In this paper, two industries, retail, and financial services have been compared in order to know and understand the importance of lean management and the strategies adopted by these industries under different situations. The study also emphasizes on managing the tradeoffs between the costs, lead times, and demand unpredictability. This study provides detailed information about lean concept used in two sectors, and it helps in the continuous elimination of waste in all the business processes and facilitates to improve all the operations in business. Furthermore, in order to have a deep and practical understanding about the lean management concept, two companies Brookstone (retail) and VisionBank (finanicial services) have been taken into account. The study is aimed at exploring the fundamentals of lean and agile strategies and how these strategies have been applied to transform business performance in two industry sectors.
Lean and agile are the strategies, which a company can follow in order to maintain to build up its presence in national and outside market. These strategies are considered to be opposite to each other. Some researchers however claimed they can be applied in business processes at the same time (Jackson 1996). Both the strategies are important for the business operations as they give ability to monitor the steps, collecting data and enhance its usage, and at last proper flow of communication with the partner. Lean strategy deals with making of standard products towards the order. Business here do not carry inventory rather believes in build-to- order strategy. This is important as it reduces the inventory carrying and obsolescence cost, makes distribution easy and time effective (Feld 2001). Lean strategy helps in reducing the inventory cost, reduces wastage and other carrying cost. In simple words, lean is about deciding up the exact things to move on the other hand Agile is about making the things build towards righteousness. Agile can be referred to as the process of plan-do-check-act. In this a company first makes planning, then do as per decided, then check whether it as per decide now and final step is acting if things are not acting as per decided. The core of the strategies lies in the fact of simplicity, teamwork, continuo learning, feedback, and checkups. This strategy helps in retail segment by designing the actions as per the plan (Hobbs 2004).
The term ‘Lean’ was first introduced by John Krafcik. It is a kind of management philosophy, which pursues the continuous improvement in all the business processes and continuous elimination of waste. This strategy mostly being used by Toyota and it is one of the best automobile companies as compare to other. Their main goal was to gives the better services to the end user in respect of cutting the manufacturing cost. Automobile manufacturing plants are somewhat resembles with the chain of financial services (Plenert 2010). Loan sanctioning and loan payments involve a number of steps which should be carried out by the specialized staff for maximizing the satisfaction of end user and minimizing the cost involved. Lean manufacturing helps in reducing the waste, eliminating variances, quantifying the cost and improvement in the quality of work performance. Agility is the strategy which defines the ability of business to cope up with the external threats and manage the opportunities. It is basically derived from the two core competencies like response ability and business insight. Each financial services industry must have to identify the agile drivers because of the financial uncertainty, tension between the local and global environment, agenda of sustainability and climate change etc. (Fliedner 2011).
The following paper discusses about the two industries and their lean manufacturing strategies in order to make the discussion clear and easy to understand. These industries include retail industry and financial services segment
Factors that management considers while deciding which strategy is most important for their business operations
This is considered to be a daunting task to decide upon, which strategy to be used while carrying out the business operations. It is quite clear that increase in demand of the consumers makes it real difficult for the marketers to decide upon, which strategy to follow so as to lead the race full of competition. The choice of strategy depends upon various factors like perishability of the products, everyday changes in the technological advancement, frequent changes in the product ranges, increased aspirations in the mind of the consumer (Lindenau-Stockfisch 2011). Every organization now wants to win the race by offering greater flexibility by providing shorter lead time. Another factor that decides on choice of strategies depends upon the predictability of the demand that is present in the market for a specific product, whether to sell this product as standardized or it should be sold as customized good. Thirdly, the decision is also dependant on the flow of information. Right information at the right time is necessary for any business. Delay in piece of information causes shortages in supplies in return of a demand, excess inventory, and other cost reduction methods. An organization that deals with customized products and bulk marketing then right piece of information at the right time is essential (Trent 2008).
