Starbucks Ad Influenced by Their Lean Education?

Mark Graban

By Mark Graban. Source: The Lean Blog.

Here’s some weekend fun leading into the holiday season… I received a marketing email today from Starbucks that included a phrase that would jump out at any Lean thinker.

Who knows how broadly the Starbucks Lean education efforts have gotten into the marketing department… or this is just a fun Lean coincidence… full ad appears below.

Here’s the portion of the ad that jumped out at me:

starbucks JIT1 500x178 Starbucks Ad Influenced by Their Lean Education? lean

You should be able to view the full ad online by clicking here. It’s reminding people that they can order online through December 20 and still have items shipped to you by Christmas… if you’re new to “Lean,” the phrase “Just-In-Time” refers to a production and materials management strategy that’s one of the core Lean methods – producing or delivering supplies just as they are needed, typically in smaller batches at a higher frequency. Lean or the Toyota Production System was, for a period, often just referred to as “JIT,” but that misses the larger Lean management system to only focus on the JIT piece.

Quality Control and Printing Money, or, why Having an Helicopter is not enough

By Gad Allon and Martin Lariviere, The Kellogg School of Management at Northwestern University. Source: The Operations Room.

Gad Allon

Martin Lariviere

CNBC had an interesting article on the problems in the production of the new $100 bills. (“The Fed Has a $110 Billion Problem with New Benjamins“, hat tip to Ian Farrington).

Several years ago in a speech that earned him the nickname “Helicopter Ben” – Federal Reserve Chairman Ben Bernanke said that the government could easily reverse a deflation, just by printing money and dropping it from helicopters. Apparently, the government is not so good in printing money:

An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face. A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.  The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes. For now, the unusable bills are stored in the vaults in “cash packs” of four bundles of 4,000 each, with each pack containing 16,000 bills.

We tend to hear about quality problems when there is a recall (see Toyota, BMW, etc… ), but in this case, the product is still in the vault.  The interesting part though is that no one knows what’s causing the problem. And because they don’t know, they cannot figure out how many contain this issue, or even how to create a mechanism to sort the good bills from the flawed ones. Without a clear system, one needs to sort them by hand (which will take between 20- 30 years). Sorting them through an automated mechanism will take “only” a year. To get a sense for the loss in shredding the defective ones:

According to a person familiar with the matter, the bills are the most costly ever produced, with a per-note cost of about 12 cents—twice the cost of a conventional bill. That means the government spent about $120 million to produce bills it can’t use. On top of that, it is not yet clear how much more it will cost to sort the existing horde of hundred dollar bills.

Interestingly, the article says that more than a decade of research and development went into the new security features on the redesigned $100. Yet, as in many cases, we see that a lot of thought is given to the design of the product, but not so much time and attention are given to the production process.

The main question I have is why we have to print a whole batch of 1.1 billion bills before we subject these to rigorous testing.  I am sure that some (or maybe even extensive) testing has been done, but it seems that only inspection by people detected these issues. Unlike many products, allowing people to use a beta version of the product is not possible, but it is quite obvious that these issues had to be detected somehow before the large scale production and before the launch date. I am not familiar with the fixed costs associated with the production of these bills, but if this is not exorbitantly high, one may hope for a small run before full production begins.

For those worried about the prospects of our economy, the machines are still printing the old bills.

Do we need a Manufacturing Czar?

Gérard Cachon

By Gerard Cachon, The Wharton School at the University of Pennsylvania. Source: Matching Supply with Demand.

President Obama has named Ron Bloom as a special advisor to tackle the problem of declining manufacturing in the United States (see NY Times 9/10/10):

The President said “We’ve got to get back to making things.” Do we?

