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Walmart’s Visual Management

There is a new Walmart being built near my house.  It is just a couple of weeks away from opening.  As I drove past, I noticed the lines for the parking spots were two different colors.  The lines for the spaces that are near the building are painted white.  The lines for the spaces away from the building are painted yellow.

I had my suspicions as to why and they have been confirmed.

The spaces painted that are away from the building are there to indicate where employees can park.  The white spaces are to be reserved for customers.

Auditing will only be effective if Walmart employees have some kind of sticker or indicator on their car.  Or do they trust their employees will do the right thing?

Either way, the visual communicates to the employee a message in a simple manner, “You are parked too close or you are not.”

Note: I tried to take a picture but couldn’t get at a good distance and elevation to show the parking lot effectively.

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Who Drives the Price? Consumer or Customer?

In the lean community, many times we talk about how the consumer drives the price of  a product or service.  The price is not driven by some sense of entitlement we have to a certain profit margin.

Traditionally, the thought was:

Price = Cost + Profit

We find out what our cost is and add our profit to it and that will be the selling price.  Things have not sold because companies price things higher than what the consumer is willing to pay for it.

The lean mindset is:

Profit = Price – Cost

What’s implied is the consumer sets the price.  The company has a cost and can work to reduce the cost or leave it but that is what determines the company’s profit.

Over the last couple of weeks, I have worked with a large group of people on their innovation process.  How new ideas are presented to leadership and the decision making process on whether to proceed with the idea or not.

What I was pleased to hear was all the division agreeing that the consumer sets the price of the product.  Not what profit we want to make.  Finance to Supply Chain to the Creative directors and staff all agreed on this.  Yet, there were times when the decisions being made on a product were only pursued if the price could change or the cost cut more.  I understand wanting to hit a pre-determined profit margin but raising the price when the consumer is not willing to pay for it is just a waste of time.  It generates zero revenue if not sold no matter what the cost is.

All the divisions agreed with this but knew they needed to put it into practice.

There was an example that was tricky that came up.  In our business, we make consumer goods and then sell them through mass channels (CVS, Walgreens, Walmart, etc….).  Our research says the consumer is willing to pay price X for a product, so we design and innovate around that knowledge.  Then we show a retail partner, like Walmart, and the say they like the product but their customers will only pay Y which can be 50% less then what consumers told us directly.

So now what?  Sometimes that makes the product unfeasible to produce without losing the integrity of what the consumer insights have told us it is they love about the potential new product.  It can put us in a predicament because we can sell the product without Walmart but we feel we are losing revenue if we go by their insights.

All the divisions agree that we don’t get to set the price, but who does?  The consumer (person buying the product off the shelf)?  Or the customer (Walmart, CVS, Walgreens, etc…)?

What do you think?

Top Posts of 2010

The wonderful people at WordPress.com and Stats Helper Monkeys provide some great statistics over the year.  I thought I would share the Top 5 Posts based on views from 2010.

If you saw them it might be a refresher.  If you didn’t see the post I thought it might be good to share what seems to be the most popular ones.

These are the posts that got the most views in 2010.

1

5S in the Office September 2010

This is about applying 5S in the office.  When is it appropriate to use and when is it not.


2

Comparing Lean Principles to the 14 Toyota Principles (Part 1) July 2010

This is the first of a three part series comparing the 5 Lean Principles from the Lean Learning Center to the 14 Toyota Principles.


3

Dilbert Leading Transformation July 2010

A funny Dilbert Cartoon from Scott Adams about how employees might react to a boss wanting employee engagement after years of not caring about the employees.


4

Walmart Changing Transportation Strategy June 2010

Comments on an article about Walmart changing their transportation strategy.


5

Redbox Produced In the U.S. Using Lean October 2010

Highlights of an article showing what Redbox is doing to use lean and keep the manufacturing in the U.S.

Walmart Changing Transportation Strategy

Walmart has decided to breakdown some of the orthodoxies that it has always had when it comes to shipping product (article here).  No longer will they wait for the supplier to deliver the product to their distribution warehouses.  Now Kelly Abney says,

“…it’s all about squeezing out costs by keeping Wal-Mart’s own trucks busy and by accepting delivery of merchandise at the supplier’s loading dock instead of at a Wal-Mart distribution center.”

This seems like the right thing to do.  Distribution centers are non-value added for the consumer which means they are nothing but a cost (or waste) for Walmart.  Does this mean they won’t have any distribution centers?  The article does not say what it means for the DCs.  My thoughts are there would still be DCs but maybe they need to be smaller because less is going through them saving on equipment, manpower, land, etc…  Also, what is mentioned but now focused on, is Walmart is trying to utilize its resources and not just source out everything and let their resources have waste in their processes.

Abney also says it allows suppliers to,

“focus on what they do best, manufacturing products for us.”

The main reason for this change is Walmart is having a big enough problem with receiving errors at the distribution centers.  Errors like:

“…missing pallets or delayed shipments.”

How does Walmart picking up the goods at the suppliers’ dock help?

“…when a Wal-Mart driver picks up a load at a supplier’s loading dock that same driver will have to scan each pallet’s RFID tag as it’s loaded. The driver will then transmit the data so it can be matched up in real-time with EDI documents that specify what’s in the shipment. Sending that data ahead doesn’t just give Wal-Mart the inventory information a few hours earlier. It gives the retailer the chance to have unpleasant inventory surprises corrected in minutes at the supplier’s loading dock, not days later.”

I like the concept.  Quicker feedback into the loop.  I still have a lot of questions though.  It is great that the problem is identified right away, but what if they don’t have the correct product or remaining amount available?  Is the data collected by the driver given to the supplier after every pickup so the supplier can track trends in types of errors in order to problem solve?

Once the pallets are on the truck, Wal-Mart also gains complete control over when that truck will arrive at the distribution center. Such knowledge creates much more predictability for arrival times, which in turn produces better scheduling options for the loading dock. It also means faster turnaround times. And, stores will know what they’re getting, and when.

Predictability is something that lean organizations strive for.  It creates less waste in resource availability.  Once this is accomplished, Walmart could take the next step in leveling the flow of trucks throughout the network.  I would bet by owning their own trucking and creating predictability they will create more savings then they even realize.

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