For a Retail Operation
Management engineering is the application of the principles of industrial engineering to the work of gaining performance through an organization. It is different than other efficiency studies as it addresses management as work that is performed by managers and those engaged in internal support. As such, basic work management concepts are appropriate for assuring efficient operations.
When the principles of industrial engineering were first applied to production work, the amount of work required to gain a productive result was effectively cut in half. Management engineering is the first consistent application in the office environment. Similar benefits are available to the manager who first applies this new engineering discipline to work performed by managers and internal support workers.
Introduction – The Retail Function
This is an original application of management engineering to the retail function. It is based on value relations rather than activity, and accordingly provides an alternative vision of operations that can be useful in assuring performance
The beginning is the identification of functional customer and functional product with respect to the pairing principle.
The retail function is defined as the sale of products manufactured or produced by others. In this, there is a complex relationship between the end user, retailer and producers and manufacturers.
A first tool from management engineering is the blackbox. This technique provides a way to focus on function, and to present function visually. The general function for every blackbox is to convert its inputs into its outputs. The blackbox for a retail establishment shows what it does as a function. It receives its income from customers who buy the products that it sells.
In general, the value recognized by the end user depends on the outputs from the processes of the producers and manufacturers. The retailer is a middle-man in the larger value transactions that exist between the producers and users.
Our analytic approach to the retail function can be placed in blackbox format. In this, we see a vending relation between the producer and the retailer, and a separate vending relation between the retailer and the buyer or end-user of products that the retailer gets from producers.
The first application involves the pairing principle, a unique tool of management engineering. This principle is that every functional customer receives value in terms of a functional product, and returns value because of what they receive. As a paired explanation, every functional product goes to a functional customer, who returns value to the organization because they receive its product.
The pairing principle addresses value relations. As a life function, it addresses the effective respiration of the organization, the continuing input and output that are necessary for its ongoing health and economic welfare.
To establish the “functional customer” of a retail establishment, we follow its resources back to those who provide those resources. In this case, it is the end-user of products that are provided through the retailer. The decision-makers who determine to return value to the retailer because they receive these functional products are the retail customers. These are usually also the end-users for the products that pass through the retail establishment.
The rules for establishing the functional product are very specific. The functional product is what both induces the functional customer to return funds to the retail business, and are limited to that which is produced by the operation of the business.
The second of these requirements is the one that keeps the retailed goods from being functional products. These are provided by the manufacturers and producers, and not by the retailer. The retailer is not paid for those goods. The retailer provides a service, and that service is why the end-user is willing to pay one retailer instead of another.
In the alternate, the pay to the retailer is for providing the retail service, with the pay for the product effectively given back to the producer-manufacturer. The retailer effectively separates the two, keeping the one for internal operations and profit, and providing the other to the producer-manufacturer. In that sense, these goods are functional product delivered to the retailer from the provider.
We have a functional definition for the retail business from this application. It is providing functional product to the functional customer. If functional product is provided, the functional customer will provide the resources that support the continuation and profitability of the retail organization.
Value for the Receiver
Establishing value for the receiver is not that challenging once the product concept is defined. It is what the functional customer will value beyond the physical product. It is the reason that the functional customer will use one retail establishment instead of another.
Clearly selection of the right physical product to offer to the customer, product that will meet customer requirements, is important. What the business provides beyond this is presentation, advertisement, and delivery services. The functional customers must know that the retail establishment is able to meet their needs for goods. The customers must know that what they need is conveniently available. The customers will value the ease of gaining that product.
Any presentation of the goods at your retail establishment is a source of customer value, a reason for the functional customer to frequent your establishments. The delivery of goods as agreed is a source of value, a reason for the functional customer to prefer your organization above others, or to prefer them over you.
In the situation that prompted this analysis, there was a failure to deliver as agreed; which is a functional product failure. The fact that it was delivered even if late, is not mitigation, but an indication that employees did not understand how the retail effort earns income – the basic retail product is a set of services. An effective communication of value relations to employees can provide a remarkable improvement in retail service – the service that earns the income of the retail establishment.
In general, any failure to deliver the value that earns retail income is a threat to continuation of business. The failure to deliver a purchase as promised is as much a challenge as stocking shelves with an item that nobody wants to buy. Both represent a failure to provide the value of the retail service to a customer.
Captive Vs Transfer Materials
A larger retail organization is able to control, or even to selectively generate, some of its own products. Certain products will carry the name of the organization, or a name recognized as belonging to the organization.
The larger organization is not simply a retail business, but is in the business of promoting and providing its own product. While it largely handles retail for other manufacturers and producers, large retailers are also effective generators for some of their products.
