M01353

Better Improvement Management

to Overcome Inventory, Transportation, and

Unnecessary Motion Waste in Retail Stores

Y. Pasharibu

1

, F. Jie

2

, J. Jacobs

3

, A. Punturiero

3

1

Faculty of Economics and Business, Satya Wacana Christian University, Salatiga, Indonesia

2

RMIT University, Melbourne, Australia

3

University of Technology, Sidney, Australia (yusepaldo.pasharibu@staff.uksw.edu; ferry.jie@rmit.edu.au)

Abstract - Retail store with thousands of different products have grown and expanded either on develop or developed countries. Due to the fact that “A” is a large discount retail store, operating on a 7-day basis, there are several problems that result from their day-to-day processes. Three main problems, such as inventory, transportation, and unnecessary motion problems were found after the interview with retail store’s manager was conducted. Furthermore, the report is logically set out into 5 different processes, including process selection, description of current process, process improvement, process verification, and implementing-monitoring. From this report, some efficiency strategies have designed to overcome these main problems.

Keywords: Inventory, Transportation, Unnecessary

Motion Waste, and Retail Store

I. INTRODUCTION

“A” Store was established in 1969 as Australia’s first discount department store located in Australia. This store have grown and expanded, and now have 182 stores across Australia and New Zealand. Because “A” is such a large department store, with thousands of different products, over the years they have experienced several challenges that have resulted in the day-to-day business operations. After interviewing the Manager of “A”, we have found three main problems, which needs to be addressed, which were (a) Inventory Problems, since “A” have too much stock, which cannot be placed in store and sits in the warehouse for long periods of time, and “A” have to either bare to coats of storage or sell stock at a loss; (b)

Transportation Problems, because “A” experience

ineffective movements from delivered pallets to actual shelf, too many processes, movement and handling involved when stock is being placed on the shelf, and

“A” have to pay for transportation even if the truck is empty; (c) Unnecessary Motion Problems, that occurred because “A” have an ineffective job design as too many staff are only skilled in one area, and “A” experience a lack of motivation and job tasks are repetitive. Based on those explanations, this study want to proposed better improvement management to overcome inventory, transportation, and unnecessary motion waste, especially in retail stores.

II. METHODOLOGY

All these problems in this qualitative research were identified under the lean thinking theory. For the purpose of this report we have utilised simplistic techniques of lean thinking in order to overcome the problems outlined above. Furthermore, the report is logically set out into 5 different processes [3], these are process selection (to identify potential areas for improvement based on need and likelihood of success), description of current process (using process flow diagram techniques describe precisely the current process), process improvement (to identify new ways to accomplish the process goals), process verification (identify problems with the proposed changes and ensure that they can be eliminated), and implement and monitoring (make the changes and monitor the results for effectiveness).

III. RESULTS & DISCUSSION

This result study were analysed by five different processes that stated by [3]. Those processes are process selection, description of current process, process improvement, process verification, then implement and monitoring process.

Step 1. Process Selection

The first process is inventory waste. The most important challenge, which faces “A”, is that of inventory and their inability to reduce wastages caused by this. Inventory waste refers to “excess inventory, over and above that which is necessary.” [3]. The “A” chain has a central headquarters located in Melbourne, which is responsible for making stock orders to suppliers for all “A” stores Australia wide. Here is where the problem lies. Although Melbourne bases their orders on past demand and forecasting, they lack the flexibility and responsiveness to cater for changes in the business environment. For example, new competitors and sales from competitors will impact on levels of stock sold and thus effect how much stock needs to be ordered.

Further, headquarters places orders for the all stores across Australia and three months later the stock will arrive. This gap is quite large, and leaves potential for more inventories related problems. By having such a large period of time between deliveries, North Rocks is unable to arrange necessary changes to quantity of orders if needed. A good example, which was noted by the general manager, was that North Rocks conducted a store refit. After doing so, management realised they needed to reduce stock levels by 20% due to the surroundings. However, because of the three-month ordering period, headquarters were unable to accommodate for this.

The main problem with holding too much inventory is that it affects ‘costs, lead times, quality and flexibility’ [3]. For “A” North Rocks, here is an off site storage warehouse which currently stocks 300 palettes, each palette costs $10 per week. Some stock has been there for 9 months and still hasn’t been sold. If stock sits there for a while, and they want to get rid of it, it may get marked down (E.g. Bar cooler originally priced at $311, marked down to $90) therefore, made a loss. As a result of these processes, ultimately, “A” has to bear the extra storage costs, or sell products at a reduced price thus making a loss.

