Definitive Guide to Lean Retail

Lean Retail E-bookRetail chains seeking to thrive in this era of disruption are increasingly using an established manufacturing philosophy that is surging in the retail space: Lean.

So what is Lean Retail and how can your chain adopt it?

In this guide, you'll learn the steps you can take to transform your chain into a thriving, data-driven and customer-focused organization using a lean retail approach.

A Brief History of Lean

assembly-line

Lean is a manufacturing methodology that originated at Toyota in the mid-twentieth century. The Toyota Production System improved the assembly line process that had been created by Henry Ford, increasing efficiency and allowing for a wider variety of offerings.

The efficacy of lean was recognized and promoted in The Machine That Changed the World (Womack, Roos & Jones, 1990). Since then, hundreds of books, research papers, and countless media stories have explored the method. This has driven adoption across manufacturing and beyond to sectors including construction, logistics, healthcare, services, and of course, retail.

The Impact of Lean in Retail

Lean methodology has been applied in retail with impressive results since the 1980s by leading global brands such as Walmart, Home Depot, Target, and others. A definitive study entitled “Operational Leanness and Retail Firm Performance Since 1980” confirmed that “Lean produced superior, lasting returns for retailers” in terms of revenues and stock market performance (Kroes et al., 2018).

Lean Retail is often recognized for its ability to reduce waste to lower costs, thereby improving resource and process efficiency and ultimately increasing margins. But most importantly, Lean Retail is centered around adding customer value — sometimes by removing activities that do not provide value, and often by shifting resources or adapting processes to increase value directly.

In his book Lean Retail & Wholesale (2014), Professor Paul Myerson identifies Lean Retail as crucial to retail survival in the new global economy. This is truer today than ever. Lean Retail software is enabling retailers to compete and thrive against the numerous channels of modern retail competition.

The impact of implementing Lean Retail practices is both immediate and ongoing. The most significant and early impact comes through the optimization of resources. Fully utilizing key resources — inventory, labor, and more — greatly improves the customer experience while also reducing operating costs.

For Example:

  • Using FieldStack’s Lean Retail Platform, chains have experienced 15-30% inventory reductions while simultaneously reducing out-of-stocks and using savings to fuel expansion strategies.
  • FieldStack clients have also gained tens of thousands of annual labor hours through retail automation, allowing them to reduce costs and shift labor investments toward high-value customer-facing activities.
  • Improvements like these often occur immediately following implementation, with enormous compounding impact on bottom-line results over time.

Lean Retail Software as a Catalyst

While leading global retail brands with massive IT budgets have utilized Lean principles for decades, the benefits of Lean Retail have been out of reach for many retailers. This changed over the past decade.

Previously, retailers chased the promises of Lean Retail by building a complex stack of point solutions. Unfortunately, this approach has created daunting integration challenges and many point solutions simply haven’t worked as promised.

The RIS 32nd Annual Retail Technology Report (2022) describes this reality. “The challenges retailers are facing today are multifaceted, both from an operational perspective and a customer experience approach. Survey takers were asked to name the top challenges they will face over the next three years and legacy systems topped the list with nearly half of all those surveyed (44%) earmarking it as treacherous rapids that must be navigated. As retailers look to introduce new customer centric solutions to their tech stacks, they must overcome the limitations of their legacy systems and invest in core technology that supports, rather than hinders, their advancement.”

Advancements in cloud-based Lean Retail software have made the cost and implementation of the necessary technology attainable. Any retail businesses evaluating new retail management systems including POS , eCommerce, inventory management software, supply chain solutions, CRM, or retail analytics tools should evaluate the immediate and ongoing impact that a Lean Retail platform will have.

Perhaps the most significant advancement for mid-market retailers is FieldStack’s unified Lean Retail Platform introduced in 2013. The impact on this retail market segment — chains with less than a few hundred stores — has been profound. Clients have boosted customer value through improved product selection, convenient offerings, and competitive pricing, while improving business operations and achieving double-digit bottom line growth.

With Lean Retail Software platforms, retailers accelerate their transformation and simplify their technology environments, allowing them to focus on their customers and their business.