Here are the arguments why the decline in manufacturing is a problem:

  • Without manufacturing we won’t be able to take advantage of emerging markets in green technology “I don’t want to see new solar panels or electric cars or advanced batteries manufactured in Europe or in Asia. I want to see them made right here in the U.S. of A. by American workers” says President Obama.
  • Without manufacturing there will not be research and development in the U.S. (which are presumably higher paying).  The argument is that R&D and manufacturing have to be co-located.
  • If R&D declines because of a lack of manufacturing, then innovation will decline and innovation is the engine of productivity growth.

And what are the causes of the problem:

  • Unfair trade practices by China and others.
  • Private equity only invest in firms that manufacturer in China because the U.S. is not “where you make things”.
  • Large U.S. companies don’t want to promote domestic production because they now produce everywhere.

So what do they plan to do about the decline? Here the specifics are thin. They have ruled out subsidies. They will focus on trade diplomacy and improved export-import financing.

Unfortunately, for Mr. Bloom, I strongly suspect he will not be able to reverse the trend, nor do we want him too. But if he wanted to reverse the trend, he is not pulling the right lever.

To fix a problem requires identifying the cause. There are two reasons why manufacturing has declined in the U.S. First, although not mentioned in the article, transportation costs have declined.  If it costs a lot to move parts and finished good around, you need to do things locally. When you can start shipping and training and trucking things for cheap, your options as to where to manufacture expand. Second, things are much more modular than they use to be. Henry Ford’s designers had to be very close to the manufacturing process because I suspect design was an iterative process – design something, try to make it, redesign it, try to make that, etc. Now, computers, telecommunications and precision machinery means that for many things the design and the production can be decoupled – an Apple engineer can dream up the next Iphone in her office and send the specs over to China without fear that what she created will be costly to make.

So if the causes are cheaper transportation and let’s call it decoupled R&D, then what could be done to reverse the trend? We wouldn’t want to ban computers to prevent the former. But maybe we should make transportation more expensive. At least that would have an environmental benefit. But if it is expensive to move stuff from China to the U.S., then it is expensive to move it from the U.S. to Europe, i.e., it cuts both ways. Which brings me back to an earlier point – should we care? Our decline in manufacturing has also occurred during a period of increased productivity and standard of living. Where is the evidence that we have been hurt by the decline in domestic manufacturing?

And let’s consider the geo-politics of trying to break manufacturing ties with other countries. If we purchase nothing from China and China purchases nothing from us, will they be more or less inclined to use their military? (For that matter, how about the U.S.’ inclination to use its military.) The answer seems clear – as long as countries are linked together via trade, the world will be a safer place.

America should promote innovation and we should make things in America that make sense to make here (like cars). But we have better things to worry about than manufacturing’s declining percentage of the economy.

Lean Advertising

Gad Allon

By Gad Allon, The Kellogg School of Management at Northwestern University. Source: The Operations Room.

I have very few rules as a blogger and one of them is that whenever I get a reference to an article from two different former students I must post about it. I got this reference to an article that appeared on Advertising Age (“Why a Little Discipline Is Good for the Creative Process”) from two former students (hat tips to Debbie Mendel and Tania Martino) at the beginning of the summer, but only now got to post about it.

The article discusses implementing ideas from Six Sigma to more creative fields:

Companies that implement a methodical process, such as Procter & Gamble or Microsoft, tend to deliver consistently better communications and business results, and their brands enjoy greater value. They tend to beat competitors on such key attributes as “cycle time” and “speed to market,” and have a higher degree of success when it comes to new-product launches. Most important, a meticulously executed process can deliver savings of more than 30% and improve productivity, as the need for redirects and errors is minimized. In fact, much of the angst caused by contract renegotiations and the squeeze on agency fees could have been mitigated had marketers focused on fixing what’s “broken” (the process) and not what’s “convenient” (agency compensation).

While the author refers to this as Six Sigma, (and tries to coin the term Three Sigma to tone it down), I find most of the suggestions to be more related to lean operations.  Many of the tools suggested are important, but interestingly are not entirely well understood from the article. In particular, the author suggests to

Avoid the iterative process: The common practice of separating creation from production is unsound. Upstream production involvement in the process is necessary to avoid flawed hand-off, and budget boundaries must be defined upfront.”