A second problem identified by “A” was that of unnecessary motion waste. This theory is ‘the waste of human resources caused by unnecessary labour due to ineffective job design’ [3]. “A” has incurred these problems to due their ineffective job design as they have too many staff that are only skilled in the one area. Individuals are hired and positioned into a certain department within the store, only receiving the appropriate training for that specific area. This increases the repetitiveness of their tasks and consequently leads to a lack of motivation amongst the

employees. Further, having unskilled employees also affects the business environment, as employees are unable to assist in other departments during peak times. This not only puts unnecessary pressure on the employees in that particular department, but also leaves customers unsatisfied with lengthy waiting times.

The final problem that we have chosen to explore is transportation waste. This involves the ‘waste that results from excessive materials handling and movement’ [3]. Because “A” is a large discount department store, they have several aisles and section within each store thus causing waste as products endure extensive movements from one area to another. This is a problem as it increases the likelihood of damaged products and consequently decreases value. “A” have too many processes, handling and movement involved when products go from pallet to shelf.

Further, when “A” releases a catalogue, the store receives excessive amounts of stock for advertised products. This increases the amount of ‘trucking’ between the stores and the local warehouse. Each delivered load or cartage cost is $260 (12 pallets). Each truck unloads products and “A” attempts to refill the truck with previous products, which do not fit within the stores. However, if “A” has no further stock to be placed in the warehouse, and the truck is empty, they still have to bare the costs of transporting it back to the warehouse. When stock is received from the delivery truck, the stock is placed into a ‘receiving room’, which then all products are separated into stock that can or cannot be placed in store. All products then go through damage assessments, and stock, which is not needed is repacked and placed back onto the truck.

The problems identified above are the most significant areas in which need to be improved. All three issues fall under the theory of lean thinking, which is a process that attempts to reduce waste within a business environment. Simplistic yet critical techniques and processes can be implemented to ensure the successful improvement of business operations.

Step 2. Description of Current Process

given by the “A” manager, Melbourne only checks the SIMS system to decide order quantities, rather than the environment and the possible issues that every store has. The third failure point that exists involves organizing stock into pallets and having them transported to regional wholesalers rather than directly to stores. The fourth failure point exists because according to the information given by the individual stores to Melbourne, not all the products can be sold. So due to this, some of the products have to be repacked and put back again into the trucks. The last failure point appears if the product is not inspected well enough, it can be put on the shelves and the customer would get a defected product. This has a great impact in the company reputation and in the quality cost, so “A” must assure that any product that is going to be put on the shelves, is undamaged and of 100% quality.

Step 3. Process Improvement

There were three selected processes that this study proposed to improve, which were inventory waste, unnecessary motion waste, and transportation waste. Firstly, about inventory waste, since “A” is experiencing difficulties with excessive stock levels, which inturn causes high levels of transportation, then these problems must be dealt with to lower unnecessary warehousing, transportation and storage costs. There are a number of solutions that “A” should put into place to reduce costs and to improve efficiency. The first solution that “A” should implement involves updating their SIMS more often. As “A” stores update their system every three months, the system does not allow for any changes in the three months. For example, if sales drop in one department, the trend is not picked up, and the store receives the same stock amounts for the remainder of the three months. If “A” updates their SIMS every month, Melbourne headquarters will be able to observe trends, and predict sales levels more effectively so that they do not order stock that will not sell.

Another solution involves communication with Melbourne headquarters before orders are placed. As store managers know the environment of their store and its surroundings, they understand all departments (due to communication with department managers), and know what can sell and what cannot sell. As managers have this information, it would be wise to share this information with the people who order the stock (“A” North Rocks Manager). For example, North Rocks “A” recently went through a complete store refit, and the store managers knew that they wouldn’t need as much

stock due to messier surrounding, leading to fewer customers entering the store. However, as Melbourne did not respond to this information, they sent the same amount of stock, and the majority had to be put into warehousing, as it could not be sold. Stock levels can be controlled due to the large amount of information being shared, which is used to forecast sales levels and ultimately stock levels needed, and to avoid excessive levels of stock being stored in warehouses.

An additional solution “A” could implement involves, reassessing current demand forecasting techniques, as Melbourne headquarters use this information to base their stock orders on. Melbourne needs to more accurately match inventory orders to demand levels for each store as their current forecasting techniques may not be adequately doing this. Another way “A” can manage inventory levels is frequent deliveries. This activity involves numerous deliveries from suppliers to create a smoother flow of inventory coming into the store (in smaller amounts of what is needed), to match actual demand. This continuous replenishment system would allow “A” to re-stock shelves constantly with the inventory coming in and having very limited excess stock. Overall costs of warehousing and transportation are reduced due to no wasted ‘trucking’ of excessive inventory levels to the warehouse and back and there would be limited stock in the warehouse. Also, customers do not have to wait for products, as they will gain immediate gratification from the continuous re-stocking of shelves thus resulting in fewer stock-outs [3].

