Making the Case for Quality
February 2017
At a Glance . . .
The short shelf lives of fresh
foods along with fluctuating
consumer demand meant
that a European retail
chains stores often had to
hold clearance sales with
zero or negative margins
or write off inventory.
Explorative data analysis
and basic statistics helped
the chain identify and
reduce inefficiencies in its
inventory and ordering
process, minimizing the
gap between quantities sold
and quantities ordered.
Rainbow statistical process
control (SPC) charts, a
variation on traditional
SPC, helped ensure
ongoing monitoring of
the stock-to-sales ratio
and triggered corrective
action in real time,
bringing sustainable results
within three months.
ASQ www.asq.org Page 1 of 5
Using Exploratory Data Analysis to
Improve the Fresh Foods Ordering
Process in Retail Stores
by Sivaram Pandravada and Thimmiah Gurunatha
With the abundance of data now available in the information era, data science offers significant
opportunities to complement quality approaches to problem solving and continuous improvement.
Unfortunately, as Roger D. Peng and Elizabeth Matsui point out in their book, The Art of Data
Science, Data analysis is hard, and part of the problem is that few people can explain how to do
it.1 Quality professionals may find that applying the principles of data science is not always as
straightforward and formulaic as they would like.
In illustrating how explorative data analysis and basic statistics helped a grocery chain reduce
inefficiencies in its retail inventory and ordering process, this case study presents a real-world
example of how the thought processes of data scientists can contribute to quality practice. Once
the chain saw the difference that the data-based approach made in targeting waste and ineffi-
ciency in one store, it successfully replicated its process improvements to increase profitability
throughout the organization. The project approach and lessons learned can also be applied in other
retailsettings.
A data science approach to assessing the problem
The short shelf lives of fresh foods along with fluctuating consumer demand had been causing a
European retail chains stores to hold clearance sales with zero or negative margin or to write off
some inventory as shrinkage. Annually, the problem of shrinkage accounted for revenue losses of
up to 20percent.
Although the ordering process was automated, the algorithm was better suited to articles with lon-
ger shelf life (>90 days); hence, department managers would often overwrite the automatic system
and place orders manually. There were thousands of stock keeping units (SKUs) and no defined
tolerance limits to manage stock and shrinkage across various stores. The organization needed an
approach for monitoring and controlling this waste.
Granular data is key to accurate and productive problem assessment. When it is not available,
significant time goes into defining metrics and capturing measurements before analysis can begin.
With the prevalence of sophisticated database management systems, the trick becomes extract-
ing information based on the questions that need to be answered to gain a better understanding of
anyproblem.
For the problem of shrinkage, using data science and lean Six Sigma started with two questions:
Question 1: What are we trying to optimize in this project?
Answer: The team seeks to decrease shrinkage in fresh food
divisions and also decrease the use of discount sales that lead to
reduced margins.
Question 2: What factors have the most effect on shrinkage
and discount sales?
Answer: Shrinkage and discount sales occur as a result of
excess inventory in stores because of improper ordering pro-
cesses. Key factors to study include the following:
Identify the biggest contributing categories and departments
leading to high shrinkage and discount sales
Quantify the demand or conduct a sales study of these
articles by number of SKUs
Quantify the supply or purchase of these articles by number
of SKUs
Review gaps in the current ordering process leading to
supply versus demand mismatch
The Japanese concept of muda, which translates to waste or
any activity that consumes resources but creates no value for
the customer, provided direction for the teams next task of
identifying and reducing waste to improve process efficiency.
Pareto analysis helped the team understand which categories
and SKUs were contributing to 80 percent of shrinkage and dis-
count sales and prioritize them for improvement.
Exploratory data analysis
The team used data analytics and lean Six Sigma tools to iden-
tify and implement corrective action that would reduce waste
and improve the ordering process. Targeting the SKUs that
were contributing significantly to high shrinkage and discount
sales, the team started with analysis of the daily unit sales of
one fresh food SKU with a shelf life of five days and the high-
est shrinkage component within the fresh food category.
The histogram data in Figure 1 show daily sales in one store
where there was maximum shrinkage due to this fresh food
SKU. One observation that immediately stands out is that
the sales data appear to be normally distributed if three data
points for times when demand was an outlier are omitted from
consideration. The distribution is good news from a modeling
perspective and in terms of predictability.
In Figure 1, it is also easy to see that out of 225 days, the store
sold its highest quantities on only a small percentage of days:
280 sold on only 19 days
320 sold on only nine days
400 sold on only two days
Figure 2 presents a histogram for quantities ordered for this
same SKU. Reviewing alongside the data on quantities sold
leads to a few notable takeaways:
The ordering quantity did not follow a normal
distribution, even though the process is within the control
of the stores
Out of 142 orders placed for the same time period of 225
days, approximately 80 were for quantities 300
Department managers were particularly surprised by the
fact that approximately 56 percent of the time, an order
was placed for a quantity that sold only 4 percent of
thetime
A simple comparison of the sales and order quantities
summarized by weekday should give any process owner
many subsequent questions to ask the department manager

