Frank MathmannKevin Chan N9216120

Lean Thinking in the grocery Market

AMB 303 Assessment 2

Word Count: 2064

Table of contents

1.0 Introduction and Background.....................................................................................4

2.0 Literature Review............................................................................................................6

2.1 Complexity of the Online Grocery Market...........................................................62.2 Quality Control............................................................................................................62.3 Identifying waste.........................................................................................................7

2.4 Slow Responses to the Market...............................................................................72.5 Lack of Internal Communication............................................................................8

3.0 Recommendations.........................................................................................................9

4.0 References.........................................................................................................................12

5.0 Appendices........................................................................................................................14

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Executive SummaryThis report aims to outline the implementations of lean thinking particularly being

introduced in the online grocery market. A brief history of lean practices and the

online grocery market will be introduced, whilst the current barriers that exist for

grocers will also be discussed. Outstanding barriers include; Complexity of the

market, quality control, waste identification, slow response to market changes and

the lack of internal communication within the organization. Through research and

supporting sources found, realistic recommendations will be made to overcome the

current market barriers that are preventing lean implementation for online grocers,

mainly revolving back towards management implications. The main intentions of

these recommendations are to motivate continuous lean changes to occur across all

chains of operations in an online grocery firm.

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1.0 Introduction and BackgroundNew trends in technology and globalization is continuously changing market places

around the world, businesses now need to adapt to these trends in order to remain

competitive. The term ‘Lean’ can be used in a range of different settings, which

normally consists of striving towards continuous changes and improvement in order

to eliminate business activities that do not add value (Devaki, Jayanthi, 2014). This

aspect requires the identification of needs by the customer to create the companies

work flow. Maximizing customer value and minimizing waste is the ideal outcome.

The origins of lean production can be found on the shop-floors of Japanese

manufacturers, and in particular, innovations at Toyota Motor Corporation. This lean

operations management design approach by the Japanese car manufactures

focused on the elimination of waste and excess from the tactical product flows at

Toyota as they needed to tackle the need to cater for smaller markets with a greater

variety of vehicles, which required greater production flexibility (Moyano-Fuentes,

Sacristan-Diaz,2012). Therefore, an alternative model to capital-intense mass

production was established. Much of the early work at Toyota was applied under the

leadership of Taiichi Ohno to car engine manufacturing during the 1950s. This model

demonstrated that time and progress will lead to sustainable growth (Hines, Holwe,

Rich, 2004). The process is now being adapted by many in the 21st century, but it still

requires continuous alterations by companies as every market is different;

Companies think lean to try to achieve improvements in quality, inventory utilization

and floor space, to minimize costs and therefore improve delivery (Moyano-Fuentes,

Sacristan-Diaz,2012). Other firms such as Porsche and Nike have also succeeded

through picking up these acts of lean manufacturing (Manufacturing Global, 2014).

As lean practices continue to be picked up by organisations, the rise of online food

retailing is expected to grow much more rapidly than traditional grocery sales over

the next decade at a rate of more than 10% per year (Allender, Hamilton, Richards

2016). Online groceries allow private individuals and businesses to purchase grocery

products online, which most of the time is done through e-commerce or mobile

applications. Recent studies have shown that by using this platform, businesses

reduce food waste and create more value for the customer; the resulting outcome

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being higher retailer revenues and lower grocery costs (Belavina, Girotra, Kabra,

2016). Although there is expected growth in this sector, the disconnect that currently

exists between online grocers and consumers is that they are not purchasing

consumables online with as much intent as other products such as fashion or music.

Only about 1 in 5 online Australian respondents say they’ve bought fresh groceries

online (Nielsen, 2016) and less than 1 in 5 Australians say the best grocery deals are

found online, whilst 1 in 3 say online grocery shopping is a time saver and only 1 in

10 believe that the quality of groceries is better found online (see appendix A).

Therefore, the main barriers that are currently preventing adoption of online grocery

use evolves around convenience, quality and costs.

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2.0 Literature ReviewThe large volume of literature provided within this report is aimed at identifying the

barriers preventing potential opportunities for lean implementation in the online

grocery market. The following sections will therefore be covering; the complexity of

the online grocery market, the control over quality, identification of waste, slow

market responses and lack of internal communication.

