Six Sigma in the Retail Industry

The retail industry is one of the biggest drivers of the U.S. economy. According to a report conducted by PricewaterhouseCoopers LLP, retail supports 42 million jobs and contributes $2.6 trillion annually to U.S. GDP.

The U.S. is home to 76 of the largest retail companies in the world, and when measured solely by revenue numbers, is considered to be the leader in the industry. Retail business is made up of several moving parts, leaving plenty of room for optimization. This is an area where Six Sigma implementation can benefit retailers.

The purpose of Six Sigma methodology is to reduce waste and improve the quality of a product or service. Running a retail store calls for ongoing duties such as merchandising, stocking, marketing, managing a large number of employees and setting up project displays, to name a few.

The cost incurred by retailers regarding in-store operations accounts for a large portion of selling and general expenses. Implementing Six Sigma in an effort to optimize this function could significantly impact cost management as well as customer satisfaction.

Applying Six Sigma in Retail

Checkout Process

A quick checkout experience almost always results in higher customer satisfaction and loyalty, making it one of the most critical customer-facing processes that happens in retail stores. Key parts of the process include engaging with customers, empowering personnel, predicting demand, collecting information effectively, providing a personalized service and most importantly, ensuring customer satisfaction. By nature, Six Sigma principles are customer focused and when paired with the appropriate Lean tools, they can be a powerful way to solve problems by focusing on the customer. Lean tools include value stream mapping, Lean principles and analysis of store data.

Freight Processing

The overall purpose of processing freight is to drive sales by keeping store shelves full. Some of the key Six Sigma and Lean techniques that can help improve freight processing include time and motion studies, streamline tasks, value stream analysis, work-balancing and standard Lean principles.

Planogram Completion

A high percentage of buying decisions happen in the store. An effective planogram, or visual model of product placement, not only leads customers to make impulsive buying decisions, but also makes it easy for customers to choose from available substitute merchandise when their first choice is out of stock. An effective planogram allows for merchandising of the right product at the right place and time, eventually leading to a sale. Successful planogram execution includes removing unnecessary activities, designing planograms with relevant and adequate information and using a planogram cart.

Challenges

Before implementing Six Sigma, it’s important to know some of the challenges you may be faced with. The most common of these include:

Change Inputs from Multiple Departments

Retail stores are constantly receiving requests for changes and improvements from multiple departments, which usually come all at one time. This leaves store managers to decide which solutions should be implemented, ignored or postponed and can turn even the simplest changes into a complex process that can create aggravation among managers and employees.

Tight Budget of Labor Hours

In an effort to maintain profitability, store managers are constantly manipulating employee hours to reduce labor costs. This constant constraint makes it hard for associates to work on process improvements without affecting other store operations. The sheer number of daily or weekly processes that go on in retail stores can be overwhelming, so process improvement is often pushed to the bottom of the priority list.

Minimizing Impact of Process Changes on Customers

The potential impact that process changes could have on customers should not be overlooked. When it comes to physical changes, in many cases, stores are forced to make these afterhours and out of view in order to avoid negatively affecting the customer experience. This challenge typically delays or limits what changes a store can implement quickly.

High Turnover Due to Inexperience

In the retail industry, the employee turnover rate is 35% compared to 26% in other industries. This has a huge impact on the sustainability of improvements that are made. Because of the high turnover rate, the need to do continual basic training takes up the majority of education labor hours that is given to stores.

High turnover rates can be attributed to employee demographics in many cases. More than 50% of all employees working in the retail industry are between the ages of 16 and 19. Their limited business experience can make managers more cautious when it comes to giving them the freedom or responsibility to make important decisions.

Constantly Evolving Consumer Demographics

Because consumer demographics are constantly evolving, stores are forced to make frequent changes in an effort to meet demand. A recent trend has retail stores being designed after customer segmentation, which is a good example of applying demographics to local customer requirements. The downside to this type of demographic identification is that it creates different experiences for customers who visit multiple stores, which can result in confusion.

Importance of Customer Centricity

Businesses are under constant pressure to provide peak customer satisfaction on top of delivering a total quality experience. The Six Sigma methodology and its tools are fundamentally predicated on continually improving business processes, reducing errors and focusing on the customer and/or product and service.

The world’s leading retail companies understand the importance of being customer focused. According to research by international consulting firm Deloitte & Touche, customer-centric businesses are 60% more profitable compared to those that do not focus on building customer relationships. When money gets tight, consumers become more selective in their brand choices, and the successful businesses will continue to be those that forge customer relationships based on respect, quality and professional customer service.