Figure 1: H
 istogram of quantity sold and frequency Figure 2: H
 istogram of quantity ordered and frequency
ofoccurrence of occurrence

60 51
56 50
50
50
40
40 36
40
Frequency
Frequency

31 30
30
21
21 20
20
11
10 10
10 8 7
6 5
2 3 2 3
1 1 0 0 0 0 1 1 0 0 0 0 1 0 0 0 0 0
0 0
80 160 240 320 400 480 560 0 75 150 225 300 375 450
Quantity sold Quantity ordered

ASQ www.asq.org Page 2 of 5

responsible for ordering. In particular, Table 1: C
 omparison of quantities sold versus quantities ordered by day of
why is there so much variation between theweek
the ordering process and the quantity
sold when the article can be ordered six Number Quantity Average Number Quantity Average
days in a week and has only five days of days received of quantity days sold sold of quantity
ordered received sold
shelf life?
Sunday 32 3,186 100

Table 1 focuses on a specific category/ Monday 22 5,612 255 32 5,951 186

SKU and iterates the gaps in quantity of Tuesday 28 7,099 254 32 5,941 186
goods sold and goods received/ordered. Wednesday 16 4,776 298 32 5,731 179

Thursday 30 7,827 261 32 5,994 187

Model building and interpretations Friday 18 5,169 287 32 6,536 204

Saturday 29 8,650 298 33 5,903 179

Model building is part of the improve
Total 143 39,133 274 225 39,242 174
phase of a typical Six Sigma define,
measure, analyze, improve, control
(DMAIC) project. Having contributed
Figure 3: C
 umulative distribution of quantities sold and ordered
to defining and understanding the prob-
lem and analyzing opportunities for
Normal
improvement, data still have a role to
play in constructing and implementing Variable
100
solutions for sustained results. Quantity sold
Quantity received
85.6
For this project, a simple model might 80 80
Mean StDev N
be a rule-of-thumb estimation or an
174.4 71.06 225
empirical equation that can predict the 273.7 90.01 143
ordering quantity and the quantity to be 60
Percent

maintained as minimum inventory. It

involves iterations of steps and assump- 40 39.6
tions to arrive at an equation that best
fits the demand of the store for the item.
20
One has to make assumptions for the
model and conduct backtesting based
234.2

349.4
250

0
on quantities demanded to ascertain
that there are no instances of lost sales. 0 100 200 300 400 500 600
Comparing the quantities ordered Data

against actual lost sales incidents plus

shrinkage incidents and discount sale
incidents leads to a calculation of the
benefits for the project. In the spirit of
lean, a 10 percent reduction in shrink-
age within three months was selected as
the improvement target. The basis of the
model is to minimize the gap between
the quantity sold, represented by the
blue line in Figure 3, and the quantity
ordered, shown in red.
With the model and goals established,
interpretation and communication then
become project-specific and store-
specific based on assortment demands
within different geographies.
This approach is complementary to Six
Sigma DMAIC, but instead of emphasiz-
ing the conventional defects per million
opportunities (DPMO), waste reduction
is measured in terms of money written
off as shrinkage, a metric to which store
and department managers can more eas-
ily relate. As a result, the control charts
were designed around shrinkage.
Turning data into action
In order to reduce excess ordering, the
warehouse used color coding to moni-
tor and track inventory. The colors of
tags on the shelves helped ensure that
department managers would see indica-
tions of stock levels during daily physical
inspections. Red tags indicated SKUs
with high shrinkage. Blue tags signaled
SKUs with high stock levels.
Ordering proceeded according to stock
shelf life and quantity sold. The store
manager would only have to look at the
tags on the shelf to understand the need
to investigate any SKUs that might lead
to shrinkage events and require preven-
tive action.
A rainbow SPC chart (see Tools Used
in This Case Study on page 5) was

ASQ www.asq.org Page 3 of 5

 deployed for real-time identification
of spikes in the stock-to-sales ratio, as
represented in Figure 4. The escalation
matrix that was established required
root cause analysis for any rise or fall
out of the green zone. Entry of the
ratio into the red zone would need
intervention of the store manager,
while entry into the orange/pink zone
would prompt the intervention of the
floor manager. Entry of the ratio into
the yellow zone would need the atten-
tion of the department manager who
is responsible for placing the order.
Acting on the immediate feedback
provided in rainbow SPC monitoring
helped reduce shrinkage by 20 percent
over a period of one month.
Figure 4 presents the rainbow control
chart plotting the stock-to-sales ratio
based on quantity. At various points, the
ratio enters the yellow, orange, and red
zones, requiring escalation by one level
up at each stage and root cause analysis
by different levels of management.
The approach ensured real-time track-
ing of variation and brought sustainable
results within three months. The team
monitored process data for the 10 top-
selling articles for each department
using a simple Excel template with a
rainbow SPC macro and subsequently
built a dynamic reporting and chart-
ing tool using other data visualization
software. Internal benchmarking then
allowed the organization to continuously
improve the ordering process across
store outlets.