Why Now is the Right Time for Lean Retail

Over the past thirty years, technology has brought seismic shifts to how consumers seek and purchase products. Online shopping has put intense competitive pressure on brick-and-mortar chains. Most traditional brick-and-mortar retail chains have been losing ground because they’ve been unable to fully leverage their inherent advantages. It no longer needs to be this way.

Through the pandemic, brick-and-mortar has proven crucial to retail success. Customers are demanding a seamless experience that integrates brick-and-mortar and e-Commerce channels. They demand personalized service, in real life (IRL) experiences, and human connection. The WSJ proclaims that brick-and-mortar stores are back in style as store openings in 2022 will exceed closings for the first time since 2017. And online retailers including Direct to Consumer (DTC)  brands are rushing to open physical stores as they seek the profitability which has remained elusive for many.

But the Lean Retail tipping point is being driven by threats as well as opportunities:

Regional retailers now need more agility than ever to achieve “convenience parity” and out service the online retailers and mega-chains who continue to innovate. Lean Retail systems provide this agility and functionality.

To overcome these obstacles and prepare for future disruption, retailers need unprecedented operational precision and adaptability. Lean Retail practices, enabled through data-driven Lean Retail software, now make this a reality.

The Principles of Lean Retail

Let’s look at how the core principles of Lean methodology touchdown in retail:

1. Value

When a service or product is identified to meet the customer’s needs — as defined by them — that item has value. Value is the keystone Lean principle because all other Lean principles focus on optimizing the identified customer value. It’s all about delivering the products and services that customers want in the most efficient way possible.

Retail value may seem elusive to identify, in that retail relies heavily on the value of the products sold. Within Lean’s successful retail applications, value has been defined in characteristics related to quality, functionality, experience, availability, and beyond. The heart of Lean Retail value is the expectation of finding “the right products, in the right place, at the right price, and at the right time,” as expressed in the following pillars:

  • Product Selection: Retail “value” starts from a primary mandate that items being actively sought by the customer are available to be purchased or easily made available through special order.
  • Convenience: Product availability and frictionless purchasing through the desired channels, within the customer’s timeframe.
  • Price: The ability to provide competitive pricing is a core Lean Retail value. Customer’s confidence that products are well-priced relative to overall value reduces anxiety and time spent comparing options. Value is provided in terms of reduced cost, stress, and time.
  • Merchandising: The value principle extends into presenting related, timely, or otherwise desirable products that meet additional customer needs and grow the shopping cart.
  • Experience: Expanding a purchase transaction into a life experience with cultural and emotional meaning can offer tremendous customer value. This value is provided through loyalty programs, memorable in-store experiences, the ability to express personal identity through brand alignment, etc.

2. Lean Value Streams

Lean value streams encompass a product or service’s complete life cycle, from raw materials through sale and usage — everything that goes into providing the identified “value.”

Value streams include necessary value-add items, as well as non value-add items that bring waste and unevenness. Value stream mapping allows for the subsequent process and resource optimization that is central to Lean methodology.

FieldStack allows us to accurately manage our inventory across all platforms. Much of the ordering and returning is automated, which allows us to focus more of our time and energy on selling.
- Philip L., Manager

Lean Retail value streams include the following:

  • Inventory Management: Lean Retail requires complete awareness of a chain's inventory at each moment with an up-to-date understanding of inventory opportunities and challenges.
  • Suppliers: Because Lean Retail value is reliant on product sourcing, its value streams are built upon relationships with suppliers, an awareness of each supplier’s capabilities, and a system to leverage this knowledge to meet customer needs.
  • Logistics: Lean Retail includes the optimization of distribution and shipping, as well. This requires a complete picture of logistical options and a day-to-day ability to make strategic changes that best meet customer needs, balanced with efficiency.
  • Operations: The human activities that chains use to provide value are all part of the Lean Retail value stream — everything from merchandising, ordering, stocking and beyond.
  • Service: The ability to provide service at key times in the buying process is a crucial part of operations and the Lean Retail value stream. This includes customer support with returns and other issues while customers are in retail stores or online.
  • Fulfillment: Completing the purchase transaction elegantly at in-store check-out, delivery of online purchases, or in-store fulfillment of orders. These are all critical interactions in the Lean Retail value stream.