Retail Company: Brookstone
Brookstone is a company that is mainly engaged in the selling and production of various consumer goods. The company is a medium sized enterprise which offers its merchandise under a variety of categories of products that incorporates audio and technology, home and office, along with health and fitness goods as well as travel. In addition to this, the company also deals in some of the commodities such as games, exercise equipments, daylight desk lamps, furniture and associated accessories, massage chairs, gadgets and iDesign tower music system. Brookstone offers these products to its customers by means of its retail stores, catalogs, and websites. Moreover, the company has approximately 300 Brookstone brand stores and is headquartered at Merrimack in New Hampshire, the US (Brookstone. Inc. 2013).
According to the senior management of Brookstone, lean system is necessary to make the reduction in the cost dealing or associated with different methods used by the company in the production system. This is because it tremendously helps the company in reducing the lead time. It is important to mention that lead time is the time gap between the time of ordering and time of receiving the product. Since lean strategy believes in build-to- order strategy, hence it is challenging for the company to reduce this lead time in the competitive era and to stand out of competition. On the other hand, agile believes in designing the right system from the starting rather than designing strategies in the later stages (Balle 2011). This strategy implemented by Brookstone emphasize on flexible system, and time efficiency. It is suitable for the business matters of Brookstone as it deals in changing demographics and scenario. The company has decided this strategy to be followed in operations by taking into account the various factors which are stated above like the product characteristics, standardization, or customization, demand of the product etc. Once the factors are analyzed in details then strategies are decided simultaneously.
Techniques management is using in the current business circumstances
As already been discussed, the strategies followed by the companies differ in terms of both usage and availability. The retail industries are growing at a faster pace. The sector has to face many challenges like high competition, increased demands of the consumers in the form of innovative products, fast delivery of the products, high product range, and the most important high quality is needed in all the ranges (Zylstra 2006). For this every participant decide on their own strategy and then works on it. Primarily, everyone in the ground used to use traditional method of forecasting the demand so that they can cater the needs of the consumers. However, the days are not the same, the methods have changed tremendously the companies have now move on to Lean and/or Agile. On one hand, where Lean is characterized by minimum holding of the inventory, the agile on the other hand matching the pace of innovative products in the market and catering to customer’s unpredictable demands (Plenert, Dey and Banerji 2011).
The history of lean manufacturing can be traced back in history which was started by Toyota which is a Japanese base car manufacturing company. Toyota gave birth to the concept of the Lean; this was done in order to remove inefficiencies present in the system: remove wastage, capacity cost, carrying cost etc. The very idea gained its popularity very soon because of the results attained after its usage. The early days of nineteenth century introduced the flaws present in the system of Lean production. The current scenario declares that customer now-a-days have become a spoiled brats, who looks for quality products at a lower cost (Plenert, Dey and Banerji 2011). The smart customers are very well aware that the companies will try their best to make this happen. This point declares that the current situation Agile is the need of the hour. This strategy can help in meeting the unpredictable demand of the consumers well on time. Just like its name Agile, it signifies that the actions have to be quick and steady. The customer now no longer wants to wait for his demand. In such scenario meeting economies of scale is a challenging task for the companies. Lean in today’s world seems to be old concept and are only restricted to basic products whose demands can be easily predicted and stock out rates are minimal. In order, to take advantage of the cunning strategies the companies should define their strategies that involve the usage of the both.
Lean Management at Brookstone
In order to stay competitive in the present business environment, the uses a development of procedures for the reduction of space and inventory waste. It can be observed that the lean manufacturing principles at Brookstone are mainly based on a value stream flow that helps in satisfying the customer to prevent the construction of waste. The company consistently produces what the customers’ want using a minimal amount of resources, consequently, increases customer satisfaction. In the company, the lean production is necessarily formed to compress time and get a higher output at lower cost. On the other hand, Brookstone makes the use of ultrasound screening which is an integration of ultrasonic vibration and mechanical vibration system, which helps in reducing screen binding.
