by Daniel T Jones of Lean Enterprise Academy shown at the Frontiers of Lean Summit 2005 on 31st October 2005 run by the Lean Enterprise Academy

1. “Get Me Exactly What I Want”
Daniel T. Jones
Chairman, Lean Enterprise Academy
Frontiers of Lean Summit
October 31, 2005

2. Getting What I Want
• What if consumers still can’t solve their problems
because the specific item they need is not available
when needed?
• It comes as a bit of a surprise that most upstream
provision systems are not very well able to fulfil
these exact needs
– The right size shoe in the right style
– The list of items in the shopping list
– The basket of parts needed for the car service
• Why is this the case?

4. Grocery Fulfilment
• Retailers and suppliers are impressed with a product
availability of 98.5% - which translates to a 92%
availability on the shelf in the store
• But a customer with 40 items on their shopping list
only have a 4% chance of finding exactly what they
are looking for (92% x 92% x ….40 times) – one shop
in 25!
• Retailers refuse to believe this – until they have to
make the substitutions for customers when they
begin fulfilling home shopping orders
• But poor fulfilment exists everywhere in the
economy

6. Demand Amplification
• Long lead times mean production is based on
forecasts – which are always wrong
• Inventories are held at many points to meet demand
peaks and secure against supply problems
• Orders are placed for large quantities and
infrequently to reduce freight and handling costs
• Ordering systems operate on different just-in-case
assumptions and the original sales signal is lost
• And often gets overridden by informal manual
interventions – promotions etc.

7. Lean Replenishment
• Lean reverses the traditional logic –
– Only one ordering point in the provision stream
– Increase the frequency of delivery at every point
– Replenish only exactly what has just been sold or
shipped
– And if possible….compress the provision stream
to bring production and distribution closer to
customers
• This substitutes the pull of the customer for the
push of the upstream assets

8. Reflexive Ordering
• The pull of the customer uses reflexive rather than
cognitive information management
• Centralised cognitive systems try to gather all the
information to try to optimise the entire process by
feedback loops and sophisticated algorithms to
direct every action within the whole system
• Toyota concluded long ago that small amounts of
noise accumulates and instructions diverge from
actual needs – triggering manual overrides – which
makes performance worse – starting a vicious circle

9. Total System Costs
• Instead of collecting more and more data lean
reduces the need for information and simplifies the
decision logic
• Ordering little and often and delivering little and
often is key to making this work
• An obstacle is each department considering only the
“chimney costs” in their budget – rather than total
provision stream costs for each item
• It may be worth spending a little more per item to
save a lot more money on inventories, out-of-stocks,
remaindering and lost sales

10. Tesco’s Lean Journey
• In 1997 Graham Booth, Supply Chain Director at
Tesco asked how to apply Toyota’s lean logistics to
the grocery business
• So we “took several walks” following products from
the point of sale to incoming raw materials
• The basis for the cola example in Lean Thinking –
taking 319 days to perform 2 hours of value creating
effort from the mine to the customer
• These walks opened their eyes to waste and began
the redesign of Tesco’s distribution system and
collaboration with their suppliers

11. Learning from Toyota
• Toyota spent 30 years developing lean in house and
spreading it up and down its supply chain
• The most impressive example is aftermarket parts
distribution – supplying 500,000 SKUs to dealers
• It operates as a series of tight replenishment loops
– Dealers call off parts from Distribution Centres every day
– These shipments trigger daily orders to be picked up from
suppliers the next day
– Most of whom can also make every part that is required in a
day every day
• The result is the highest availability, lowest stock
levels and the smoothest order signals

12. Tesco’s Lean Replenishment
• Home shopping orders are picked at slack times in
bigger stores
• Store sales now trigger continuous re-supply from
Tesco’s distribution centres
• Distribution centres are replenished twice a day from
goods picked up from suppliers – as Tesco took
responsibility for all inbound logistics and
consolidation from smaller suppliers
• Suppliers are increasingly producing to replenish
stocks for the next day
• Fast moving products flow through to the store shelf
on wheeled dollies – with no handling

14. The Consequences
• Total touches for cola have fallen from 150 to 50
• Throughput time has fallen from 20 to 5 days
• Stocking points reduced from 5 to 2
• Demand amplification has been reduced from 4:1 to
2:1
• Availability on the shelf has risen from 98.5% to
99.5%
• Equivalent to a “basket fulfilment” of 82% or
frustration only 1 in 5 rather than 24 out of 25 trips
• And their supply chain costs are now lower than
others

15. “Provide Value Where I Want”
Daniel T. Jones
Chairman, Lean Enterprise Academy
Frontiers of Lean Summit
October 31, 2005

16. Where is Cheapest?
• Where would you go to get exactly what you want at
the lowest price? The “Big Box Retailer”?
• We all believe in “economies of scale” – and in
“leaving out the middleman” – by shopping in an
even bigger warehouse!
• But is this really the lowest cost option – compared
to the alternatives? What about your travel time and
cost?
• Do we have to trade off product price, product
variety and personal time and hassle?
• Is the biggest store ultimately going to win?

19. Circumstances
• Mass consumption focuses on customer
demographic attributes
• And works out how to attract you to do all your
shopping in their format
• Lean consumption focuses instead on customer
circumstances – and works out how to create a mix
of formats to match these circumstances
• Recognising that we all use most of these different
formats – depending on how pressed for time we are
• Allowing customers to obtain what they need
without trading off price and variety against their
time – does convenience need to cost more?

20. The Convenience Revolution
• Tesco realised that their lean logistics system could
supply any format for almost the same cost
• They also listened to customers and created five
different formats
– Tesco.com – home shopping
– Tesco Express – local convenience stores
– Tesco Metro – in high streets
– Tesco – standard supermarkets
– Tesco Extra – out of town hypermarkets
• They are also expanding into every type of retailing

21. Knowing Your Customers
• The other key to making convenience formats work
is knowing exactly who your local customers are and
what they want
• Tesco learnt from studying Seven-Eleven Japan who
did this for years – and learnt how to analyse the
data from their loyalty cards to enable them to
design different product ranges to match different
types of customers and to custom range their stores
• Frequent store replenishment also means a bigger
range and fresher products

22. The Ideal Store
• The next step is to create the ideal store for each
customer
• By combining the local store and home shopping
• Allowing the customer to order from home or at the
local store and have the items picked and delivered
to the local store for pick up at the end of the day or
delivered to their home
• Giving convenient access to all 80,000 products
• Each point then goes shopping at the next level up
and delivers the baskets by frequent milk runs

24. Water Spiders
• Toyota pioneered the concept of “water spider”
material delivery systems in its factories
• Which cuts inventories and improves the
productivity of employees working on production
• There is a big opportunity to extend this “water
spider” logistics system to make frequent deliveries
and pick ups from every home and office – for all
types of products
• Who will organise this final loop in the distribution
chain – retailers, the post office, FedEx, UPS, DHL?

25. Winners and Losers?
• What about smaller stores – lean replenishment will
help – but they do not have the buying power
• Their future is in experiential shopping not
instrumental shopping
• The challenge for bigger retailers is to create a range
of convenient formats served by lean replenishment
systems
• Someone will be successful in every category of
goods – forcing others to follow if they can
• But lean consumption signals the end of “one best
way” and the “Big Box” of mass consumption