In-store Logistics Excellence at Mercadona

As we have written about in previous Logistics Viewpoints postings, most retailers admit that they do a poor job at in-store logistics. Per our definition, in-store logistics spans from the store’s loading dock to the shelf. HBS Working Knowledge recently published an article by Julia Hanna (“How Mercadona Fixes Retail’s ‘Last 10 Yards’ Problem”) based on research conducted by Zeynep Ton, an assistant professor in the Technology and Operations Management unit at Harvard Business School. Ms. Ton has a broader definition of in-store logistics, which she calls “the last ten yards of the supply chain,” spanning from the store’s loading dock to the customer’s hands.

Ms. Ton cites the Spanish retailer Mercadona as being particularly proficient in this area. Mercadona offers the lowest prices in Spain, and compared to US supermarkets, sales per square foot are more than twice the average and sales per employee are more than 50 percent higher. And in a crucial measure of in-store logistics, its inventory productivity is much higher than that of its competitors.

As we’ve highlighted before, IKEA (“In-Store Logistics at IKEA”) and another retailer (“Should Logistics Personnel Work in Retail Stores”) approach this problem by employing logistics personnel at its stores. In other words, the shelf stockers work for the supply chain, they don’t report to store operations. However, at Mercadona, as with most retailers, in-store logistics personnel work for store operations and report to the store manager. Mercadona just does it better. 

What are its secrets? According to Ton, “It’s not one thing. It is many things all working together. Mercadona does a great job of making manufacturing principles work in a retail setting. It’s something like the Toyota Production System, with a relentless focus on process and product improvement.”

Part of the solution is a focus on people. When Mercadona hires new employees, it conducts more training.  As the article states:

In 2008, the chain invested four weeks of training time and €5,000 for each new store employee. “In the United States,” Ton points out, “the norm is only seven hours, and the difference shows.”

For example, Mercadona cross-trains employees so their productivity is not tied to store traffic. Cleaners can work the cash registers during busy periods, and cashiers can shelve products during downtime. Departmental specialists can assist customers during busy periods and order merchandise and arrange their sections during slack hours.

Employees also have more stable schedules.

Workers learn about their schedules one month in advance and don’t have to work different shifts from one day to the next. Over 85 percent of Mercadona’s store employees are full-timers, and they have fixed salaries with a variable bonus.

It is very different here in the US. My teenage son used to work in a grocery store after school and he did not know week to week, or sometimes day to day, how many hours he was going to work or on which days.

What I found somewhat shocking was that all Mercadona stores are closed on Sunday. The retailer’s human resources coordinator, Marcos Barberán, explained this by saying: “Our employees have a family life. Plus, people only have so much money to spend on groceries. So if we were opened seven days a week, we wouldn’t necessarily sell any more, and we would have to increase prices to cover our expenses.”

Mercadona employees are also paid more than is typical for retail in Spain. Not surprisingly, employee turnover is low, only 3.8 percent per year.

The in-store logistics is made easier because “compared to U.S. supermarkets, Mercadona offers 43 percent fewer products per square foot of retail space. Mercadona believes it has a responsibility to select the highest-quality, most affordable products to ‘prescribe’ to customers.”

Mercadona, like many manufacturers, has specialists focused on continuous improvement. The company calls these managers “prescription instructors” and they constantly visit stores in their area and collect feedback on Mercadona’s products and service. But they also seek to improve in-store logistics. One example involved a hand cream supplier that Mercadona convinced to change the jar’s lid from convex to flat. As the article explains:

This made it possible for store employees to stack the jars more easily and for Mercadona to lower the price by 15 cents… Mercadona always takes store operations into account when making supply-chain decisions, and pays particular attention to the design and management of store processes… “Everything fits together,” says Ton. “The continuous-improvement mentality is pervasive, from the raw materials supplier to the store worker. Every decision is made thinking about the entire supply chain—the components work together and reinforce one another. Too often, I find that retailers make decisions regarding product variety, promotion, and packaging with no regard for what goes on in the stores.”

In other words, achieveing in-store logistics excellence begins at the front end of the supply chain process.

(Editor’s Note: If you’re interested in how retailers and suppliers can drive better store-level performance, don’t forget to register early for our upcoming seminar on “Beyond the Perfect Order Metric: Bringing Together Supply Chain, Category Management, and Mobile Technologies to Improve On-Shelf Availability.” Space is limited and registering before the end of the year saves you $200.)

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