Strategic Tools Used by the Company for Lean Management
In order to make the management of lean concepts in the company, it is required to use the lean management strategic tools in an effective manner in the retail industry. The reduction and elimination of wastes can be done with the help of these tools.
- Batch Size Reduction- the Company mainly operates with large batch sizes, the production of parts to consumer demand is advocated by lean system; therefore, the main objective is to reduce the batch size to a lower extent as possible. This is because the reduction in batch sizes helps in reducing the amount of work-in-process inventory (WIP). In this way, the retail companies are able to deliver more quickly with the smaller batch sizes and the cash flow is improved which helps in increasing sales and market share by making the operating at profitably lower margins (Petschnig 2009).
- Pull System- In addition to the above strategy, the pull system also helps the company in controlling the flow of resources in the process of production on the basis of actual demand and consumption rather than depending on the concept of forecasting. The waste in storing, handling, and getting the product to the consumers is eliminated by the pull system.
- Kanban- This is a system in which an orderly flow of material is maintained by the company. It can be observed that the Kanban cards are used to focus on the material order points, along with this, it also helps to know the number of material required, as well as from where the material is ordered to where it has been delivered. This system helps in providing quick information and is considered as a very simple process. It has low costs at transfer of information as well as it helps in minimizing waste by avoiding overproduction (Petschnig 2009).
- 5S- On the other hand, 5S is considered as the systematic process that helps the company in standardizing and organizing at the workplace. In order to enhance the work place efficiency, this tool is regarded as the simplest tool which mainly aims to reduce clutter along with revealing waste, which is helpful in eliminating it and preventing it from occurring again in the future aspects. In addition to this, this system is also subjected to improve the work place orderliness and helps in keeping everything at its place. For any retail company implementing lean, this is the first method that has been highly recommended because of its effective attributes because it helps in the method of sorting (eliminate everything which is not required), shine (make the cleaning of everything inside out), set in order (the inventory limits are set properly along with the proper location of the essential stuff), last but not the least is standardize (by creating the rules for maintaining the first 3S’s and ensuring adherence through sustaining.
- Visual workplace- The method of visual workplace help in providing a situation or a condition immediately that enable in knowing about the production schedule in short time, along with the acknowledgment of the work flow by properly utilizing the resources and quality assurance (Petschnig 2009). Moreover, inventory locations are properly marked-off with the help of visual work place, along with storage locations and machine locations. This method also helps in keeping the information and the wall charts current and labeling all the cabinets through shelving with content. With the help of an organized work place, the defects in the operations are reduced to a great extent and the labor is efficient, moreover, it also aims to improve the safety and maintenance by minimizing the cleaning up time and reducing the inventory (Petschnig 2009).
Importance of trade off cost leads time and demand volatility for the retail business operations
Yes, it is important for the businesses to manage their trade off cost lead times and demand volatility. Retail industry is required to focus on both the aspects: customer’s satisfaction by dealing with their infrequent and unpredictable demand and optimizing the level of the inventory. A firm is required to make strong commitments along with the other strategic plans so as to meet the volatility in demand and shortening the lead time. For this Brookstone can build up centralized warehouse (Gitlow 2009). A centralized warehouse can streamline the process of up- stream and downstream production method. This way it can keep the exact track of customer demand and minimum required inventory level. Forward planning can be another method that can be used to predict the demand. This takes the discussion on the point of “Market Sensitivity”. If the market seems to be highly sensitive it is important to read the sensitiveness and thereby meeting the demand on time by balancing the cost lead time and demand volatility (Gitlow 2009).
Changes can be made sustained with the help of: making the processes more visible and clear, managing risk at all levels, maintaining healthy relationship with suppliers, maintaining balance between revenue, and saving costs. Each of the points can make the process smooth and worth incorporating changes. Visible information at the right time will support in strengthening the strategies to sustain the struggle of high competition. Introducing risk management at all levels will make the members more aware about the situations prevailing and thereby enhances the responsibility and accountability in the matters (Gitlow 2009). Maintaining healthy relationship with suppliers shall help in producing quality and on-time products. With the advent of globalization companies are now moving onto to spreading of their business across the national boundaries, however they are required to maintain balance between revenue and saving costs (Gitlow 2009).
