Wednesday, May 13, 2009

A Study in Walmart Blue

This article in Newsweek about Walmart's view of recession shopping is insightful and well-written--and NOT a bash on Walmart.

But I'm biased--I love these sorts of articles. I love articles that explore ground-up changes, like what a run on toilet seats means for the economy, and I love well-written articles about so-called Evil Companies, which remind me to pull my head out of my liberal ass, and I especially love studies on consumer patterns.

For more:

Why We Buy, by Paco Underhill

The Call of the Mall, also by Underhill. It's not as good, but still a fun read.


l-t said...

Sit back..this could be a long one.

"Some of the ways shoppers are cutting back aren't necessarily wise. As Sprague cruises the aisles, she spies a woman with only toilet paper and milk in her cart. It's a common sight: to minimize spending, many shoppers are hitting the store multiple times a week but buying fewer items on each trip. "They aren't buying to stock up—they're buying what they need today," says Don Frieson, a Wal-Mart senior VP. Those customers may feel good exiting the store with change in their pockets, but it's a short-sighted strategy, says Tod Marks, a senior project editor at Consumer Reports. "You're spending a lot more time, a lot more gasoline, and chances are that each time you go to the store, you're going to pick up some impulse items.""

Actually, they're shopping VERY smartly...they are shopping like WalMart shops. WalMart's success hinges on a supply chain and business model developed by the US in the 30s and 40s, and implemented with gusto (and became legend) with Toyota in the 50s and 60s. The Toyota Production System is the leading example (although maybe not the best any longer) of Lean Manufacturing, which stresses just-in-time production. In essence, you build to order, not to a stock number. You don't being building a Corolla, or a $5 toilet seat, or any widget, until you have an order. Likewise, you don't pull in raw parts for stock; you have your suppliers deliver it when you need it, and only then.

It's a tactic that allows you to significantly reduce your inventory turns, which means you've got less capital piled up in your warehouse as either raw material or finished goods. This, along with minimizing your accounts receivable and increasing your accounts payable (net30, net60 terms) improves your working capital.

As a consumer, by only visiting the store when something is needed, you reduce your biweekly budget tied up in your cabinets, plus it allows you to take advantage of individual sales on more products. So long as you combine that with other errands (minimize gas outlay) and prevent impulse buying (uh, willpower and personal responsibility), you're doing nothing more than using the (successful) inventory management that WalMart themselves employ. It's even more vital considering people are "shopping more on payday," and therefore trying to minimize purchases to get you through to the next payday (or for a business--until the next round of loads/VC?).

I'm not sure what this "Senior VP" is talking about, unless he's just using salesman strategy to get people to buy big and increase his stores' up front income.

A good, quick read on TPS & its origins, which provides an easy expansion to application to any NUMBER of other business, is Taichi Ohno's [i]Toyota Production System: Beyond Large-Scale Production.[/i]


Aarwenn said...

Two different comments, there, that you're commenting on. The Senior VP of Walmart just described the situation. It took a Consumer Reports Senior Project Editor to make the judgement call that this was a bad idea.

And I agree with you, LT. For the consumer, buying just-in-time needs and making multiple trips--assuming you can avoid impulse buys--is far, far better than buying in bulk for any reason. Every time I keep my cabinets basically bare, I notice how cheap my overall food bills are. An added psychological component: if I look in an overstuffed fridge or cabinet, I'm actually MORE likely to go out to eat because I want to avoid making decisions. This has nothing to do with Lean and everything to do with human nature, but since the overall theme is about cost-efficient strategies, I hoped it wasn't too much of a tangent.

Kalvan said...

As an engineer who mainly does research projects, I hate the "just-in-time" philosophy. It only works when nothing goes wrong.

l-t said...

Ah, good point. My Lean reading caused me to miss the Tod Marks phrase.

They say necessity is the mother of invention, and the necessity of stretching a paycheck (really stretching) seems to have stumbled upon a manufacturing (and supply management) practice that took industry roughly a century to develop (starting, as Ohno does, with the Ford Model T assembly line).

Kalvan, I hear you; I see our design group (electronics manufacturer) wrestle with this every day. It DOES, however, force many engineers (usually engineers-turned-managers) force decisions early in the design process, which is key to increasing your product release rate. But yes, on a day to day basis, it can be a pain. That's why our company calls those who truly believe in Lean, "Zealots."

T-town Girl said...

When it comes to something as personal as grocery shopping, I think you cannot ignore your personal tendencies. If you are a person who can consistently stop on your route from work daily and only buy the necessary items you came in for, then the “as-needed” plan could save you a lot of money. Personally, I buy more when I am hungry (like right after work.) I buy more expensive versions of things because the grand total bill does not scare me into swapping out for generic versions. And I waste a lot of time wandering around the store talking myself into and out of purchases. I do hear you on the temptation to go out when there are several substandard choices sitting in the fridge but I often take laziness to a new level and decide just to not eat instead, which is better for my waistline anyway.
My point is, that knowing these things about myself allows me to make my budget work FOR ME instead of choosing a plan that works out great on paper but only results in me beating myself up for every time I loose the battle with my self-discipline.