3. Flow (Process Efficiency)

With knowledge of the value stream comes an ability to practice the principle of Flow. Flow is the art of maximizing efficiency in processes, with process meaning the progressive achievement of tasks and relaying of information all along the value chain. In retail, where the provision of value lies largely within the processes, Flow plays a prominent role in maximizing customer value and eliminating waste.

Lean Retail software platforms like FieldStack will optimize Flow. This creates significant efficiencies, from using software to automate human tasks to using in-store staff for fulfillment of online orders and support.

But Flow is about adding value as much as it’s about cutting waste. Lean Retail produces value by freeing up employee time through retail automation and shifting their time to impactful activities — for example, getting superstar staff out on the sales floor helping customers and other associates.

With FieldStack we are able to focus more on customer service, which is where we want to be. We now have the ability to grow without the fear of stumbling over our technology.
- Pete R., President

The Lean principle of Flow is reflected throughout these Lean Retail practices:

  • Omnichannel: Integrating processes across brick-and-mortar stores within a chain, and between brick- and-mortar and online channels, is crucial to Lean Retail. Lean Retail starts with unifying the channels. With today’s Lean Retail software, every interaction across every channel occurs in a single, unified ecosystem. This includes collecting customer data from in-store sales, online shopping, and loyalty behaviors, all while constantly analyzing and acting on data to affect the customer’s shopping experience.

    “Muda” (Japanese for “waste,” a key Lean term) is inherent when chains use separate and redundant supply, logistics, service, and fulfillment processes. This waste is eliminated with the true omnichannel retail integration that unified Lean Retail platforms provide.
  • Inventory Automation: Leveraging Lean Retail software to perform product ordering optimizes the use of staff hours, even while it improves product selection and ensures that in-demand products are in stock. The optimization of staff can be leveraged to reduce labor costs or prioritize engagement in human-only activities such as customer service, merchandising, and in-store culture.
  • Product and Inventory Knowledge: Retail processes require answering customer questions about product attributes, comparative options, and availability. Having real-time data at point-of-sale enables associates to provide better service and information, improving customer satisfaction and reducing the time per interaction.

4. Pull (Resource Efficiency)

Where Flow is the art of improving process efficiency within the value stream, Pull is the art of improving resource efficiency.

Pull is the idea that nothing is made or provided until customer demand exists. In other words, nothing happens upstream until it is desired by the customer downstream. In Lean Retail, this entails stocking efficiently to reduce out-of-stocks and overstocks, ensuring that chain cash flow is not tied up in inventory.

At the same time, retail success can be impacted by various psychological factors (for example, merchandising studies have shown that well-stocked shelves can support purchases and increased cart size). Based on complexities like this, Lean Retail allows for a higher degree of flexibility with Pull than other sectors, such as manufacturing.

Within days of going live, we could see increased efficiency in multiple areas. Streamlined inventory management, AI-assisted ordering, an integrated webstore, and robust reporting are just a handful of the improvements over our previous systems that have saved us countless hours already.
- Jonathan B., eCommerce and IT Manager

The Lean principle of Pull is reflected in these Lean Retail practices:

  • Perpetual Inventory: Perpetual inventory eliminates the lapsed time between inventory and ordering. This practice requires technology to track inventory every moment and submit replenishment orders at the optimal time.
  • Predictive Modeling: Lean Retail software provides a clear picture of future customer needs by collecting and interpreting complex customer behavior and purchase data sets. Predictive modeling can be focused on the store, regional, or chain level, based on seasonality and cultural trends.

5. Perfection (Continuous Improvement)

Lean methodology enables both immediate and continuous improvement — a cyclic, iterative analysis and optimization process.

The Lean term for this process is “Kaizen,” a Japanese phrase meaning “change for the better.” Once the customer value is identified and the value stream is mapped, Lean Retailers engage in the ongoing optimization of Flow (process efficiency) and Pull (resource efficiency).