2.1 Complexity of the Online Grocery MarketOnline grocers operate under a complex market, where products are intangible upon

arrival, and as a consumption-based society, grocery shopping signifies a type of

lifestyle that requires quality assurance (Oliver,2015). Big companies including the

likes of Coles and Woolworths offer these services, but only 5% of Australian

consumers say that they use the likes of click and collect services, yet more than half

(53%) are willing to use this option in the future (Food Magazine, 2015). E-grocer

shoppers have the ability to purchase groceries digitally through technological

artifacts such as smartphones, tablets, and PC’s at any given geographic location.

Therefore, there is also chances of immediate feedback given on the experience, if

the customer receives poor service, they are more likely to share that negative

experience over the internet or through word of mouth communication (Elms,

Hallsworth, Kervenoael, 2014). It is evident that the lean practices online grocers

offer still has not been adapted by its potential consumers. Once consumers start

using the platform more frequently over an extensive period of time, a strong

database can be extracted and made more convenient for repeat purchases (Ling,

2008; Schilling, 2010). The online groceries industry is still yet to reach its full

potential, but as society moves more towards the use of technology there should see

a shift in demand.

2.2 Quality ControlQuality is a major focus in implementing lean practices, poor quality management

would result in many wastes such as scraps and rejects. Therefore, only very few

selected inventories and direct delivery of input material is applied (Jadhav, Mantha,

Rane, 2012). Grocery stores deal with perishable products which are time sensitive

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and can easily become damaged during storage and delivery processes. Fresh

produce also loses their freshness easily, these factors may result in customer

dissatisfaction (Cen, Chua, Mwalo, Singh, Satidularn, Duaengpun, 2013).

Satisfaction is the customers level of feelings after comparing the performance with

expectations (Tahyudin, 2012), which can be measured easily through the delivery

service and product quality experienced with the online grocer. It is up to the

company to maintain these operations and manage its supply chain. These

challenges currently prove to be preventing development.

2.3 Identifying wasteEliminating and detecting waste along the entire supply chain involves heavy

operations, it is one of the main barriers for lean practices. Waste could be found

around all areas of the supply chain, including; human error, space utilization, time

management and production, etc. Moreover, Kovacheva (2010) states that lean

changes need to be focused on the specific stream of the product, so the control

over resources is dependent mainly on the improvement of the team, reducing any

type of wastage across supply chains. Studies compromised the effects of online

grocery retails’ revenue and environmental impact found that customers that do

choose to subscribe with an online grocer utilizes smaller and more frequent grocery

deliveries, which reduces food waste and creates more value for the customer,

however, delivery services and packaging increase costs for both consumer and the

grocer. Although the complexity of frequent orders, the overall result is higher retailer

revenues and lower grocery costs (Belavina, Girotra, Kabra, 2016).

2.4 Slow Responses to the MarketThe advantages of becoming lean are compromised when demand starts to

fluctuate, custom orders increase and balanced workloads cannot be achieved

(Wan,Chen, 2009). Failure to respond swiftly to changes in the product mix, such as

when promotional pressure boosts production demand, can be one of the issues

businesses have to face during lean implementation. These issues lead to slow

response to the market. A well-designed lean system allows for an immediate and

effective response to fluctuating customer demands and requirements (Jadhav,

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Mantha, Rane, 2012). A slow market response in the online grocer sector could lead

to delayed orders or perished goods, reducing chances of customer satisfaction.

2.5 Lack of Internal Communication Lack of team autonomy and organizational communication can lead to the

termination of a lean project (Boyle, Deflorin, Scherrer-Rathje, 2009). Positive

outcomes such as cost and lead time reduction must be communicated effectively at

all levels of the organization, if there is little knowledge on the success of the project

in one department because the message did not make it across to them, it would

result in little support from that team, including the work rate and ethics being

produced. This can be argued that managers aren’t being properly informed or

trained in the first place to implement lean strategies. It’s found that lack of employee

education in concepts and principles of lean production commonly exists across

firms in the manufacturing industry, which correlates to many grocery products

(Jadhav, Mantha, Rane, 2012).

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3.0 Recommendations Given the observations and interpretations of this study, it appears that barriers can

delay or weaken the lean implementation process. The barriers identified from this

case include the matters of; market complexity, quality control, identifying waste,

responding to the market and inefficient internal communication. As these topics

were discussed further, more problems surfaced, mainly revolving back towards

management implications. Therefore, the following three recommendations will be

made on standardizing and maintaining lean principles within an online grocery

company.

