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Achieving Six Sigma Retailing

Retailers would like to perform at the same level as manufacturers that have embraced Six Sigma strategies, but it can't happen without RFID.
By Mark Roberti
Jun 01, 2009The Wall Street Journal recently published an article entitled Clarity Is Missing Link in Supply Chain. The story focused on the supply chain for semiconductor chips used in DVD players, computers, iPods and a host of other electronic products. The article noted that when the financial crisis led to a sudden and dramatic collapse in consumer spending, companies were able to react quickly, though they did not have good data to act upon.

The supply chain for many consumer electronics products ends at Best Buy. When the crisis hit, according to the article, the retailer had no idea by how much to cut weekly orders. As such, it made best guesses, as did suppliers down the line. The big problem was that the retailer and its suppliers were not in synch. Suppliers reduced their orders more than necessary, and were thus unable to deliver the products Best Buy required. As a result, the company believes it lost sales.

The article highlighted the lack of visibility that led to an inability of suppliers and Best Buy to match supply to demand. Retailers are not tracking in-store inventory accurately, so they do a poor job of reacting to changes in consumer demand. What's more, they are unable to provide suppliers with the data needed to meet that demand. The crisis exposed the problem, but it exists all the time, not just when there's a sudden decline in consumer spending. There are always spikes in demand, such as when a new gadget turns out to be hotter than expected, or when a product disappoints and there is oversupply.

It's no wonder the big industry buzz is about Six Sigma retailing. Six Sigma is a manufacturing philosophy—started by Motorola—that seeks to improve the quality of manufactured goods by identifying and removing the causes of defects and variations in manufacturing and business processes. The goal of Six Sigma efforts is to reduce the number of defects to no more than 3.4 per 1,000,000 units produced, tasks performed, orders filled, customers served and so forth.

Retailers can never achieve this level of efficiency with current technologies, because they are unable to measure their own inefficiencies, or those of their partners. They can not easily measure, for instance, the number of times customers enter a store and fail to locate, on shelves, the products they want to buy. As such, these companies can't address operational issues, either within the store or within the supply chain. In other words, how can you work with your suppliers to solve a problem when you can't even measure the extent of that problem?

The strength of radio frequency identification is that it enables retailers to collect the information they need, with little or no additional labor costs. The technology makes it possible to take inventory once daily or weekly, so inventory inaccuracies can be corrected. And it also allows retailers to perform root-cause analysis more effectively.

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