Tag: Walgreens

OM in the News: The Impact of Inventory “Shrinkage”

A massive rise in theft is chipping away at an advantage brick-and-mortar retailers have over e-commerce companies: the ability to touch the merchandise, reports The Wall Street Journal (Dec. 24-25, 2022). Brick-and-mortar retail’s indisputable edge over e-commerce is that consumers can get what they want immediately, and can touch and feel the product before buying it. Rising theft—and stores’ measures to prevent it—could dull that edge.

Products displayed in locked security cabinets at a Walgreens in San Francisco

Shrink—an industry term for loss in inventory—amounted to 1.4% of retail revenue in 2021, or $94.5 billion. Most of that shrink is caused by theft. Walmart’s CEO said that if the retail theft issue is not addressed over time, “prices will be higher and/or stores will have to close.”

Covid-19 has worsened the risk of crime, partly because labor shortages have made it difficult to fully staff stores. Moreover, supply-chain shortages made certain products more susceptible to theft because they fetched high value in secondary markets. Supply-chain delays during the pandemic also meant more cargo was sitting around, leaving it more vulnerable to theft.

Shrink can have a substantial impact on already thin retail margins. At Dollar Tree, shrink shaved 1.7% off operating margins this quarter–substantial for a firm whose operating margin was 5.5% that same period. Drugstores are especially susceptible because they are located and designed for convenience. It’s a quick in, quick out layout with valuable electronics, over-the-counter drugs, cosmetics and beauty care, which are desirable and mobile items. Walgreens estimates that shrink amounts to 3.25% of the company’s revenue.

Mitigation measures can range from the most basic physical ones—such as locking up items—to more technologically sophisticated ones, such as video surveillance with facial recognition. Some measures are designed to make the product less valuable for theft. These include ink tags, which stain clothes when removed, and products that must be activated by the cashier in order to be used. Some cordless power tools will only start functioning if the firmware is activated at the point of sale. More subtle measures include placing high-value items further away from the entrance or having employees stand close to those products.

Classroom discussion questions:

  1. What do some retailers (like Costco and Sam’s Club) do to reduce shrinkage?
  2. Discuss some techniques to deal with this issue? (Hint: see “Control of Service Inventories” in Chapter 12 of your Heizer/Render/Munson text)

OM in the News: The Robotic Pharmacists

“Walgreens is turning to robots to ease workloads at drugstores as it grapples with a nationwide shortage of pharmacists and pharmacist technicians,” reports The Wall Street Journal (Oct. 3, 2022).  The nation’s second-largest pharmacy chain is setting up a network of automated, centralized drug-filling centers that could fill a city block. Rows of yellow robotic arms bend and rotate as they sort and bottle multicolored pills, sending them down conveyor belts. The setup cuts pharmacist workloads by at least 25% and will save Walgreens more than $1 billion a year.

Walgreens has opened 8 automated drug-filling centers serving 1,800 stores and plans to operate 24 by 2025. This one, near Dallas, fills 35,000 prescriptions a day, serving 500 stores in the South.

The ultimate goal: give pharmacists more time to provide medical services such as vaccinations, patient outreach and prescribing of some medications. Those services are a relatively new and growing revenue stream for drugstores, which are increasingly able to bill insurers for some clinical services.

Covid-19 increased the demands on pharmacies as they expanded into testing and vaccinations, putting pressure on staff and creating a shortfall of pharmacists that many chains have struggled to fill. Walgreens has reduced pharmacy hours at a third of its nearly 9,000 U.S. stores, and in some markets is offering signing bonuses of $75,000 to fill pharmacist jobs.

Prescriptions that are time-sensitive or for controlled substances are still filled by pharmacists in stores. Those filled at the automated centers are delivered to stores alongside shipments of medications that are sorted and filled in stores.

For locations with healthier staffing levels, pharmacists are able to provide an array of medical services that bring in revenue and improve patient health, namely encouraging customers with chronic conditions to better comply with their medical regimens. The company aims to fill 40% to 50% of all prescriptions at centralized sites.

Classroom discussion questions:

  1. How else can robots be used to streamline OM functions in stores?
  2. Table 7.3, in your Heizer/Render/Munson chapter on Process Strategies, provides other examples of robotic use in the service sector. Discuss four examples.

OM in the News: A New Twist on Reverse Logistics

Walgreens has struck about a dozen deals with companies in a bid to increase pharmacy revenue.

Some retailers believe that getting more directly involved in reverse logistics could them win new customers. Walgreens and Nordstrom will let online shoppers at other brands and retailers pick up or return orders at stores, the Wall Street Journal reports (April 17, 2019), a sign of how retailers are teaming up in new ways to draw customers as more shopping shifts online. Walgreens will offer package pickup and returns at more than 8,000 U.S. locations to companies including Levi Strauss and Urban Outfitters. For example, when shoppers want to return a product purchased on Levi.com, they can choose to ship it to Levi, drop it off at a Levi store, or take it to a Walgreens store.

Nordstrom will test the tactic at Los Angeles-area stores with a group of brands. The strategy highlights how e-commerce is pressing retailers to adjust to changing consumer habits and reset relationships between brands and stores. Department store Kohl’s has helped drive the trend by allowing Amazon returns at about 100 of its stores.

The rise of Amazon and new shopper habits have prompted many brick-and-mortar retailers to reevaluate how they allocate space. Last year, Saks Fifth Avenue moved its beauty department from its traditional spot on the high-traffic first floor in some stores, rebuilding on the 2nd floor to provide more room to offer services and compete with rivals.

Chains are also forming partnerships that would have been unthinkable years ago, including carving out real estate for their competitors in the name of getting people in the door. The industry is still grappling with how to navigate the logistic and competitive challenges these partnerships can bring.

Classroom discussion questions:

  1. Is it easy to set up such reverse logistics systems?
  2. What are the ramifications of Sak’s layout decision?