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Global Consulting Practice

White Paper

A Lean Six Sigma Approach to Improving Efficiency


in Retail Store Operations
About the Author

Sarit Dey
Sarit Dey is a Managing Consultant in the Global Consulting Practice at Tata Consultancy
Services (TCS) and works as a Business Architect. Sarit has more than 14 years'
experience advising senior management at global companies in improving their
business processes in the areas of retail supply chain, inventory management, retail
merchandising, planogram implementation, store operations, and manufacturing. Sarit
has a Master's in Management from the Indian Institute of Management (IIM) Calcutta
and a Bachelor's in Engineering from the Bengal Engineering and Science University
Abstract

A sale is the culmination of the combined efforts of a retail operation's various moving parts.
And the store is where the magic happens. So excellence in store operations is necessary for a
retailer to be able to provide great customer service. The merchandise component of the
operation is underpinned by a solid supply chain.

This paper looks at some of the key challenges in store operations and how retailers can
counter them to provide their customers a better experience. Retail organizations can realize
benefits from optimizing processes such as freight processing and shelf-stocking. At the
customer service end, ensuring a smooth checkout process will make for satisfied and
returning customers, the ultimate goal of any retail operation.
Contents

An Overview of Store Operations 5


Improving Store Operations Processes 6
Ensuring Customer Satisfaction with a Smooth Checkout Process 6
Using Lean Six Sigma Techniques to Improve the Checkout Process 7
Improving Freight Processing Time 10
Understanding the Freight Processing Process 10
Lean Six Sigma Techniques to Improve the Freight Handling Process 11
Setting up Planograms Faster 11
Lean Six Sigma Techniques to Improve the Planogram Process 12
North American Retailer Saves $1.3 Million a Year: A Case in Point 13
Conclusion 14
An Overview of Store Operations
The store is the final moment of truth for most retailers. All aspects of planning, supply chain execution,
merchandising, and marketing culminate in the sale and a satisfied customer, which all retailers vie for. Retailers
look for opportunities to optimize operations for better store performance in order to maintain the highest levels of
customer service without increasing operational costs.
Retail store operations mainly involve merchandising, marketing, and sales of goods, as depicted in Figure 1. This is
aside from activities such as replenishment, freight handling, and setting up product displays. The cost incurred by the
average retailer in in-store operations accounts for a major portion of the selling and general expenses. Any
opportunity to optimize this function entails a significant impact on cost management as well as customer satisfaction.

Stocking

Merchandising
Handling Freight

Recovery

Checkout

Customer Service Signage/Marketing

Figure 1: Key Processes in Store Operations

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Figure 2 represents the various aspects of store operations, based on our experience with several retailers.

Labor Effort Cumulative Labor


30% 120%

25% 100%

20% 80%

15% 60%

10% 40%

5% 20%

0% 0%
Management Customer Registration Support activities Freight POG setting Cleaning and
Service Processing Maintenance

Figure 2: Key Store Activities Ranked by Effort

Improving Store Operations Processes


We look at the three key areas from Figure 2 where process definition and standardization can provide large benefits:
n Ensuring smooth checkout
n Improving freight processing and enabling quicker stocking of shelves
n Setting up a planogram within the allocated time
These key processes play an important part in achieving excellence in store operations, including through the use
of tools such as Lean Six Sigma.

Ensuring Customer Satisfaction with a Smooth Checkout Process


Checkout is one of the most critical customer-facing processes in a store. A fast checkout process almost always
ensures higher customer satisfaction and loyalty. This activity is also extremely effort-intensive, so it is imperative
that this process be efficient. Some key factors to consider include:
n Engaging customers: Most customers do not like to stand idle in the queue, so the checkout process needs to
engage the customer and ensure a better store experience.
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n Ensuring customer satisfaction: For many retailers, this is the only point of customer interaction, and is thus an
opportunity to form a positive customer impression.
n Empowering personnel: Cashiers at checkout registers perform multiple activities such as checking out
purchases, answering phone calls, checking prices, and answering questions on product locations and
promotions. They need to be adequately skilled to handle the job.
n Collecting information effectively: In most stores, cashiers collect customer information that is then used to
drive promotions and marketing. It is therefore critical that the checkout process be equipped to capture this
information.
n Predicting demand: Cashiers need to maintain high levels of customer service, even as the number of
customers may change depending on the hour of day, the day of the week, and the season. For most stores, it is
difficult to predict the optimal number of cash registers needed to handle a sudden rush of customers.
n Providing personalized service: The checkout process needs to be able to provide customized services based
on customers' unique needs: for example, suggesting complementary products based on the customer's
shopping basket.
Smartphones and apps have completely changed data collection techniques. Many retailers provide coupons
through apps that need to be scanned at checkout; this helps track customer behavior. Retailers and checkout
crews need to be aware of how to guide customers on using smart devices to make this a win-win situation.
Using Lean Six Sigma Techniques to Improve the Checkout Process
Adopting a Lean Six Sigma approach is important to structuring a comprehensive solution by looking at available
data. Six Sigma principles are customer-focused and when used with appropriate Lean tools, can be a powerful way
to solve problems by focusing on the customer. Some of the key tools that can help in this process are mentioned
in Table 1.
Tool How It Helps

Maps out the complete process steps and determines the key steps that are important to the customer.
A value stream analysis This allows the retailer to improve the customer touch points and reduce activities that require effort
but do not add value to the customer.

