One more post about value


So many manufacturing folks honestly believe their own silly rationalizations about being very, very different, rendering lessons to be learned from other manufacturers irrelevant to their situation, that any hope of learning from retailers like Safeway is a long shot, at best … but let’s give it a shot anyway.

BusinessWeek explains “Why Safeway Needs a Future With Fewer Groceries.” Grocery chain Safeway recently merged with Albertson’s.

Robert Edwards, Safeway’s chief executive, vowed that deal would bring about a more “local, relevant assortment” in his stores as well as ‘an improved price/value proposition and a great shopping experience.’ Edwards, who will run the combined chain, would be wise to focus sharply on simplicity and shift away from the grocery chain model of cramming 60,000 different products—or stock keeping units, in industry jargon—inside each location.”

The article goes on to explain all sorts of reasons why carrying fewer varieties within each category makes sense. Among them:

  • Most shoppers don’t want 20 brands of hummus or yogurt. They want experts to narrow that down to the best two or three, each offering distinct flavors and characteristics.”
  • Big brands are commodities … Everybody sells them, which means people know they can buy them anywhere … Amazon and Wal-Mart (WMT) are no different than a Whole Foods (WFM) or your local corner store. Heck, if it’s sealed, you can buy it off the back of a truck.”
  • Buying locally produced food appeals to consumers on multiple levels. It’s more eco-friendly than shipping organic yogurt from New Zealand. It turns national retailers into community players that support local businesses and artisans in our increasingly entrepreneur-driven economy. And it seems healthier, as the food typically is fresher and more in tune with the seasons.”

Each of these is related to the fact that the value of a product is pretty fully created when it comes off of the last step in the factory. Just about everything that happens after that is waste – sucking up time, money and resources without making the product worth any more to the customer. Most of it consists of picking the product up and putting it down – again and again and again and again. It involves multiple buildings that serve only one purpose: To store stuff until it is ready to be picked up and put down again somewhere else …. The manufacturer’s warehouse, some third party or retailer’s warehouse, the retail store itself. Note that retail stores are really little more than rather expensive warehouses the only difference being that customers have to take the stuff down from the warehouse racks (store shelves) themselves.

This is why online shopping is booming. It booms because of basic lean principles … it eliminates much of the waste …. A big chunk of that picking up, moving around and putting down that adds cost but no value is eliminated when you buy something on line directly from the producer.

So Safeway is trying to figure it how to reduce the waste – source locally which reduces the picking up, storing and putting down; getting away from products that offer little value for the money (big brands the cost of which includes as much for advertising and corporate headquarters expenses as it does for the actual product); and they are looking for ways to actually add some value in their stores – becoming the experts who actually sort through all of the various products out there to provide only those that offer the best to the customers.

All manufacturers can and must learn profound lessons from this. No, you are not Safeway and you are not retailers. You do, however, have a final step in your production process where the value adding ends … and then you do a whole lot of extra stuff that adds cost but does not increase the value. And you sell into some channel or another where that chain of waste almost certainly continues. And whether you are the one creating that downstream waste or not, you pay the price when the end cost of your product is so high – so fraught with waste – that no one wants to buy it.

The typical view of all of this non-value adding waste at the end of the value stream within a company, and in the gray spaces where two companies connect is that it is ‘necessary’. The problem with ‘necessary’ is that activities are only ‘necessary’ until someone comes along and proves they are no longer ‘necessary’, and then everyone still performing those activities is out of a job.

Video rental stores, book stores and music stores were necessary right up until the Internet made them unnecessary. Stores with shelves full of shaving products were necessary until Dollar Shave Club and Harry’s made them unnecessary. The cost of warehousing and retailing pet products was necessary until West Paw Design came along and made that cost unnecessary.

Within a manufacturing company big batch production is necessary until your competitor figures out SMED and the cost that is necessary for you is unnecessary for him. The cost of quality inspectors is necessary for you, but no longer necessary for the competitor who figures out how to design the possibility of defects out of the product and controls production at the source.

And all of the costs of picking up your product at the end of the production process, palletizing and shrink wrapping it, forklifting it to a warehouse and putting it up on racks, then taking it down and shipping it off to some distributor or another … they are all necessary right up until someone realizes they are all waste and figures out how to make them unnecessary.

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