Barriers in choosing lean/agile strategy in retail industry
Both the Lean and agile strategies have advantages and disadvantages behind using them. A firm uses these strategies depending upon their needs and requirements. However, despite of various advantages there are certain barriers that are faced by the executives of the firm to choose one strategy out of the two (Wilson 2009). The main barriers are as follows:
- Perception barriers: these strategies are sometimes considered to be cost ineffective in the eyes of the employees. They considered them to be as cost eater or taking their share out of profits.
- Lack of ownership: employees often seem to take a step back when it comes to taking an extra responsibility. Lack of ownership leads to failure of the programs initiated towards the betterment in the production system (Wilson 2009).
- Terminology barriers: most of the terminologies used in these strategies are not understood by the employees indulged in operations which make them stringent in their working method. The employees avoid using such strategies in the lieu of holding accountable incase of any error.
- Requirement of Continuous changes barriers: these strategies require continuous changes in the operations including training the employees, piloting the batch and so on. In the absence of which the firms find them unable to reap the benefits or advantages for which is meant to be (Wilson 2009).
- Implementation barriers: lean and agile strategies require lots of efforts in implementing them within the organization. Employees often feel unsecured and de-motivated when a new strategy is implemented in an organization.
Apart from all the above mentioned barriers there are other barriers that are faced by the retail segment. These strategies require more sense of responsibilities from an individual, system wide view of the organizations assets (Wilson 2009).
Factors that management considers while deciding which strategy is most important for their business operations
The goals of lean supply chain management are to reduce the waste and cost and enhance the customer satisfaction. Financial Industry needs to focus on their customer’s needs and expectations. Financial industry needs to determine the client’s needs and market exists to develop the better design of supply chain management with stronger tactics (Maskell et al. 2011). There is a similarity between the automobile and the banking industry as they both are using Lean manufacturing strategy for gaining the efficiency and improved quality. The following are the parameters which help the management to decide on the certain strategy. These are as:
- Customer value: The ultimate goal of financial services industry is to create customer value. It gives a competitive business edge and profits. Customers are the god of any industry. So, financial services industry need to identify the clients and its requirements and accordingly give them services like high quality, low cost, short delivery of time etc. So as to maximize the customer satisfaction and retention (Meade 2006).
- Waste: If financial industry wants to create value for customers they must avoid the waste of Excess work, unnecessary re-work and idle time. Choke points should be removed so that work cannot be hampered because of delay of other department work. Waste of overproduction, inventory, over-processing, transport, etc. are to be reduced to gain the customers value. Waste of untapped human potential should be removed. Industry has to give weight age to the employee involvement and their ideas (Wincel 2004).
- Continuous flow and just in time production: Just in Time production are the pillars of the customer’s value. Work should be done in continuous flow so that results can be shorter lead time as compare to batch production. JIT are the answer of the waste of over production, inventory etc. It helps in gaining the customers value.
- Quantifying cost and value: Lean strategy gives the way to calculate the cost to value for financial services industry. It helps the industry to analyze on return on investments accurately by some empirical date. This data could help in to improve the existing and the new products pricing in the market (Carreira 2005).
Financial Institution: Vision Bank
VisionBank is an independent SME in US that mainly serves Wanamaker and Downtown of Topeka, Kansas, and the neighboring region. The company is highly dedicated to provide supreme customer service to the customers by making the use of superior technology. The company has main locations for serving its customers in Topeka, Southwest at 29th and Wanamaker Rd. and Downtown at 7th and Kansas. VisionBank facilitates the best quality banking services to its customers, for individual and business purposes. In addition to this, VisionBank is a member of the FDIC that offers checking, investment services, savings, mortgages, loans, as well as merchant card services. Although VisionBank is a local bank, still it has the capacity to excel at all banking needs at an international level, and providing excellent, personalized service in the modern financial world (VisionBank. 2013).
