Six Sigma at Retail
Kum & Go, other retailers find opportunity in eliminating error
Published in CSP Daily News
WEST DES MOINES, Iowa -- Whether it is called continuous improvement, lean manufacturing or Six Sigma, the basic concept is the same: Find and neutralize the variations--or errors--a company makes on a daily basis that prevent it from operating as efficiently as possible.
Kum & Go LC has practiced Six Sigma for several years, considering it a way to not only deliver a great retail experience to customers, but also to differentiate the West Des Moines, Iowa-based chain of more than 400 locations in 11 states.
(For more on Kum & Go, see the January issue of CSP magazine.)
"We provide safe and clean stores along with first-to-market products and exceptional customer experiences," Dennis Folden, COO, told CSP Daily News. "That's why we are able to ensure continued loyalty from our customers. Specifically, Six Sigma, continuous process improvement and a 'passion for excellence' are not easily replicated."
Six Sigma is based on founded on the DMAIC model, or "define, measure, analyze, improve and control."
"You first investigate the problem using data so you really understand the magnitude of the problem, then you understand whether you're accurately measuring the problem, then you understand the true root causes of the problem and you use statistical analyses to determine root cause," said Suzanne Long, retail practice leader with SSA & Co., a Six Sigma consultancy based in New York City. "Finally, you implement improvements."
The key, said Long, is to have controls in place so that change is sustained over time.
In the past, Kum & Go has used Six Sigma to identify "gaps" in execution, in everything from processing credit cards to cleaning bathrooms to order placement with its distributor, Farner-Bocken.
"With Six Sigma, it really gave us another tool to definitely know how a process change has impacted the organization," Holden said in an earlier interview with CSP. "We thought for a long time that we were very good at executing at the highest level. What we found is, until we really got measuring everything in that process, we didn't know there were gaps, didn't know there were things we could improve, didn't know the processes that could be made better. That's really what Six Sigma has brought to us."
Most staff at Kum & Go's Store Support Center (SSC) has been through at least one level of Six Sigma training, with a few who have attained the highest level of training--the black belt.
Long said that while the methodology was born in the manufacturing space, it has translated well to retail. SSA, which does not work with Kum & Go, has consulted for retailers such as Albertsons and SuperValu, as well as major oils such as Shell and ConocoPhillips.
"While you're not building a widget in retail, what you are doing is the same processes over and over again across literally sometimes thousands of locations, with hundreds of thousands of employees," said Long. "For example, it can be anything from putting a tag on an item, to collecting money from a customer, to receiving product into your store, to putting it away. … The view Six Sigma takes is: How many times do we not get that right?"
Long cites the example of a large grocery retailer that in the typical week scanned 162 million items. Assuming it scanned 99% of items accurately across its network of stores, that 1% scanned incorrectly equates to 1.62 million errors per week. "Even if each of those was worth 10 cents, you start running the numbers and that's literally a $100 million opportunity for that business," she said.
While the opportunities may not be as tremendous, even a small retailer can benefit from applying Six Sigma methodology and tools to its business. "In some retailers, their margins at the end of the year are 1% to 2%, so if you can find even small reductions in the business, small cost reductions or opportunities, it can sometimes double your profit," she said. "Every person can have small adjustments to the way they do things, and every time they do that, it's an opportunity to do it wrong, or not as efficiently as it could be."
How to start? Long suggests identifying the biggest operational issues a company deals with and focusing on those first. Of course, it helps to have an IT infrastructure in place like Kum & Go does so that a retailer can spot inefficiencies faster. But as the consultant explains, one of the strengths of Six Sigma is its ability to highlight what the retailer doesn't know.
"You need to be able to get access to data," conceded Long, "But sometimes what Six Sigma makes people realize is they need to start to collect data they haven't in the past. What do you need to know to run a business effectively? … There are ways of beginning to make progress, while at same time starting to build what you need to continue to use over time."