Figure 4: Rainbow chart for sales to inventory management

Pre-control inventory stock management

Product line/type of service Fresh chicken Country Xyz

Quality characteristics Stock + ordering to sales ratio Department Fresh food

Date(s) 1/10/2015 to 30/04/2016 Ordering team/source# Fresh food

Purpose of data collection Monitoring ordering process to improve performance Station number/department EBITDA Solutions/Country divisional manager

Target 3 stock/sales Upper specification limit 9.5 stock/sales Lower specification limit -3.5 stock/sales

130 (Stock + GR)/Sales

-120 10.9530
Get CEO involved
STOP 10.4559
-110
when red 9.9588
-100 9.4618
Get first and
second level 90 8.9647
involved at yellow 80 8.4677
and orange 7.9706
70
CAUTION 7.4736
60 6.9765
50 6.4794
5.9824
40 GO 5.4853
30 4.9883
Percent of tolerance

20 4.4912
10 3.9941
3.4971
0 3.0000
-10 2.5030
-20 2.0058
1.5088
-30
GO 1.0113
-40 0.5147
-50 0.0177
-0.4794
-60
-0.9765
Get first and -70 -1.4735
second level -80 CAUTION -1.9706
involved at yellow -90 -2.4676
and orange -2.9647
-100 -3.4618
Get CEO involved
when red -110 -3.9588
-120 STOP -4.4559
-4.9529
-130
-5.4500
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ASQ www.asq.org Page 4 of 5

The reduced waste in shrinkage and
stock levels has enabled the retailer
to generate higher margins and con-
centrate more on availability and
customerinteraction.
References
1. Roger D. Peng and Elizabeth
Matsui, The Art of Data Science,
2016-05-18, https://leanpub.com/
artofdatascience.
For More Information
EBITDA Solutions assisted
the grocery retail chain with
this improvement project. Visit
www.ebitda.co.in/.
Find more case studies on the use
of quality tools and approaches
at asq.org/quality-resources/
case-studies.
About the Authors
Sivaram Pandravada is managing
director, India - EBITDA Solutions.
Thimmiah Gurunatha is senior con-
sulting partner at EBITDA Solutions,
Florida, USA. Previously, he held
senior engineering roles for Xerox for
32 years. An ASQ Fellow, Gurunatha
is an ASQ Certified Reliability
Engineer (CRE) and Six Sigma Black
Belt (CSSBB).
ASQ www.asq.org Page 5 of 5
TOOLS USED IN THIS CASE STUDY
This improvement opportunity presented a classic case of the
need for control charts, combined with root cause analysis
and an escalation matrix (a simple, visible, reliable, and
responsive process for abridging Six Sigma define, measure,
analyze, improve, and control process steps) to help monitor
day-to-day progress. Histograms and statistical process
control (SPC) charts assisted with high-level visualization of
sales and ordering management to identify opportunities to
reduce waste.
Histograms are graphs used to show frequency
distributions. The bars on the graph provide a visual
representation of how often each value occurs.
Learn more about histograms.
Statistical process control charts show how
processes change over time. Plotting data on current
performance against the process average and upper and
lower control limits based on historical data provides a look
at whether the process continues to perform predictably.
Learnmore about controlcharts.
In this project, rainbow SPC charts, a variation
on traditional control charts, helped analyze data and
determine the anomalies to address. Invented by ASQ
Fellow Thimmiah Gurunatha, the rainbow SPC approach
seeks to simplify control charts and provide immediate
feedback whenever a significant variation in data Learn more about the
occurs. While monitoring continuous and attribute data for rainbow SPC process in
optimization, seven colors are used to indicate escalation Systems Engineering
actions. Teams can monitor data in real time to capture Standards The State of
evidence of parameters causing variation rather than trying the Art, Integrating DFR,
to find these parameters after thefact. DFSS, and DFX in Systems
The rainbow approach uses attribute data and continuous Engineering Environment,
data, as well as life test data for Rainbow Reliability SPC. by Thimmiah Gurunatha.