do not add value. Importance of Lean Thinking – For the purposes of the Lean Principles – Applying Lean Thinking in Supermarkets study, I will focus on some key operational innovations, illustrated through two case studies – Lean Thinking at Walmart, Tesco and supermarkets of the future. about how grocery retailers can reinvigorate the in-store experience for customers while also making the most of the shift to online food shopping.

Completing an analysis of the business model canvas for a supermarket, gives you an idea of the importance of lean thinking not only in the store itself, but also across the value chain. Lean thinking affects most areas of the supermarket ecosystem. If lean thinking is executed correctly, processes are streamlined and ultimately means excellent service is deliver to the customer.

Key Resources Optimizing utilization of space Key Partners (e.g. - commodities suppliers) SCM – supermarkets must streamline their processes by eliminating waste and non-value added activities. waste can be identified as time, costs, or inventoryKey ActivitiesBy introducing lean thinking, it will avoid operational issues faced, for example, minimising inventory holdings to cut down on costsCustomer Relationships / ExperienceService delivered by the firm (incl. employees)ChannelsDistribution network are streamlined in line with the supermarketCost StructureReduction of costs associated with the operational running of the supermarket

Operations Management at WalmartIntroduction: Walmart is one of the largest retailers in the world with 11,718 stores and clubs in 28 countries. It is also the world's largest company by revenue – approximately US$486 billion according to Fortune Global 500 list in 2017 – as well as the largest private employer in the world with 2.3 million employees.Their vision statement is to become the worldwide leader in retailing. In order to sustain this competitive advantage, the firm must incorporate lean thinking, which it has been actively implementing for a number of years. This in effect, increases the barriers to entry for other supermarkets. 

Benefits Lean Thinking adds to WalmartCustomer Experience - Walmart are leaders in customter experience. The more you add more value and reduce the waste, so you contribute to customer experience and this can be a competitive advantage.Reducing defects in pricing (promotions, discounts, offers such us 3x2, etc)Reduction of waste (time, money, resources)Increase the quality of the service (Poka Yoke) as you identify easier lack of product and send automatically a message to merchandising to fulfill the shelves. Availability of stock - The continuous availability of stock inside the shop represents one of the most important offered values to clients, who preferably purchase all needed goods in one single moment.Conclusion: By using Lean Thinking, this assures sufficient level of quality, reduces food waste and create more value for the customer; the resulting outcome being higher retailer revenues and lower grocery costs 

In parallel to lean thinking, the use of technology at Tesco plays a key role in effective implementation of operational innovation. Let’s take a look at some in-store innovations for the supermarket at the retailer!Scanner - skips the customer check-out customers love itSupply chain systemCameras analysing stock levels real time - when low, sends notification to worker to refillElectronic shelve labelsMerging Bricks and Clicks

Tesco has implemented scanners in-store which means customers skips the customer check-out, meaning a quicker and more efficient processing of bill payment. According to the Chief Information Officer Mike McNamara, customers love it!

At Tesco, cameras analyse stock in-store levels real-time. When stock levels are low, it sends notifications to workers to refill.

Online retail sales surged 15.2 percent between the first quarter of 2015 and the first quarter of 2016. The online offering alongside Tesco's expansion of physical stores has been managed well and customers believe that Tesco is doing a fantastic job of integrating the the two!

Tesco is another great example of a supermarket at the forefront of operational innovation. Tesco thinks lean to try to achieve improvements in quality, inventory utilization and floor space, to minimize costs and therefore improve delivery. Some additional areas of the processes and tools that are actively used today is the following.Identification & Elimination of Waste – Eliminating and detecting waste along the entire supply chain involves heavy operations, it is one of the main barriers for lean practices. Waste could be found around all areas of the supply chain, including; human error, space utilization, time management and production, etc.Kanban – simple but powereful tool - Japanese word “to trigger” – replenish stock order fulfillment is done automaticallyVisual managementKaizen - easy to find

Kanban in Supermarkets: A part leaving the supermarket gives a signal for re-production or delivery of more goods: The requirement for pull production is that any part leaving the last inventory (the supermarket) gives a signal (e.g., a kanban card) to replenish the part(s). 

