This principle rests on the notion of convenience and price.
Based on experience, we pay a lot for convenience. But, the Lean for Service Operations mindset takes a different route. It is possible to provide price competitive products or services and make them convenient to to obtain. Again, Womack shares a case study from Tesco:
For instance, the reason Wal-Mart sells hammersÂ more cheaply than the corner hardwareÂ store isnâ€™t that the scale of Wal-Martâ€™s order reducesÂ hammer production costs or that theÂ storeâ€™s size significantly reduces its costs. Itâ€™s becauseÂ the scale of Wal-Martâ€™s order causes theÂ hammer maker to accept a low selling price inÂ return for volume, and Wal-Mart passes on thisÂ savings to its customers.
The opportunity is ripe for large retailersÂ using lean logistics techniques to offer a completeÂ range of formats with uniform pricing toÂ serve every customer need. Tesco is alreadyÂ doing this. It has created a full complement ofÂ formats ranging from local convenience storesÂ (Tesco Express), to midsize stores in town centersÂ (Tesco Metro), to standard-size supermarketsÂ in the suburbs (Tesco Superstore), to hypermarketsÂ on the periphery (Tesco Extra), toÂ Web-based shopping (Tesco.com). By integratingÂ the fulfillment channel behind all theseÂ formats, Tesco is answering an expanded arrayÂ of consumption needs.
One result of this efficient channel sharingÂ is that Tesco seems to be the only grocer makingÂ money on Web-based grocery shoppingÂ while continually increasing sales volume. Another,Â more provocative consequence is that allÂ of the goods entering this unified fulfillmentÂ channel benefit from the same purchasingÂ power: The tube of toothpaste going to theÂ tiny Tesco Express outlet costs Tesco the sameÂ amount to buy from the supplier as the tubeÂ going to the vast Tesco Extra store, and the fulfillmentÂ cost is very nearly the same as well.
This strongly suggests that the age of mass consumptionÂ retailing, in which the industryÂ keeps heading toward ever larger formats, isÂ coming to an end. Why drive miles to a â€œbigÂ boxâ€ if the items you want are available nearbyÂ from a smaller format at the same prices?
In other words, one an take advantage of the purchasing power that comes with large quantity purchases, but provide those goods and services closer to the customer.
Groupon: A Case Study
Groupon is an ecommerce company that aggregates merchandise and sells them to customers in certain locales. By doing this, Groupon is applying the principles of Lean for Service Operations by aggregating quantity purchases (though they don’t purchase inventory – they call it collective buying) and making that merchandise available close to the customer. These local deals are a hit, suggesting that the principles of Lean for Service Operations work in practice, not just theory.
- the principles of Lean for Service Operations are: Solve the customerâ€™s problem completely by insuring that all the goods and services work, and work together, Donâ€™t waste the customerâ€™s time, Provide exactly what the customer wants, Provide whatâ€™s wanted exactly where itâ€™s wanted, Provide whatâ€™s wanted where itâ€™s wanted exactly when itâ€™s wanted, Continually aggregate solutions to reduce the customerâ€™s time and hassle. ↩