Techniques Used By VisionBank in the current business circumstances
Lean can be introduced as various industries. Lean thinking gets benefitted to the manufacturing as well as financial services industry. Now a day’s service industry also designs the lean process so that they could achieve customer’s value and profits. Services are different from the product. Service is intangible, perishable, and inseparable in nature (Huntzinger 2007). Financial services also having interest in reducing their operation costs because of that they could be downsizing their networks, opening of the call centers in overseas. This could help in improving the cost/ income ratios. Basically, Lean is not the technology; rather it’s a kind of lean thinking which could be implemented efficiently for getting better results. Lean six sigma helps in improving the shareholder’s value, rate of improvement in the customer satisfaction would get faster. Lean and six-sigma alone cannot give results. They both are complementary to each other. If lean and six- sigma are implemented together then they give more gain in percentage of return on investment (Dennis 2007).
VisionBank provides a wide range of personal financial services to their customers including mortgage loans, current and savings accounts, insurance, credit cards etc. The company uses the techniques which increase customer’s satisfaction and value to customers by using lean and agile strategy according to industry structure. Presently, it has been observed that lean thinking is more attractive for the financial services industry (Taylor and Brunt 2001). There is a four step approach that the company follows to stay ahead in the financial services by introducing the lean approach in its business and improve the quality by minimizing cost. Some of the techniques which would equally valid to financial service industry are as:
- Forecasting System: This system is used by the company to forecast the customers demand and accordingly, they deliver the services and products.
- Kanban: In this technique, the company analyzes that how much material is being used, from where it’s been get ordered etc.
- Total Quality Management: TQM is used by VisionBank in order to continuously improve the methods and standards of the products or services which would be delivered to the customers (Sarkar and Debashis 2012).
- Workplace organization: This is the simplest technique which is used by VisionBank in implementing the Lean strategies because it helps in organizing and standardizing the workplace.
Importance of trade off cost leads time and demand volatility for the retail business operations
The financial banks involve the tools and techniques as same as manufacturing origins. It is important for the business to manage their tradeoffs cost lead time and demand volatility. Company should manage their costs according to the demand and profits. BCG experts say that Banks gets success 15% to 25%to improve the efficiency level. By adopting the lean production, they can get success of lowest costs and few errors in their projects. There are various challenges and opportunities by implementing the Lean thinking to an industry (Sabri and Shaikh 2010). There is a changing mind set of the people that earlier banks were also engaged in cutting costs but now it would be done by Lean thinking. But traditional or old habits are hard to go. Hence, Lean requires the creative thinking, Example: Paper work could be shift to online, steps of financial process are performed in sequential order, but it could be done in parallel manner. While implementing the lean production in an industry, one must know the management of risks so that there could be no loss to industry. Managers have to manage all the risks relating to Lean production because one single error may lead to larger defect in the project (Carroll 2002). Standardization can also reduce the errors relating to Lean thinking. Example: Cash reconciliation statement, there are two entries; if one entry would enter wrong then the bank’s exposure would be lowered. If project are running for long run then it would get too costly, so industry must having the coordination in all the activities so that there would be chances of zero error so that it would help in expand the business and increase the shareholders wealth. Mostly, Lean thinking would be the agenda of increasing the value and productivity of merger. Now days, Lean thinking could get moving to value chain in finance. Lean thinking could also be used for investment operations in financial services industry (Shinkle et al. 2004).
