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RETAIL
The Business Problem
An established
departmental store in a city was doing very well with good sales
and profits. The store used to make on an average 4-8% profit.
The departmental store was a "Complete Store" i.e
it sold vegetables, groceries, alcohol, stationary, etc. A week
ago, another departmental store in the vicinity of this store
opened with a 5-10% discount on all items. The older store did
not bother about this
discount because it figured that this must be an initial discount
and after a few weeks the store will start selling at regular
prices. |
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two months, the new store increased the discount to 7-15%. Now
the management of the old store got worried and decided to get
help. The CEO of the store had heard of Six Sigma and decided
to try it out. He contacted a Six Sigma consulting firm for
their services. |
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The Benefit Analysis
The Six
Sigma consultants got into action immediately. They analyzed
the past few months and realized that the store had approximately
lost $41,000 per month. And because of the poor sales, the store
had a lot excess inventory ($49,000) and a lot of the perishable
goods had to be thrown resulting in another $7,650. The excess
inventory also created problems with storage which had to be
kept is another rented place ($1500pm). These numbers communicated
to the management of the store that they were already late in
understanding the problem. |
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Problem Identification
The Six Sigma consultant spent time
at the store trying to understand the aspects of cost for
the store. The consultants came up with very interesting facts.
They realized that the area that constituted to cost most
was inventory.
Root Cause Analysis
Upon detailed analysis, the consultant
realized that the high inventory was because of stocking rules
for all items were the same. The suppliers were dumping material
into the store irrespective of whether the store wanted it
or not. Also, slow moving perishables were getting scrapped
regularly.
Solution
The consultants suggested a break-up
of all goods based on shelf life & cost and thereby decided
the new stocking quantities. The consultants also worked with
the supplier to revise the supplier contract to supply on
a need basis to avoid pile up of stock.
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Result
Once the solution was
implemented the store started seeing multiple benefits. The
store was now able to offer 15-20% discounts without affecting
its margins. The vegetables scrap also reduced drastically.
The extra space that the store gained by reducing excess inventory
helped the store to provide more walking area and display newer
products. |
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