When you think of competing on the basis of supply chain excellence, Walmart is probably the first retailer that comes to mind. Walmart is indeed excellent, perhaps the best in the world when it comes to procurement. But I would argue that from a lean logistics perspective, BJ’s Wholesale Club is one of the best retailers in the world.
Let’s define our terms here. The operational excellence methodology known as “lean” is centered on preserving value with less work by avoiding waste. Lean speaks of the seven wastes: overproduction, unnecessary transportation, inventory, motion, defects, over processing, and waiting.
Now let’s look at these principles against what BJ’s is doing, based on logistics-related information found in the company’s 10-K filing for the period ending 1/30/2010.
“We limit the items offered in each product line to fast selling styles, sizes and colors, carrying approximately 7,000 active stock keeping units (SKUs). By contrast, supermarkets normally carry an average of 45,000 SKUs, and supercenters typically stock up to 125,000 SKUs.”
“We buy most of our merchandise from manufacturers for shipment either to a BJ’s cross-dock facility or directly to our clubs. This eliminates many of the costs associated with traditional multiple-step distribution channels, including distributors’ commissions and the costs of storing merchandise in central distribution facilities.”
Inventory represents a capital outlay that has not yet produced income. By limiting itself to fast moving goods and not storing inventory in warehouses, BJ’s reduces its inventory carrying costs.
“We work closely with manufacturers to develop packaging and sizes which are best suited for selling through the warehouse club format in order to minimize handling costs and increase value to our members.”
“We work closely with manufacturers to minimize the amount of handling required once merchandise is received at a club. Merchandise for sale is generally displayed on pallets containing large quantities of each item, thereby reducing labor required for handling, stocking and restocking. Back-up merchandise is generally stored in steel racks above the sales floor.”
Over-processing occurs any time more work is done on a piece than what a customer requires.
“We route the majority of our purchases through cross-dock facilities which break down truckload quantity shipments from manufacturers and reallocate these goods for shipment to individual clubs, generally within 24 hours. Our efficient distribution systems result in reduced freight expenses and lower handling costs.”
Unnecessary transportation does not add value to the consumer. Each time a product is moved it stands the risk of being damaged, stolen, or lost.
For wholesale clubs like BJ’s, lean logistics is at the center of their value proposition; it drives lower prices for consumers. But of all the wholesale club retailers, I think BJ’s does it the best.
