Lean Manufacturing Needs Lean Retailers

If the leanest possible manufacturer of consumer products approached Walmart, Target or Kmart with the proposition that they could provide very low cost products, with excellent quality, in small quantities to each store, with very short lead times, and could even customize the products to a certain extent such that the customers in each region could get exactly what they want, that manufacturer would be sent away empty handed.  Walmart, Target and Kmart are not interested.

Stuck in their outdated business model, with a simple minded economic model, they all scour the globe looking for a supplier they can wring a few cents out of on the purchase price, then send the product in staggering quantities through the most bloated and wasteful supply chains.  Oh, Walmart makes a token pass at regional buying - you can buy an Ohio State T-shirt at the Walmart in Columbus and an Oklahoma U T-shirt at the store in Norman - but the mainstream stuff all came to the store from a massive distribution center, fed by container loads and truckload quantities ordered months in advance.  Want to sell your product in Target or Walmart stores next Christmas?  Better have your sales pitch prepped and set to go, because the buys will be locked in before the next few months are out.

The silliness of big retail in an increasingly lean manufacturing world can be most easily understood if one can imagine a Toyota dealer ignoring Toyota manufacturing capability.  Picture a Toyota dealer only offering custom ordered cars with six week lead times, ignoring the fact that Toyota can actually get the car to him within a week or two.  Imagine him trying to squeeze every customer for a few more bucks for an 'extended warranty' instead of using the fact that one isn't needed as the product's strongest feature.  Imagine him renting extra space to keep a couple hundred extra cars in his inventory, just in case, and passing the cost of the inventory on to his customers.  Because in that supply chain the manufacturer rules, a Toyota dealer who did business in such an insane manner would either shape up or lose the franchise.  In most retail supply chains, however, the retail buyer is king.  Unfortunately, there are few places in the business world in which so much authority is placed in such incompetent hands. (Wall Street analysts are far more ignorant, but wield less direct power).

Walmart has unfairly become the whipping boy for every liberal cause simply because they are big.  I have no social bone to pick with them, but I do see them as the General Motors of retail.  They are big and they make lots of money, but they do so on sheer momentum, using an outdated philosophy of business.  While they tout their vast distribution centers loaded with state of the art technology as a source of pride, I see waste on an epic scale that is most certainly built into the price I pay in their stores.  Their logistics system assures that I can always find what I want on their shelves, assuming I want the same thing that everyone else in America wants, and the cost of such logistics more than eat up the buck they saved by placing their purchase orders in Mandarin. 

Target follows the Walmart model religiously, only with greater arrogance and slower inventory turns.  Last Christmas they tossed the Salvation Army out of their stores.  This year they led the way to banishing the word "Christmas" and implementing 15% restocking charges (under the apparent assumption that product returns cannot conceivably be their fault)  But, Target has a Six Sigma program, so drowning in inventory and a knack for new policies that serve no purpose other than to remind customers that shopping at Target is a privilege are about par for the course.  Then there is the dynamic duo of Kmart/Sears, whose market value would go up dramatically if all of their stores were closed, leveled and turned into parking lots.

The hope for lean in retailing comes from the building products sector, where Home Depot and Lowes are doing battle.  You don't read much about whiz bang technology driving Home Depot distribution centers because they didn't waste their money on such things.  They have a few DC's for imported stuff, but the rule for doing business with Home Depot is that manufacturers generally ship directly to stores in box and skid quantities.  Most of the purchasing is done regionally, rather than from headquarters.  A Home Depot store manager has an 800 number for each supplier that he feels quite free to use any time, any day, to replenish whatever is needed in any quantity needed.  Lowes is very big on buying from regional manufacturers - you might recall a blog a few months back in which I mentioned Pella building a plant in Arizona to serve the Lowes Southwest region.  Tom Johnson and Jim Womack see that model as the way business will be done in the not too distant future, and I think they are right.

The retail model will change, of that we can be certain.  I doubt that Walmart will lead the change.  Their vast profits in the past have created a kaikaku-proof culture.  Target and Kmart are lost causes.  But somewhere out there is the Toyota of retailing, who will very soon emerge from the fog.  They will be the retailer who studies Home Depot and Lowes, and the one to learn manufacturing best.  They will understand the Internet better.  It is too economically sound to not happen.