The last solution for “A” store’s inventory problem is CPFR (Collaborative Planning, Forecasting and Replenishment). This process involves ‘reducing inventory costs while improving product availability’ [5]. This system links well with both the communication improvement “A” need and their SIM system as it allows the analysis of data so that planners, or in this case, Melbourne, can assess situations that could affect sales thus affecting orders (stock levels). The proposed order levels can be adjusted and corrected if any incorrect data entry occurs [5]. CPFR can bring suppliers and “A” managers together, to share information and produce effective plans regarding accurate stock forecasts and delivery times [4].

According to Finch, “Cross-training, which teaches employees to do several different jobs, offers an alternative to having idle employees”. Cross training is defined as “Providing training in several different areas or functions. This provides backup workers when the primary worker is unavailable” [2]. Through cross training, the idle human resource can be better utilised in a flexible sense to move to work centres that have greater demand at any one time. Furthermore, [3] stated that “The more jobs an employee can do, the more valuable that employee”. Eliminating the idle employee wastage as well as the value creation of employee’s flexibility makes this process improvement desirable. Not only is wastage minimized, further beneficial outcomes are derived from implementing cross training. “Both cross-training and job rotation create a team of workers who are more knowledgeable, can easily replace each other when needed and who gain new confidence regarding their professional expertise. These two techniques lead to great motivation throughout the company [1].

The last improvement that proposed in this study is about transportation waste. Upgrading the process design of stock handling throughout the “A” store is required in order to eliminate the present waste that occurs through “excessive materials handling and movement” [3]. This process focused improvement would provide a more efficient and leaner procedures for receiving stock at the stores dock and transporting this to the in store shelf displays. “Transportation of inventory and products is expensive, not only from the standpoint of the cost of labour, equipment, and fuel to do the moving, but also because unnecessary transportation takes a lot of time.” [3]. Moreover, according to [3], focussing upon excellence in process improvement “gives the lean firm an advantage in capabilities and value creations” and this is certainly something that can be targeted at the North Rocks store to eliminate transportation wastages.

Excess transportation can be as a result of poor process design [3], in terms of the “A” situation this is exactly the issue and a leaner process of transporting stock from the receiving dock to the shelf can be accomplished through an overhaul of the current process design. Through a separation of stock as it arrives, into sections based upon geographical layout of the store, the stock can be moved in lots directly to the shelf. The current process includes taking a range of goods to be put on the shelves that could be located at alternate areas of the store. Through this process improvement, a significantly leaner transportation

procedure within the store can be accomplished, almost immediately.

Step 4. Process Verification

When trying to improve the processes throughout “A”, a new system approach has to be undertaken in order to make sure that “A” works efficiently and effectively. However, in implementing this new system many challenges arise and cause problems throughout “A”. Starting with the inventory changes, the improvement is to increase the frequency of deliveries to create a smoother flow of inventory to closer match actual demand and to create a “continuous replenishment” system. This is a very good method in order to match efficiency with effectiveness; however a problem, which may occur within this change, is the reliance on delivery service. Increasing frequencies means more deliveries throughout the year, which means more opportunities for deliveries to be postponed through reasons such as traffic, accidents, breaking down of the transportation trucks and incorrect order placements through human error.

Having such a specific order regime and such a frequent delivery system may place excess stress and even workloads onto employees at “A” that may not have the necessary skills to take on such tasks. Staff may not be competent with the new system and therefore could cause the improvements to be seen as very beneficial in theory to “A” however in practice may not work at all. Regarding unnecessary motion waste, the new improvements include changes such as redesigning job roles and practices, employee cross training, and increasing employee motivation. These all seem like necessary and beneficial changes however may be seen as a hassle by employees as many employees and people for that matter do not like change. It may cause reluctances of employees to take on new jobs as they feel that their jobs are at risk as job roles and practices are being redesigned. Also the excess workload for the new improvements means more work for “A”’s employees causing employees to become stressed and therefore effectiveness and performance levels may decline therefore directly affecting “A”’s profits.

an order number is off, “A” may need two trips to bring extra goods back from storage to the stores.

Step 5. Implement and Monitoring

Once the possible problems are identified and proposed changes have been highlighted, an implementation plan is required. To implement the inventory wastage solution it is essential for store managers to increase communication between their store and the Melbourne head office. Store managers will have to have a sound knowledge of what products are popular in order to know what to order. This information should be communicated daily with Melbourne so they can plan ahead to more accurately predict demand. Communication should occur daily by either phone or email. This will enable more frequent and reliable deliveries of inventory to the store. The changes to transportation of inventory will require a planned implementation process. Store managers will have to design a distribution plan that most efficiently moves inventory from the truck to the shelves. This distribution plan will take into account the store layout, time of delivery and the contents of each pallet in each truck. Once store managers have developed this, employees can be informed and trained how to undertake the new operations.

