Lean Services: Provide Exactly What the Customer Wants

The third principle in Lean Services (or Lean for Service Operations is ¹: Provide exactly what the customer wants.

This principle rests on the notion of Pull. Rather than relying on large, expensive, centralized forecasting systems (which are almost always wrong), Lean for Service Operations looks at the situation with a rapid and frequent replenishment mindset. This approach also makes judgment against ordering large quantities of inventory, but instead relies on a total systems approach beginning with the customer pull and replenishment upstream.

In Womack and Jones’ words, sharing an experience from Tesco:

How does Tesco do it? By replenishing every store continuously, over a 24-hour day, to eliminate the need to hold stock either at the back of the store (as does Wal-Mart) or in high-bay storage (like Home Depot). Tesco reorders from key suppliers that produce”in a matter of hours”items that have just been purchased.

What’s more, Tesco picks up directly from suppliers’ shipping docks at precise times and takes the goods to regional distribution centers where fresh products and fast-moving items are cross docked onto vehicles delivering to stores. In a further lean innovation, Tesco satisfies Web-shopping orders by having store personnel fulfill orders from the shelves during lulls. This process has reduced personnel costs, avoided the cost of separate warehouses for Web orders, and made Tesco the world’s largest Internet grocer.

Lean techniques have helped Tesco to grow its share rapidly and become the UK’s market leader in groceries, fueling its global expansion in Eastern Europe and East Asia as well. They have also allowed the grocer to increase customer satisfaction and loyalty by giving shoppers what they want (and, as we shall see, by providing it where and when they want it)”without wasting their time.

This approach requires there to be a very coordinated and tight supply chain – both in communication, expectations, and also in geography, with the over-riding principle: produce closest to the customer.

Without doing so, this approach goes against the outsourcing mindset, chasing low cost producers. The Lean mindset is in favor of producing closest to the customer instead.