Recommendation 1 – Apply the Just In Time Inventory Approach. By applying the

just in time inventory approach (JIT) the company aims to overcome quality

difficulties. This approach seeks to minimize inventory by reducing safety stock

levels and only having the required amount of materials arrive at the warehouse at

the time that they are needed. The consequences of this lean inventory practice

goes beyond just managing stock levels, but has a number of positive effects on

logistical efficiency, one of which is that suppliers must deliver high quality materials

to the distribution line (Murphy, Wood, p161, 2015). This practice should however

only be adopted when demand is clear, as a grocer, previous data should give an

insight on trends and what products tend to be performing. Singh (2014) conducted

surveys on high performing manufacturing firms in the fast growing Indian economy,

he highlights that detailed JIT implementation over a reasonable period has greatly

contributed towards achievement in performance of organizations. It is essential for

the manufacturing managers to have an in-depth understanding of the working and

synergy of the different features of JIT, so that true potential of the JIT concept can

be fulfilled (Singh, 2014). Technology is constantly shifting global development, and

as society becomes more technology driven and environmentally aware, the online

grocery market will become more familiar for many users. New tools starting to enter

the market such as virtual reality cameras will give consumers a chance to shop in a

virtual setting.

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Recommendation 2 – Implementing an imbedded Lean Six Sigma model within the

organization. The integration of the Six Sigma with the lean approach, so-called

Lean Six Sigma, is emerging with many companies. This approach also aims to

pursuit quality, but through not only focusing on production quality or speed, but

focusing on improving output quality through streamlining processes as it relates to

responsiveness (Murphy, Wood, p76, 2015). In lean six sigma, there are five laws

used: The law of the market, flexibility, focus, velocity and complexity. By attaining all

of these laws, the online grocery company should be able to streamline their

processes while improving their output quality, cutting out any elements that aren’t

necessary (See appendix b). It is important to make operations simple by contacting

consultants specialized in this field, company executives often call in Lean Six Sigma

professionals when they are having trouble with the quality of the output their

company provides. The job of these professionals is to decrease waste and increase

quality through the various tools and knowledge at their disposal (Aveta Business

Institute,2011).

Recommendation 3 - Improving communication channels across functions, from

managers to employees. One of the main barriers towards lean manufacturing

implementation is the lack of understanding on lean concepts, the lean

implementation process is a systemic and continual effort; therefore, it is important

for the company as a whole to identify and understand the barriers to a smooth

transition (Nordin, Deros, 2011). Improving communication channels is likely to

enhance employee management, and if employees are well informed and engaged,

communications with other constituencies are likely to be strong. A recent study

compelled on American organizations’ manufacturing sites showed the collaborative

nature of these activities highlights the importance of communication practices as a

positive link between managers and workers (Alpenberg, Scarbrough, 2016). By

identifying which communication strategy and platform works best, online grocery

organizations are able to setup effective platforms tailored to their system. Once an

effective platform has been chosen, the form of communication should be kept

relatively consistent. This will become a platform for constant discussions, new plans

or insights, and a site for managers to set clear expectations. Managers must also

have the ability to send messages towards all members directly, either through

emails, a portal or social media etc. In summary, effective organizational

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communication will provide employees the knowledge, structure and positive work

environment they need to feel comfortable dealing with conflict and resolving issues

effectively (Richards, 2016). Improving communication channels is likely to enhance

employee management, and if employees are well informed and engaged,

motivation to achieve company goals is likely to be strong.

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4.0 Reference List

1. Alpenberg, J., & Scarbrough, D. P. (2016). Exploring communication practices in lean production. Journal of Business Research, 69(11), 4959-4963. doi:10.1016/j.jbusres.2016.04.059

2. Aveta Business Institute. (2011). The Five Principles of Lean Six Sigma. Retrieved September 02, 2016, from http://www.sixsigmaonline.org/six-sigma-training-certification-information/the-five-principles-of-lean-six-sigma/

3. Barbelo Group. (2015). LEAN SIX SIGMA. Retrieved September 02, 2016, from http://www.barbelogroup.com/lean-six-sigma.html

4. Belavina, E., Girotra, K., & Kabra, A. (2016). Online Grocery Retail: Revenue Models and Environmental Impact. Management Science, 1-5. doi:10.1287/mnsc.2016.2430

5. Boyle, T. A., Deflorin, P., & Scherrer-Rathje, M. (2009). Lean, take two! Reflections from the second attempt at lean implementation. Business Horizons, 52(1), 79-88. doi:10.1016/j.bushor.2008.08.004