Reduces motion, lead time, and helps train associates in 'eyes for flow' and 'eyes for waste' concepts,
Lean principles
speeding up the steps of scanning and bagging.

Pinpoints distinct causes for customer satisfaction or dissatisfaction. Aggregating this data and using
market-specific information helps identify best practices as well as deviations in practices due to
Analysis of store data
localized factors in a given group of stores. This helps project teams identify the right causes and help
come up with solutions.

Techniques such as 'Failure Mode Helps identify issues in the checkout process and focus attention on the process steps that need to be
and Effects Analysis' improved for a better customer experience.

Table 1: The Advantages of Using Lean Tools in the Checkout Process

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Start
Current Chain

Ring Time Tender Time Other Time

Customer Receipt Hand over Bag


Welcome Scan & Bag Coupon Total Email Payment CC Approval Thanks
walk / Sign /Survey/Bounce

Figure 3: Typical Cashiering Activities

Analyzing the steps presented in Figure 3 and completing a Lean Six Sigma analysis should help identify
opportunities to improve customer satisfaction. Some such opportunities may include:
n Reducing scanning and bagging time by implementing a standard process using best-in-class scanners and
training staff effectively
n Implementing standardized processes for collecting customer information to avoid collecting the same
information multiple times, thus reducing customer interaction time at checkout
n Encouraging customers to follow efficient practices, such as keeping coupons ready when they are in queue,
and encouraging customers to swipe their credit cards early in the cycle to reduce payment times
n Enabling the cashier to search for prices and product locations easily without having to call for backup, thus
reducing transaction times
n Using techniques such as line-busting (where store associates help customers using hand-held ordering and
checkout devices), especially during peak periods
n Designing point of sale (POS) systems to enable easy interaction with smartphones for faster checkout
In a modern retail environment, such improvements can be achieved with a combination of improvements in
systems and processes to enable long-term benefits.

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Improving Freight Processing Time

Planning for truck day

Unloading & sorting freight Stocking shelves

Figure 4: Key Steps in Freight Processing

Figure 4 shows the key steps involved in the freight processing process. It is important for retailers to manage the
process efficiently to optimize costs.
Freight processing is probably the most important behind-the-scenes activity in a retail store. If freight processing
is delayed, stores have low in-stocks (inventory) and 'visual outs' (empty spaces) that result in lost sales and
unhappy customers.
The process should allow for:
n Fast Freight Processing: Freight processing needs to be quick and accurate to give customers a seamless retail
experience. Fast unloading of the freight reduces waiting times for trailers and the associated charges as well as
delays in subsequent deliveries.
n Efficiency: The optimal amount of effort needs to be planned for the freight processing activity to be completed
efficiently. Improper planning often leads to incomplete tasks and delays in freight processing, leading to low
stocks and lost sales. Freight should be organized by lean principles (such as grouping similar categories
together) while it is being unloaded to ensure smooth flow, fewer touches, and easy sorting on the store floor.
n Productivity: Freight processing teams usually have high attrition. Retailers need to ensure new team members are
trained in using the relevant technology so that productivity is maintained even as new members join the team.

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Lean Six Sigma Techniques to Improve the Freight Handling Process
The goal of freight processing is to drive sales by ensuring store shelves are full. In addition to ensuring the optimal
amount of effort is spent and process compliance is high, some of these key Six Sigma and Lean techniques can
help retailers:

Technique How It Helps

Value stream analysis n Conduct value stream analysis and remove steps that do not add value to the exercise.

n Conduct time and motion studies to assess the effort spent on specific tasks and benchmark these
Time and motion studies against competitors. Even internal benchmarking of best practices will increase competition between
stores, leading to reduced freight-handling times.

n Streamline tasks such as cutting through boxes, handling trash after stocking shelves, and re-packing
Streamline Tasks
boxes so that they are not too effort-intensive.

n Use work-balancing to create standard operating procedures (SOP), helping operating managers balance
Work-balancing
workloads and handle sales executive teams effectively.

n Follow Lean principles when sorting merchandise after unloading them from trucks. This will ensure that
they are touched the least number of times before being placed on shelves.
n Keep the freight mobile as much as possible to ensure the least setup time in moving freight from one
Lean principles
location to another.
n Label boxes from the distribution center accurately and map the corresponding labels right to the store
aisles. This information will help store associates accurately keep track of inventory flow

Improving the process with the above set of guidelines will reduce the effort required for freight processing. It will
also help stores increase process compliance and ensure regularity of stock, thereby improving customer
satisfaction.

