S1 Ep 12
Retail Replenishment Systems. What Would Toyota Do?
What if we viewed retail replenishment systems through a Toyota Lens...
Retailers are constantly looking for new ways to improve shelf-replenishment routines and reduce out of stocks.
At the same time they also want to shorten lead times, remove "waste" and reduce cost. In this episode, Colin Peacock is joined by Paul Chapman from Oxford University to discuss best practice in reducing out of stocks.
And in particular, they explore what retailers could learn from experts in process-improvement, Toyota.
Podcast summary
Retail replenishment systems are put under the spotlight as Colin Peacock talks with Dr Paul Chapman (University of Oxford) about shelf out-of-stocks alongside huge backroom inventories, asking: what would Toyota do?
Paul explains Toyota’s “eliminate all waste” mindset, spanning physical waste, tied-up working capital, and wasted human effort, and applies it to how stores move stock from delivery to shelf.
They discuss why “automation with a human touch” is about improving the process (root cause), not humans intervening late to “fix” inventory accuracy, and they share eye-opening data showing how much stock can sit in backrooms rather than on the shop floor.
The conversation closes with examples of retailers reducing backroom stock through focused effort, and the importance of culture and continuous improvement.
Paul Chapman, is one of the Professors running our retail loss prevention training and education courses, designed for practitioners who want to build their expertise.
Cleaned transcript
Why retail replenishment systems are under pressure
COLIN:
Hello and welcome to the ECR Retail Loss Sell More and Lose Less podcast series.
My name is Colin Peacock. I work with a community of experts and academics who are keen to share their latest research findings and best practices.
Every week or two in this series I’ll be joined by one of those experts and academics to discuss some of the very latest insights from our meetings and discussions and research and best practices.
This week I’m joined by Dr Paul Chapman of the University of Oxford and we’re looking at the problem of shelf out-of-stocks in the context of huge backroom inventories.
We’re asking the question: what would Toyota do if they were in charge of retailers’ replenishment systems?
We did a session as part of our on-shelf availability working group, looking at the replenishment process and asking what Toyota and the Toyota production system would do, and where they would suggest improvements.
We had good contributions from retailers in the meeting. We had over 70, which is a great turnout, and most were involved in day-to-day operations in either a CPG business or a retailer, looking to measure, improve, monitor on-shelf availability, and get the replenishment process right.
So we do these quick recaps to help other retailers who weren’t able to attend get a flavour of what happened and what was discussed.
Paul, do you have two, three, four, five key learning points retailers and CPGs could take away from your session?
PAUL:
Thanks for the opportunity, Colin. It got me thinking after the session, so I’ve got a few reflections.
One takeaway was the amazing community that ECR brings together. There were definitely more than 50 people, and the contributions from a variety of people were really insightful.
It brought the ideas to life, and it gave other retailers and CPG manufacturers the chance to hear what happens in practice.
I felt my role was to get a good conversation going, so credit to them.
What Toyota would do to improve retail replenishment systems
PAUL:
To cut to the chase: what would Toyota do? They’ve got a guiding philosophy of complete elimination of all waste.
If Toyota were a retailer, that’s how they’d look at the business and look at where waste exists, in a really wide perspective.
There’s physical waste, as retailers know it: how much stuff are you throwing away, particularly in fresh.
But they’d also look at waste more broadly. If you’ve got too much stock in a store, that’s wasteful because it ties up working capital, and you should be lean on capital and put it to best use.
There’s also waste of human effort: touching product more than the minimum amount. The minimum is once; anything beyond that is wasted effort.
Some things don’t translate perfectly because Toyota is mostly automotive, but retail has a history of reducing waste too, like one-touch packaging, common scanning systems, and so on.
Toyota would keep pursuing waste reduction all the time.
Eliminating waste in retail replenishment systems
PAUL:
Toyota also has fundamental concepts that help achieve that end goal. Apologies when it gets a bit “fancy” and people start using Japanese words.
One is jidoka: automation with a human touch.
It’s about how organisations respond when a mistake happens. You go after it, understand it, resolve it so it shouldn’t happen again, and prevent defects from being produced.
In cars, there’s the idea you can’t inspect in quality. Organisations tried that with a quality inspector at the end of the production line and found you could never inspect quality in—you can only build it in.
