Thinking lean

How e-commerce companies can leverage 5Ms to optimise resources

Lean manufacturing and its tools have transformed the manufacturing sector over decades, but the Lean concept is also proving useful in digital businesses such as e-commerce. Lean Thinking focuses on streamlining the manufacturing process as a whole. It enables organisations to optimise/reduce resources — ideally, to the edge of frugality — and can be applied to almost every resource deployed in manufacturing, including the 5Ms: Men, Materials, Machines, Money and Methods.

One of the key tools within Lean Thinking is the Runners, Repeaters, Strangers (RRS) approach. RRS — which is a refined, more focused version of the 80-20/ 70-30 rule — is a way to categorise a product or a resource based on the periodicity of its requirement. 

For instance, if we take products, organisations usually find that its just 20 or 30 per cent of their portfolio of products that account for bulk of sales. These are classified as Runners or the hero products. The market demands Runners on a regular basis, and hence the organisation has to consistently deliver. Simply put, I would call these products the heartbeat of an organisation, as they account for a steady and predictable flow of work and resources. Repeaters are products that are in demand during a specific time of the year.There is usually a set pattern, so the organisation can plan which quarter of the year it will need to manufacture these variants. The last category is Strangers — these are made-to-order or customised products, which are manufactured as and when there is demand.

 

Identifying which products are runners, repeaters and strangers can help manufacturers understand how to better leverage budgets and resources. RRS helps establish a framework that empowers organisations on multiple fronts, i.e. to improve efficiencies at the back end — in production, inventory management, supply chain management, distribution etc, — as well as in customer facing processes, such as delivery management, after sales service, etc.

The RRS approach holds tremendous potential to improve efficiencies in e-commerce as well. E-commerce organisations can adopt Lean Thinking to embed customer centric processes and thus increase the customer’s perception of delivered value. One of the biggest advantages accrued from RRS is competitive pricing and speedyservice. E-commercecustomers are typically price conscious, thus adding pressure on e-tailer margins. Consumers expect a faster delivery time, which calls for a superior distribution network. 

This is where Lean Thinking can help, since it focuses on reducing wastage of resources and improving turnaround times. In e-commerce, lean practices such as RRS can play a crucial role in warehouse management and logistics. For instance, fast moving Runner items can be prioritised for vendor manufacturing and supply chain, as well as optimising warehouse storage. 

Repeater items, special items that are ordered during festivals, or seasonal items — can be anticipated and planned for. Lean Thinking can also play a role in boosting brand reputation. Customers are increasingly aware about purchasing from sustainable companies. According to National Geographic’s Greendex 2014 (a comprehensive measure of consumer behaviour), 61 per cent of global customers said they are concerned about environmental problems. 

A methodology based on reducing waste and optimising resources thus fits the bill for e-commerce companies. 

E-commerce strategies are woven around three core aspects — meeting demand, delivering on time, and keeping stock at minimal cost. Technology plays a crucial role in enabling the RRS approach: predictive analytics and artificial intelligence (AI) decodes customer behaviour and preferences, which in turn determines the most sought after products (or runners and repeaters) across categories.

Amazon is a good example of the use of technology to understand customer choices and simplifythe shopping experience. For example, it has a functionality that records a customer’s purchase and gives them the option of ordering the same product again, in the shortest possible time. The e-commerce aggregator also leverages AI to ensure on-time delivery. All of the product/resources data can be analysed on a RRS basis for optimising efficiencies.

Closer to home, Myntra has also successfully leveraged technology to disrupt how customers experience fashion. Rapid, its AI platform, enables the company to estimate demand and plan fashion — it recognisespatterns, colours, and consumer fits and helps Myntra order popular garments. According to Myntra, AI has reduced the manufacturing process to less than 60 days and also increased sales. Myntra is one of the fewIndian e-commerce organisations that has taken to technology and Lean Thinking in a big way. 

According to the Indian Brand Equity Foundation (IBEF), India is the fastest growing market for the e-commerce sector. E-commerce revenue is expected to grow at an annual rate of 51 percent (the highest in the world), and touch USD 120 billion in 2020. 

To sum up, simply focusing on sales and marketing won’t necessarily spell success for an e-commerce organisation. A comprehensive business strategy that leveragessmart methodologies such as Lean Thinking will help e-tailers grow, succeed and stay sustainable.