This is a different purpose. The retail and provider efforts have different customers, different products, and involve different value relationships. They cannot be combined into a single and unified operation without establishing internal competition among the differing purposes of subordinate parts. Internal competition not only divides loyalties, but distracts workers from a focus on delivering value to functional customers.
A third organizational element provides a central administrative purpose under which these can be managed to a common organization-level effectiveness. Such an administrative unit serves as a management umbrella, an element that has administration as its purpose, rather than the combined individual purposes of those retail and producer elements that are under the umbrella.
Product-Customer Analysis for the Umbrella
The umbrella has different functional products and functional customers than those who work under the umbrella. The umbrella only serves those under the umbrella, while those under the umbrella provide products and retail services to external business customers.
The application of Customer-Product Analysis to the internal parts of an organization follows the same rules as for the business as a whole, except that we often have to address internal products that earn no income.
The first question goes to finding the functional customer. Who is it that resources that umbrella organization, and what do they recognize as value received from the umbrella?
The answer is “internal senior management.” The umbrella element of the organization is part of “how the senior management gains performance through the operating areas of the organization.” Operation, of course, is defined as delivery of the organization’s functional products to its functional customers; which it its way of generating income.
The operating elements of the organization, as discussed above, are providers and retailers. They are to be relatively independent, with their own functional product and functional customer relations through which they earn the income of the business. It is important to note that the umbrella earns no income from the business. Its value comes from impact on the operating areas.
The cost of the umbrella organization is obvious, the value of the umbrella is not. The value is indirect, and subject to a general rule of management engineering: The value of an internal support is determined by those who receive the support, not by those who provide it.
The value of an umbrella service is only identifiable as recognized by supported productive and retail units. As a matter of efficiency, senior management should largely perform its management function through reliance upon exception feedback from performance units, This is information on needs for umbrella support that are not being met, and activities within the umbrella that impact on the ability of the performance units to generate and deliver value to earn organizational income.
The senior management within the organization will determine how much to spend on operating the umbrella portion of the business, and they are the functional customer. They will decide what to spend based on what value they see coming from the operating areas, attributable to the activities of the umbrella.
Efficiency and the Umbrella
This value has two aspects, the value that having the central organization yields for subordinate elements (those who earn business income) and the cost of generating that effect.
There are some general rules that apply to such organizations. The first is that the umbrella is separate from subordinate groups. Subordinate groups are to be locally managed to their own local purposes. This is especially important as the local purpose of these groups is centered on earning organizational income from delivery of functional product to external customers. Inefficiencies are likely to arise from any effort to make local performance answer to any umbrella-based administrative purpose.
As an efficiency consideration, independent work performance is necessary for each subordinate element. The income of the larger organization will be earned by the efforts of these subordinate parts. Distracting them from performance to support an administrative purpose will reduce their productive performance. Goals for subordinate areas can be, and should be, independent from those of the umbrella.
For example, directing that producing areas use local stores as their only outlet for their products is an unnecessary administrative restriction that can reduce the delivery of value to potential users – unnecessarily limiting organization-level profit potential.
The umbrella purpose is like that of a supervisor in a group of professional engineers. It is to provide management services to individual subordinates; accepting their individual ability to do professional work, and bringing them to a general focus on completing their work to meet a larger group purpose.
As the supervisor services subordinate professionals, giving technical and administrative support to what they do, so the umbrella needs to support the subordinate working elements of the larger organization.
Efficiency Impacts on Employees
With this, we are able to address a major efficiency improvement that is to be implemented as a systemic, or culture-level, change. It addresses communication of customer/product information in a way that will give all employees in the organization a single point of focus on organizational performance. Organizational performance is:
Delivery of functional product
to functional customers.
This is explained as “earning income for the organization.” The statement of the functional product and functional customer for each subordinate element provides the vision that can be communicated to individual employees. The same basic direction, with the understanding that the administrative umbrella has no delivery to external customers, gives the means to focus internal support on providing the support that income-earning areas of the business need to maximize their income-earning efforts.
For the producer unit, it is “delivery of product to those who will sell the product to external customers.” The focus is on the quality, quantity and timeliness of the product delivered. This is not limited to manufacture or preparation, but goes to the timely delivery to retailers that completes the action. It allows the other retail parts of the organization to coordinate their efforts based on an expectation of what should be coming from the producer element. There is an interrelated concept of successful performance.
For the retail unit, it provides the necessary focus on the product of the retail effort, the presentation and delivery service that earns income for the retail elements within the larger organization. The retail effort is focused on what it must do to earn business income for the larger organization.
It also provides the point of coordination for the two different areas. It relates production efforts to the value added by an effective retail organization. The added retail value will increase the potential for sales, impacting on what the production efforts must be prepared to deliver.
It relates retail operations to the value accomplished by the production efforts. The quality and timely delivery of incoming product adds value to the retail effort; providing that value is necessary if the retail effort is to “earn” corporate income.