Identification & Elimination of WasteEliminating and detecting waste along the entire supply chain involves heavy operations, it is one of the main barriers for lean practices. Waste can be found around all areas of the supply chain, including; human error, space utilization, time management and production, etc.

Visual management (or control) is a “technique employed in many places where information is communicated by using visual signals instead of texts or other written instructions. The design is deliberate in allowing quick recognition of the information being communicated in order to increase efficiency and clarity

The Japanese word Kaizen means "change for better", with inherent meaning of either "continuous" or "philosophy" in Japanese dictionaries and in everyday use. The word refers to any improvement, one-time or continuous, large or small, in the same sense as the English word "improvement".In the Tesco example, it refers to "easy to find"!

Introduction: According to a really interesting McKinsey study, the supermarket of the future is within reach for a lot of existing supermarkets. Grocers must find profitable ways to revive the in-store experience while enhancing online options.Some examples of how operational efficiencies and the future are being envisionedAutomation and increasing the visual management and information of the food using technologyhttps://www.youtube.com/watch?time_continue=7&v=jELD68ldKbg

Amazon is changing the game – Take a look at the video to see how it's illustrated! We must also take into consideration Amazon, the innovation they are spearheading and the respective legal implications of some innovation.An example of this is Amazon Air Prime using Drones. This means that the company deliveries directly to your home, but interestingly may have some legal implications (robbery, problems happening during the delivery, insurances problems, problems with possible pets you can have at home, etc). Conclusion: I believe that this is an area where smart retailers can attract and retain more customers, thereby increasing revenues, while at the same time reducing their costs and improving the customer’s buying experience. 

From my studies, the key findings that I learned that are of utmost importance are the following.InnovationJIT Lean Six Sigma Implementation and the importance of leadership – Both leadership and workers have the power to design and implement efficient systems (example, automation, journey innovation) but must learn to understand the processes and methods by which we can achieve operational excellence and innovation. Lean thinking must be embedded across the organisation. A key example of this is inventory management – understanding how to maximise a firms stock decreases waste and time, thus increasing productivity and revenue.Communication - Improving communication channels across functions, from managers to employees. One of the main barriers towards lean manufacturing implementation is the lack of understanding on lean concepts, the lean implementation process is a systemic and continual effort; therefore, it is important for the company as a whole to identify and understand the barriers to a smooth transition. Pre-MBA, I was unaware of many of the concepts (Kaizen, Kanban hoshin kanri, poka yoke etc.) explored in class. Through active discussion and real-life examples, I am now acutely aware of the inefficiencies that firms are faced in the manufacturing and service industries.

Darwin’s Theory of Evolution applies in business just as it does in biology. The ability to adapt to meet the changing environmental conditions is key to long term survival!Supermarkets are a low margin business and must often compete on price. In order to stay competitive or get ahead of the game, retailers must strive to embody operational efficiency best practices and innovation. Applied properly, the concept of “lean” can help companies become more competitive, reduce waste, and, ultimately, increase profits.

Supply chain management and warehousing are very interrelated.The integration of the Six Sigma with the lean approach, so-called Lean Six Sigma, is emerging with many companies. This approach also aims to pursuit quality, but through not only focusing on production quality or speed, but focusing on improving output quality through streamlining processes as it relates to responsiveness.

By applying the just in time inventory approach, the company aims to overcome quality difficulties. This approach seeks to minimize inventory by reducing safety stock levels and only having the required amount of materials arrive at the warehouse at the time that they are needed. The consequences of this lean inventory practice goes beyond just managing stock levels, but has a number of positive effects on logistical efficiency, one of which is that suppliers must deliver high quality materials to the distribution line.

How does Lean Thinking apply to supermarkets?A key tenet of ‘Lean Thinking’ is to provide ‘value’ to the customer…where ‘value’ is defined by the customer…those elements of the product or service that the customer believes they legitimately should be paying for…without paying for unneccessary process waste. Further, this value should be provided at the rate that the customer requires it, when the customer requires it, where the customer wants it, in a smooth, uninterrupted flow.Supermarkets must focus on the taking from 4 goals of operations management:Higher qualityBetter customisation Faster service A more efficient serviceLet’s take a look at the case studies - move to the next mode!

https://corporate.walmart.com/2016grr/enhancing-sustainability/moving-toward-a-zero-waste-future