That means having super effective processes.
COLIN:
We did hear something that sort of contradicted that. Every time a human was involved in the loop regarding retail replenishment systems and inventory, it seemed to make it worse.
Whereas what you’re suggesting with Toyota is perhaps it makes it better—automation with humans makes it better—but somehow it doesn’t seem to be working in retail.
PAUL:
On on-shelf availability and data and getting good quality data, we know that when humans get involved with inventory accuracy, more often than not they make it worse, not better.
So “automation with a human touch” means using human insights to optimise the automation, not having people intervene late in the process.
It’s about observing where the process goes wrong and redesigning the process—not interceding at the end.
Using the quality example: you can’t inspect quality into a car. I’ve got a funny feeling the parallel is you can’t improve stock record accuracy by counting a shelf and updating the stock record. It’s too late in the process.
You needed to understand what caused the problem and eliminate the root cause.
COLIN:
You can’t gap check your way out of inventory record accuracy. Is that another way of saying it?
PAUL:
Yes, I think you’ve captured that really nicely, Colin.
Backroom stock and retail replenishment systems
COLIN:
You showed some data that drew some interesting conclusions around backroom inventory, inventory on the shop floor, and the metric of inventory in the back room that was not on the shop floor.
What should we take away from that analysis, and what should be the next steps?
PAUL:
If I consider two things: a set of data and a group of photos.
There was an all-too-common set of photos of the back room of one store. Everybody on that call has been in stores where it’s chaos.
Data is vital because it takes us from the specific to the general. Not just a snapshot at one moment, but performance over the day, over the week, ideally over a year given the retail cycle.
And not just one store, but stores in a district, or ideally the whole company. The more data we can get, the more we can explore hypotheses.
We should be cautious with data—provenance, sample size—but this reflected five different retailers and 20 different stores each, so 100 stores.
It looked across every product, summarised into seven categories, and there were millions of data points.
We were looking at how much inventory is on the sales floor—because that’s where it should be—and how much is in the back room.
I was surprised to see backroom percentages as a minimum in the high teens, 15–20%. Even more surprised that in some categories it could be up to a third of the inventory in the back room.
I thought the industry was designing stores without backrooms, and that older stores were being remodelled to reduce backroom space because we didn’t need it, with more flow into store and shelf.
But those percentages were high, and every retailer knows how hard it is for store teams to manage that well, and to pick from it well.
Every box in the back of the store is likely to get lost, mislaid, damaged, or go out of date. There’s nothing good that comes from stock in the back of the store.
So what would Toyota do? They would go after that with a passion: one-touch flow from a truck arriving at a store straight through to the shop floor and straight onto shelf.
They’d think through sequence, case size, frequency of delivery—everything to eliminate waste, free up working capital, reduce spoil and damage, and increase on-shelf availability.
COLIN:
We need to wrap this up in a minute, but when you made this point, it was clearly a call to action for the industry.
There was also frustration from people on the call: we’ve been trying, it’s not like we want it like this, and it’s really tough.
We need to explore it more to see how we could move towards that.
We did hear some retailers with lower numbers than we’d seen. One shared moving from 12% to 6% with a concerted effort around planograms and so on.
Another shared it was down to 4%. So this is becoming a metric people are going after, but it’s a slog and we need to help them.
PAUL:
There’s lots of hope here. Some retailers are doing that corporately, and within each retailer some categories will be better than others.
It’s worth going after why it’s better in those areas, and then learning how to do it better across more categories.
And those examples of 12% to 6% came without knocking stores down, rebuilding them, or investing millions in remodelling.
It came through thinking it through and following it through.
One of the roles for really good loss prevention and product availability people is coordinating with colleagues within the company and across the supply chain to produce high-bang, low-buck solutions.
The examples people shared on that call showed it’s possible.
Mindset, culture, and continuous improvement for retail replenishment systems
COLIN:
Some of it is also about mindset and the culture an organisation creates. That was an overarching theme around Toyota: a culture of innovation and continuous improvement.
Paul, it was great for you to host that for us and tee it all up. It’s great that you’re back with us at ECR and we’re looking forward to your continued engagement.
Thank you very much, and we’ll see you next time.