6. Cen, X., Chua, Y., Duaengpun, S., Mwalo, K., Satidularn, T., & Singh, S. (2013). Services Failures in Online Grocery Shopping. 1-5. Retrieved from http://www.academia.edu/6590124/Service_Failures_in_Online_Grocery_Shopping

7. Devaki, M., & Jayanthi, R. (2014). Barriers to Implementation of Lean Principles in the Indian Construction Industry [Abstract]. International Journal of Engineering Research and Technology, 3(5). Retrieved from https://www.scribd.com/doc/149637090/THE-BARRIERS-TO-LEAN-MANUFACTURING-IMPLEMENTATION

8. Elms, J., Hallsworth, A., & Kervenoael, R. (2014). Household pre-purchase practices and online grocery shopping. Journal of Consumer Behaviour, 13(5), 364-372. doi:10.1002/cb.1484

9. Hines, P., Holwe, M., & Rich, N. (2004). Learning to evolve: A review of contemporary lean thinking. International Journal of Operations & Production Management, 24(9), 994-1011. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/232364114?accountid=13380

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10.Jadhav, J. R., Mantha, S. S., & Rane, S. B. (2014). Exploring barriers in lean implementation. International Journal of Lean Six Sigma, 5(2), 122-148. doi:10.1108/ijlss-12-2012-0014

11.Kovacheva, A. (2010). Successful transformation towards Lean enterprise. Challenges in Lean Implementation. Retrieved from http://pure.au.dk/portal-asb-student/files/9093/ak83188...pdf

12.Moyano-Fuentes, J., & Sacristán-Díaz, M. (2012). Learning on lean: A review of thinking and research. International Journal of Operations & Production Management, 32(5), 551-582. doi:http://dx.doi.org/10.1108/01443571211226498

13.Murphy, Paul R.;Wood, Donald. (2015). Contemporary Logistics: Global Edition. Pearson Education Limited. Retrieved 8 September 2016, from http://www.myilibrary.com?ID=719583

14.Nielson. (2016). Overcoming Barriers to Buying Groceries Online. Retrieved September 1, 2016, from http://www.nielsen.com/au/en/insights/news/2016/overcoming-barriers-to-buying-groceries-online.html

15.Nordin, N., & Deros, B. (2011). THE BARRIERS TO LEAN MANUFACTURING IMPLEMENTATION. Retrieved September 01, 2016, from https://www.scribd.com/doc/149637090/THE-BARRIERS-TO-LEAN-MANUFACTURING-IMPLEMENTATION

16.Oliver, D. (2015). The future of grocery delivery: What manufacturers and retailers should anticipate. Retrieved September 01, 2016, from http://www.fooddive.com/news/the-future-of-grocery-delivery-what-manufacturers-and-retailers-should-ant/380597/

17.Richards, L. (2016). How Effective Communication Will Help an Organization. Retrieved September 05, 2016, from http://smallbusiness.chron.com/effective-communication-organization-1400.html

18.Richards, T. J., Hamilton, S. F., & Allender, W. (2016). Search and price dispersion in online grocery markets. International Journal of Industrial Organization, 47, 255-281. doi:10.1016/j.ijindorg.2016.05.004

19.Singh, G. (2014). An evaluation of just in time (JIT) implementation on manufacturing performance in indian industry. Journal of Asia Business Studies, 8(3), 278. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/1655512517?accountid=13380

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20.Tahyudin, I. (2012). Analysis of influence of internet retail service quality (IRSQ) to consumer online shopping satisfaction at www.kebanaran.com. International Journal of Computer Science and Information Security, 10(12), 30-35. Retrieved from http://gateway.library.qut.edu.au/login?url=http://search.proquest.com/docview/1466386706?accountid=13380

21.Top 10: Lean manufacturing companies in the world. (2014). Retrieved September 03, 2016, from http://www.manufacturingglobal.com/top10/38/Top-10:-Lean-manufacturing-companies-in-the-world

22.Wan, H., & Chen, F. F. (2009). Decision support for lean practitioners: A web-based adaptive assessment approach. Computers in Industry, 60(4), 277-279. doi:10.1016/j.compind.2009.01.001

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5.0 AppendicesAppendix A: Less than 1 in 5 Australians say the best grocery deals are found online, only 1 in 3 say online grocery shopping is a time saver and 1 in 10 say the quality of groceries are better found in-store.

Sourced from: Nielsen, 2016

Appendix B: The Lean Six Sigma approach.Sourced from: Barbelo Group, 2015

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