Lean Retail software makes the principle of Continuous Improvement possible through these tools and ideas:

  • Big Data: Lean requires the collection of large data sets and the implementation of complex, perpetual analyses that are impossible to achieve without sophisticated technology, including hardware and software.
  • (More) Automation: Lean Retail requires a firm consistency in execution and relies on decision-making driven by such complex data sets that automated inventory processes are crucial. Still, many retail automation parameters need to be set by humans initially to align with your business goals. And automated decisions require an appropriate ongoing level of human monitoring.
  • Room for Agility: Successful implementation of Lean Retail requires a degree of flexibility and the space for human instinct that are the hallmarks of agile retail management. Machines monitor patterns and make decisions based on big data and Lean philosophies, but Lean Retail succeeds through the symbiotic relationship between automated technology and the humans who control it.

When people first discover FieldStack’s Lean Retail Management software, they focus on the computation capabilities — machine learning and retail automation. And those tools are game-changers. But clients quickly get hooked on their ability to test new strategies — for inventory, logistics, human resources, and more — in ways that weren’t previously possible.

That’s the “Continuous Improvement” part of Lean Retail. The compounding benefits go well beyond the initial jump in efficiency and margins. With real-time data, intelligence, and automation, the ongoing tweaking here, tightening there is part of the process — in pursuit of Lean Retail perfection.

Lean Retail Success

Mid-market brick-and-mortar retailers have a unique opportunity. Lean Retail empowers these regional chains to compete and win against the online giants and mega-retailers by fully leveraging their inherent advantages.

We have resources to compete with major competitors now which could not be achieved with our previous POS system or any other POS systems we had considered.
- Jaquelin B., Director of Operations

The power of Lean Retail comes through its ability to shift the mindset of any retail organization to become a customer-centric and data-driven operation. Lean Retail Software is a transformation tool and catalyst toward that outcome.

  • To operate with Lean principles, you must collect comprehensive data at every touchpoint to always have a holistic view of your business. This is a prerequisite to Lean, which requires that decisions are made based on their actual impact on the bottom line, not just on one slice of the bigger pie.
  • But collecting data isn’t enough. This always accurate data must flow smoothly throughout your systems without human intervention. Many decisions previously made by employees are best handled through retail automation with tuning and oversight.

Lean Retail software delivers immediate ROI in year one, often through:

  • Increased revenue from more robust sales
  • Cost savings through inventory optimization, labor efficiency, and operational improvements.

Recent advancements in Lean Retail software have shortened system implementation times – often taking less time to implement a Lean Retail platform than it takes to evaluate and select yet another point solution.

Mid-market retailers have seen immediate inventory reduction of 15-30%, freeing up cash for expansion while reducing out-of-stocks. Similarly, labor savings of 10-15% through automation have boosted the bottom-line and shifted resources to higher value functions.

Even after the dramatic transformation seen in year one of Lean Retail adoption, returns are ongoing. The practices of Lean will dramatically increase the value your chain delivers to customers while simultaneously reducing your costs.

The Lean Retail Framework

FieldStack’s Lean Retail Framework is a proven approach that reflects ongoing experiences with our clients, three decades of experience operating a thriving Lean Retail chain, and lessons learned from other retailers who have implemented Lean Retail practices. We utilize our framework to help retailers leverage their unique advantages and win against the online giants and mega-retailers within their segments.

lean retail framework

Level 1: The Plan

Lean Retail begins with an understanding of where you’re at and what’s possible. This includes narrowing in on your customer experience, operational efficiency, and data performance.

Level 2: The Proof

The second phase of the Lean Retail Framework involves naming and evaluating the Lean practices that align you on the path to profitable operations and an outstanding customer experience.

Level 3: The Payoff

The home stretch of the Lean Retail Framework is all about optimizing your organization to maximize revenue and profit, giving you the ability to scale your impact.

Lean Retail Software

FieldStack’s Lean Retail Software Platform is the best implementation of Lean Retail available today. But, regardless of whether you ultimately decide to evaluate and use the FieldStack Lean Retail Platform, you will find value in taking this journey with us.

Lean Retail Web Class

How to Win

Embracing the power of Lean Retail allows you to focus on providing fantastic customer experiences instead of wrestling with frustrating tech integrations.

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