The implementation of job redesign and employee cross training will be performed by the Human Resources Manager (HRM) and store managers at “A”. The HRM will be responsible for rewriting job descriptions to involve the new task and duties of employees. This will be carried out with consultation of product manager and employees. Once the employee’s jobs have been redesigned, the HRM will again work with the store managers to conduct staff training programs. Employees will be cross-trained to perform their new duties so they are can work in several different roles. This process will incur additional costs to begin with. However, it is expected the long-term benefits will outweigh the short-term costs.

Once the proposed changes have been implemented at “A”, management will have to monitor the impact of these changes. To monitor changes in inventory waste two methods will be used. The first will be a daily record of inventory levels in the warehouse. Once the new system is implemented and demand forecasting is more accurate, inventory levels should start to decline. This will lead to a reduction in storage and warehousing costs. Secondly, management should keep a log detailing products that are currently out of stock. Management would expect this figure to also decline as

demand forecasting becomes more accurate under the new system.

Inventory transportation will be monitored in two ways. The first will be a timed log, comparing inventory distribution before and after the implementation of the new system. Once a delivery has arrived, a manager will time how long it takes for all inventories to be distributed to the shelves. This process will be conducted now, and then once again, when the new system has been implemented. Management would hope to detect a significant reduction in this time, with the implementation of the new system. Additionally, managers will look at transport costs and the number of staff needed to distribute inventory to the shelves. These figures should decline as the new system becomes more efficient.

Finally, to monitor the results from employee cross training, four areas will be examined including management observation, surveys, employee absenteeism and the employee turnover ratio. Managers will observe how effective the new system is in keeping employees productive and reducing unnecessary “standing around time”. Regular monthly surveys will also be conducted. These surveys will measure each employee’s satisfaction, happiness and motivation towards their tasks and duties at “A”. Once these changes have been made management would expect a reduction in staff turnover and absenteeism, leading to a reduction in costs.

When discussing the recommendations for “A” store’s situation, we must refer to process improvements for each section. Although there have been many solutions addressed, many of them may take a while to implement, however, they are not necessarily unreachable.

Inventory Waste, Unnecessary Motion Waste, and Transportation Waste Recommendations

necessarily difficult to put into place, relies heavily on the suppliers and if stock is close to being all sold out on the shelves and the delivery is late, there may be lost sales. The communication to Melbourne of stock levels and what is needed is reasonable and must be done to reduce excessive inventory levels.

Then for the unnecessary motion waste recommendations, the separation of stock according to departments is logical and not too difficult to undertake. This will also reduce handling and movement of stock and create a more organised process to follow when stocking items on shelves. If the recommendations for inventory are put into action, the orders can be better assessed regarding putting over stock back onto truck to take into the warehouse, as there will be less stock overall.

Finally, about transportation waste recommendations, as restructuring employee jobs are lengthy and take time to adapt to, it is possible that “A”’s HR department can help managers out when re-training employees so as not to disturb or interrupt normal ongoing employee activities and work. The HR department can also train managers and how to motivate their staff and to communicate with them about the new job redesigns to reduce employee reluctance.

VI. CONCLUSION

In conclusion, the recommendations for “A” to improve their efficiency and to decrease their wastage are achievable, realistic, measurable and specific. If these solutions are put into place, “A” will see changes in their operations, creating a more smooth transportation process, a limit in warehousing unneeded stock and high employee participation, responsibility and motivation.

The problems “A” faces are common for many retail stores, and due to the fact that it is a franchise, it is harder to manage each particular store due to the large amount of stores. The key point is that to limit wastage, processes must be changed to eliminate unnecessary actions and there must be a constant flow of communication on all levels of management, employees and headquarters for operations to run more efficiently and smoothly.

VII. MANAGERIAL IMPLICATION

Based on this study results, retail store should increase communication between departments and update their SIMS every month to reduce inventory waste. Then to create more smooth transportation

process, they could limit the warehouse’s unneeded stock and high employee participation. Finally, new improvements include redesigning job roles, giving practices, cross training, and increasing employee motivation are needed to reduce unnecessary motion waste.

VII. REFERENCES

[1] Belilos, C. (1999) ‘Cross-Training as a

motivational and problem-solving Technique’, CHIC Hospitality Consulting Services, Accessed from http://www.easytraining.com/crosstrain.htm, 20th October, 2007

[2] Ehrlich, D. (2002) ‘Consulting in HRD’, Northeastern Illinois University, Chicago, Illinois 60625.

[3] Finch, B.J. (2006). Operations Now - Profitability, Processes, Performance, 2nd Edition, McGraw-Hill Irwin, New York.

[4] KJR Consulting. (2002). CPFR Baseline Study-Manufacturer Profile. Washington DC, CPFR Task Force Logistics Committee Grocery Manufacturers of America.