Setting up Planograms Faster


In a brick-and-mortar retail environment, a high percentage of buying decisions happen in the store. Effective
planograms not only facilitate impulsive shopping decisions, but also help shoppers choose from the available
substitute merchandise when their first choice is out of stock. A well set-up planogram enables effective
merchandising with the right product at the right place at the right time, leading to a sale.
However, if the planogram is not executed accurately and in a timely fashion, retailers will struggle to convert
footfall into sales. Another challenge is that many retailers today are trying to do more with fewer employees. This
may lead to lower compliance and errors in setting up the planograms. Standardizing the process and training
associates will help stores increase productivity and efficiency.
Planograms must be set up in time and be synchronized with supply chain planning to ensure a smooth flow of
merchandise. Planograms also help with macro space and assortment optimization, and make strategy execution
easier.

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An efficient planogram process helps retailers gain more market share and be competitive by staying ahead of the
pack. Figure 5 describes the planogram process and highlights the key steps in executing a planogram efficiently.

Planogram & Sales Analysis

Annual Reset Strategy Planogram Execution

Product Decisions Planogram Creation

Figure 5: Planogram Lifecycle

Lean Six Sigma Techniques to Improve the Planogram Process


Lean and Six Sigma techniques can be applied to the entire lifecycle of a planogram, starting from planning and
workflow execution to design and creation of the planogram, and execution of the planogram at the stores.
Some techniques to reduce the effort involved in executing planograms include:
n Removing unnecessary activities: Designing processes around value-added activities and customer-focused
steps that can be identified by value stream analysis of the entire planogram process. This will determine the
steps that add value and the ones that do not, so they can be removed.
n Designing planograms with relevant information: While creating the planogram document, the planogram
teams must display information intelligently to reduce effort-intensive activities such as counting peg positions
at the stores. This will not only reduce effort and cost of implementation downstream but also make it simpler
for new store associates to execute the planogram.
n Providing adequate information: Specifying the right quantity and sizes of price labels to be used enables sales
associates to have the necessary printouts ready before starting the process. Detailing the color and quantity of
backer paper needed allows the associate to collect everything before walking on to the store floor. Backer
paper can also be printed to include fixture positions so that the associate does not have to manually count
positions in the store. The planogram should also specify the marketing material required, such as signs,
samples, and project sheets. It should include the location of new products in the store backroom so that
associates do not spend time locating them.
n Using a planogram cart: This is a cart designed to hold regular fixtures, supplies, and tools needed to set up
planograms. This saves employees the effort of walking around the store to collect the necessary items. 11
A North American Retailer's Journey to Improve Store
Operations: A Case in Point
One of the largest specialty retailers in North America, with over 1,000 stores, underwent business transformation
to lower the cost of operations and increase efficiency.
Business Challenges
The retail chain's planogram were too long and difficult for store personnel to easily understand. This led to delays
in implementation of planograms and effort overruns. In addition to this, the fixtures and signage was not always
consistent with the planogram, and the product dimensions and specifications mentioned in the planogram did
not always match the actual merchandise. Store personnel found it difficult to accurately count fixture coordinates
to determine fixture location and had to make multiple trips to the back of the store to fetch consumables, fixtures,
tools, and labels.
The retailer wanted to simplify and standardize the planogram and the process of setting up merchandise to enable
quick and effective execution.
The Solution
This was achieved by designing more visual and informative planogram documents. The procurement process was
aligned with the planogram setting-up process to improve availability of merchandise. The merchandise was timed
to arrive to ensure 'pick to hook', which meant that every location had products assigned and available in the store
while setting up the planogram. Fixture slots were numbered to make setting up fixtures easier. The retailer also
designed a customized planogram cart to hold all fixtures, consumables, and tools to reduce trips to the back room.
Benefits:
Figure 6 shows the reduction in effort after the implementation of lean principles in the retailer's freight receiving
process. The improved process also helped increase the productivity of retail staff and optimize stock levels, which
increased sales.

The standardization and


simplification of the
3.5% reduction
planogram planning and
set-up process helped the
retailer save more than a
million dollars annually
across its stores and also
reduced cycle time by 20
percent.
Effort required earlier Effort required after improvements

Figure 6: Reduction in Effort due to Implementation of


Smart Techniques for Freight Processing 12
Conclusion
Even in these fast changing times, the store remains a key sales and revenue generator. Therefore, making store
processes more efficient and customer-centric will have direct business benefits for retailers.
Lean Six Sigma techniques can streamline the checkout process and make what is one of the few interactions with
in-store customers a more meaningful interaction. They can also help reduce non-value activities that require
resources but offer no benefits to the customer. Similarly, freight processing and planogram set-up can be
optimized to make operations more efficient, with a direct impact on customer satisfaction and the bottom line.
However, it is also important that the entire store be looked at holistically and all aspects of store operations receive
attention to become more efficient.
Efficient stores will lead to increased revenues, profit margins, and a differentiated experience that will not only
help retain customers but also attract new ones.

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