Growing beyond hard times: realising the full potential of ECR

1. Growing beyond hard times: realising the full potential of ECR Daniel T Jones Chairman Lean Enterprise Academy Lean Global Network

2. My background • Done my mystery shopping in Greece! • Studied the Lean business system of Toyota • Set up 16 research institutes to teach lean • And to spread lean to every type of industry • Advised many companies on going lean • Developed lean supply chains with Tesco • Joined the ECR Academic Advisory Panel • Editor of the ECR International Commerce Review

3. The Recession • Big changes in market share happen as we come out of hard times • Big cut in consumer purchasing and borrowing power – but they are also eating more at home • Consumers want more value for less money - is traditional cost cutting enough? No! • What can we learn from Aldi and Lidl – and from Seven Eleven Japan and Tesco? • We need to actually “think outside the box”

4. Lessons from others • The Discounters • Limited range – quality products – own brand • Low store costs – simple ordering systems • Lean supply chain with made to order products • Add stores to add convenience • Seven Eleven Japan • Right range at right times – sell freshness • Know who buys what – central store ordering system • Low store costs – very convenient for customers • Frequent store replenishment – make, ship, sell

5. Lessons from Tesco • For high volume, fresh and own brand products • Flow through stores and shelf ready packaging • Continuous reordering – daily top up orders • Suppliers make every day – Tesco picks up right quantities of products daily – cross docks to store • Through consolidation centres for local suppliers • Replenishing small stores does not cost more! • Hence the push into convenience stores • Right stock in right store from Clubcard

6. Lessons from Tesco Custom Store Ranging Loyalty Card Data Lean Scheduling Continuous Reordering Continuous Replenishment Flow Through Production Primary Distribution Flow Through Warehouse Flow Through Store Home Shopping Multi- Format Convenience Consolidation Warehouses Supplier NDC RDC Store

7. More lessons • Tesco’s Fresh and Easy in the USA • Low cost stores – range of fresh, ready meals etc. • Make key products in central distribution centres • Daily deliveries of supplies and out to stores • Offering fresh “Wholefoods” quality products at “WalMart” prices, close to customers! • Caused a big shock in the USA – WalMart and others setting up their own convenience chains • Remember Tesco also successfully pioneered pick-from-store internet shopping

8. What have we learnt? • They have already cut the costs you need to! • By focusing on the right core products • Cutting handling costs in store • Cutting costs by moving from push to pull distribution – with daily replenishment • Cutting costs by working with suppliers to make products in line with demand • In fact treating all these products as if they were fresh products!

9. Suppliers dilemma • Don’t want to dilute value premium for products • But can’t ignore the discounters and own brand • And yet they make every product “efficiently” in a big batch about every 14 weeks • Which means they probably carry 20 weeks of finished goods – in addition to retailers’ stocks • Forecasts 13 weeks ahead are always wrong – so they are always short of the right products and have too much of the wrong products

10. Lean Suppliers • Make every high volume product every week • Keep slots for low volume products as needed • Are able to align production with demand, meet orders 100% on time in full with no invoice errors • Improve equipment utilisation and increase output by 30% or more • Free managements’ time from fire-fighting • Release cash and capital from less stocks • Opens opportunities to sell freshness

11. Working together • As retailers streamline the ordering, distribution and store operations for core products • And as suppliers begin their lean journey to making every core product every week • This could be the basis for a much bigger win-win cooperation to synchronise production in line with demand for the first time • And to jointly plan, trial and roll out promotions with far greater impact and less disruption

12. Growth opportunities • There are also a big potential growth opportunities from leaning your supply chains • Convenience does not need to cost more! • So why not develop networks of modern, local convenience stores in every neighbourhood • To do this you need to know who is buying what to have the right ranges in the right stores • They are complementary to your supermarkets • And someone is going to do it

13. Finally • No one has yet taken the next step - to work together with their customers – to turn them from strangers into partners • By also seeing local stores as ordering and pick up points for internet shopping • So customers can order anything – you can pick centrally in time for them to pick them up – or have them delivered to their home, office etc. • Think of them as a combination of Fresh and Easy, Amazon, Starbucks plus the iPhone!

14. Growing beyond hard times: realising the full potential of ECR Daniel T Jones Email dan@leanuk.org