Blackbox diagrams such as those used in this document provide a potent visual tool for communicating the interdependent values to which the umbrella elements must work. It also provides a common performance-oriented visual language for communicating between the umbrella with its support functions, and the operating elements that generate organizational income.
Possibility for a New Advertising Direction
Is the retail outlet being advertised by the product that it produces for customers, or by physical products that pass through the retail process?
Take a look at your website. Does it emphasize “products” or “services” that are being provided? Where is the value that earns business income; and are you presenting that value to your customers?
An organization survives and prospers by delivery of functional products to functional customers. Where the organizational element generates its product as a wholesale item, then delivery of that product to retailers earns income, with advertisement justified for reaching end-users. Where the organizational element presents and delivers products purchased from others, then it is the presentation and delivery services that earn income.
The focus needs to go where the income will be earned. If competitors are focused on physical product, and you on service, where will the customers go when they seek service?
Management engineering is support for working managers, not an action specialty. If this level of vision change is to be put into practice, it begins with senior management. This performance-based vision is driven from the top of the organization; or it is likely to go nowhere.
Management engineering differs from other popular “management improvement” programs because it is not a program. It is an application driven by a new intelligence, rather than a recipe-book approach for replacing some aspect of management with a program.
The primary challenge to efficient and effective business operation is vested interests, and these will resist any change. Application will require assignment based on implementing a performance-based vision.
Management engineering has an engineered assignment process. Like all performance-oriented efforts, it addresses what the manager must do to get from a concept of a desired performance to the accomplishment of the desired result.
The primary difference between modern management assignment practices and the engineered process is in orientation. Management engineering is based on making the work of management effective and efficient. While traditional assignment is focused on how to get others to perform, management engineering addresses what the manager must do to gain a result through others. It addresses an efficient process for accomplishing the work of management.
Product: The first essential is product. There must be something to be gained before there can be a manageable assignment. There must be something that will define the difference between success and failure. Until there is such a productive result, assignment cannot be effective in gaining that result.
A second aspect of product is that it must be deliverable to the manager as a witness to completion of the assignment. The product, or token of a product, must be sufficient for the Assignor to accept or reject the assigned performance effort. This second aspect can include progress reports, or other indications that the performance of the assignment is proceeding acceptably.
Assignee: The second essential is someone to be responsible for the assigned performance result, and for delivery of the product or token of a product, to the Assigning manager. The Assignee must be someone who has sufficient authority over working resources to assure performance, or the Assignment again becomes unmanageable. The Assignee is the one who has both authority and responsibility.
Negotiation: The third essential is the agreement between Assignor and Assignee on the product that defines successful performance, and on the general process that will be used to assure that performance. The purpose of a negotiation between Assignee and Assignor is to jointly examine the process that will generate the productive result (value to be gained), and assure the resource base (cost of gaining that value). With these, the Assignor is able to make an intelligent investment through making an Assignment; and the Assignee is able to assure performance.
Agreement: The fourth essential is the establishment of a mutual agreement. This is an agreement that the Assignor will hold the Assignee responsible to gain the desired product using the resources that are planned. The Assignee agrees to use the resources provided to gain the desired product.
Management: The fifth essential is management, the effort that assures and supports the performance. Management, in this context, addresses exception management and receipt of product.
A Secondary Application
The application of management engineering logic to the operation of a retailer organization is much more than just another program to replace those currently in use. It involves a culture-level change within and throughout all the operating elements of the organization.
When implementation becomes a desired result, the change can be accomplished using a variation of the engineered assignment process. The change becomes the product that will be in need of a definition sufficient to distinguish success from failure for the change.
The second task will be identification of the person to be made responsible for accomplishing that change with delivery of a success. Senior managers can self-assign this to one of their number, or find an action officer who will be empowered and resourced sufficiently to assure successful performance.
Negotiation will be undertaken to assure that this subordinate has authority over sufficient resources to be made accountable for the performance result, and that there is a process that can reasonably be expected to yield it.
Negotiation is completed by agreement between the Assignor and Assignee that the resources are probably adequate, and that the process sufficient to accomplish the purpose for the assignment.
The final need is for establishing management over the larger change process, with sufficient feedback to assure the performance.
The Final Word
Management engineering is not separable from management except in purpose. Engineering is technical problems solving in a special area, and management engineering addresses management as that area. Management is the action arm that evaluates engineering support, and implements recommendations as seem most appropriate for gaining performance through the organization.
Management engineering provides expertise in efficiency engineering, but efficiency is not the only purpose for the work that gains performance through others.
For more information on management engineering and its continuing development, visit the website for the Management Engineering Newsletter:
Jesse Brogan, Management Engineer