The strategic benefits of Agile & Lean in VisionBank
Strategic & tactical alignment:
In VisionBank, the agile and lean is all about maximizing the customer value, with the help of this, the organization culture is changed, and the management is able to understand how the customer value is created. This culture helps in implementing a strategic direction to the organization for value creation. This strategy helps in establishing clear links between the strategy and its influence on the value streams in an organization. Moreover, the organization is able to work as an interdependent system in strategic and tactical alignment (Shinkle et al. 2004). With the help of this strategy the company is able to satisfy their customers early and often through visual controls and value mapping. With the repetitive nature of sales order processing, this strategy works well for the product marketing and its development. Furthermore, a system wide view to focus the work of interdisciplinary working teams is provided by the value stream maps which can help the employees in VisionBank to align their efforts and to make their results more efficient. Moreover, these value stream maps are mainly helpful in maximizing customer value creation and eliminate non-value added waste in the company. Lean helps VisionBank in allowing high customization of the service as well as helps in retaining the ability to maintain high output. Therefore, the organizations have a better leverage through existing expertise in new markets by establishing value streams for individual customer treatment (Shinkle et al. 2004). By using this strategy of lean management, the company has achieved sustained competitive advantage over their competitors.
Barriers in choosing lean/agile strategy in retail industry
Lean and agile strategy would be implemented by the financial services industry but some of the barriers are there while implementing some of the strategy. These are as:
- By these strategy industry could get to know improvement only in percentage terms, they did not able to find out the improvement if monetary terms.
- Lean strategy would get into worse when building blocks implements in the wrong direction. Example: lengthy changeover times, ability to serve the customers are reduced etc.
- Lean isn’t difficult to implement but if company choose that project which have complicated variables and communication involved. If companies fist project are failed to generate revenue then company gets dishearten to implement the strategy on their next project (Shinkle et al. 2004).
- In the high volume chemical manufactures, there is a little impact of lean implementation so companies dealing in this type of sectors would have insignificant opportunities to implement lean strategy in their projects.
- Company only gives training on the learning of the strategy rather than something doing on it would have fade impact on the revenue generation of the company (Shinkle et al. 2004).
- Lean’s strategy would be depending upon high quality products, so accordingly company would have delivered the high quality product on time. If, company fails to do so then Lean would be greatly diminishes.
- Lean impacts at every function of individuals and organization’s culture and structure. So, if company does not come up with the changes of Lean then it would get hampered and causes discomfort.
- There is a barrier in implementing the Lean strategy in the financial services industry that it would get longer time to understand fully might be more than the life expectancy of the US managers (Shinkle et al. 2004).
- In Lean organization, labor costs are fixed whereas in traditional organization, labor costs are variable.
The above discussion can be concluded on the fact that the lean strategies are associated with various advantages and disadvantages behind using them. The employees can also be benefitted along with the innumerable benefits to the customers. The comparison of the retail and financial services sectors has helps us to know and understand the application of lean management in a better way. Moreover, this study has provided a better understanding of the definition of strategic goals and easy attainment of the operational objectives. Whatsoever is the case, no matter what strategies is to be followed by the organization it should however match the growing needs and expectation of the customers. This advancement will help in determining the market sensitiveness. Therefore an organization will be able to sustain in highly competitive era and will also hold better design and stronger tactics.
Every company should implement the Lean and agile strategy in their projects for generating the maximum revenue and value to the customers. It involves various techniques like work cells, point-of-use-storage, reduction of batch size etc. through which industry would get all the information for implementing the Lean strategy. There are various benefits of lean like reduction of waste production, over production, inventory, work time etc. It helps in increased the quality of services and product, improvement in the work performance. It helps in achieving the sustained competitive advantage. Successful companies would market these new benefits and generate revenue. Financial service industry helps in achieving the shareholders market share so as to increase the customer’s retention etc. We could categorize the benefits of Lean into two types: Operational and Administrative benefits. Besides their benefits, they are also having some barriers for implementing the Lean strategy. Industry should be careful about the implementation of strategy as in financial service industry it won’t be able to quantify the profits in monetary terms. This could be the major barrier of implementing the Lean production in an organization.