In essence I agree with this point, but I think the main issue is not to avoid the iterative process, but make the iteration short and quick, which can be achieved by moving to a cellular layout and keeping a single-unit transfer (see implementation in software developments, such as Agile).  There are many other suggestions, many directed at thinking about the creative process as a process and using different tools and measurements to improve it.  However, one just has to scroll to the end of the page and read the talkbacks to get a sense of the level of debate in this field regarding these “techniques”:

Yeah, lets process the hell out of everything, measure every little detail and increase efficiency. This isn’t the manufacturing sector, there are no assembly lines, we aren’t making widgets.”

The words “methodical” and “meticulously” scare me. They sound like micro-managing, robot jargon.

The resentment is well understood and in my opinion stems from not understanding the core of these ideas, as well as pure resistance to change.

Part of the idea of lean was to take the basic methods of Taylor, but involve the employee and the customer in the continuous improvement process. Furthermore, one of the key ideas behind lean is of tailoring – no tool or process fits all environments. Out of the list of steps the author brings the one about continuous improvements is probably the most important one:

Improve continuously. The process is not linear, and it is not close-ended. The process should include client feedback, brand reviews and 360-degree audits, all providing the foundation for continuous improvement.”

We have devoted already several posts to the notion of lean as frequent and gradual improvement, both for startups and mature organizations, both in the service and the manufacturing sectors. For a creative process, if you take one things from this article, this should be it.

Managing inventory via Tweets

By Gad Allon and Martin Lariviere, The Kellogg School of Management at Northwestern University. Source: The Operations Room.

Martin Lariviere

Gad Allon

How can a retailer take the pulse of demand?  Is looking at sales enough? You can’t sell what you don’t have so you may never know how many customers came into the store liked a style but couldn’t find their size. Lululemon thinks they have a found a way to do just that (Tweet to Lululemon: Smaller sizes, please, Jun 10, Globe and Mail).

Instant feedback on Facebook and Twitter is helping the chief executive officer of Lululemon Athletica Inc. to figure out what items are hot with customers, and which ones are duds. Comments through social media about the chain running out of women’s size 4s and 6s, for example, are helping her adjust her product purchasing to ensure she’s in stock of those sizes rather than forfeiting sales, as has happened in the past. Identifying the high-demand products to carry for her “guests,” as the company calls its customers, is crucial for the purveyor of premium athletic wear.

“We learn more about that on Facebook and through social media: what are the guests really screaming for and so we actually use [the feedback] to get a little bit more indication,” [CEO] Christine Day said. The running line “really shifted our guest size profile down to the smaller sizes because we’re attracting a more athletic, fit guest which is perfectly in line with our target.”

This is an interesting twist on using social media. Obviously a challenge is getting enough feedback from customers.  I have to admit that I have rarely affiliated with a brand on Twitter or Facebook (i.e., I am old) so I am not sure how many people are inclined to provide meaningful feedback to the firm.  On the other hand, these are presumably Lululemon’s hardcore clientele so they are worth listening too. A second challenge is whether the firm has the operational capability to respond. Yes, customers are looking for more size 6 gear but apparel lead times are long. Will it frustrate customers if their complaints are heard but they only see the evidence of that next season?

A final question, what if what customers want is not completely in synch with the firm’s strategy?

Still, part of Ms. Day’s strategy is something she calls a “scarcity model.” She doesn’t want the stores to carry too many size 4s and 6s, to keep customers coming back.

“If you like size 6 or 4 in one of the colourways or seasonal styles, it’s never our strategy to be fully at demand level there. So there will always be a certain amount of noise that we expect but that helps keep the product and the brand strong, which is also part of our strategy,” Ms. Day said.

Lululemon wants to be a premium brand and that doesn’t align with a fire sale clearance at the end of the season. Scarcity of is part of the plan; turning away some size 6 demand is inevitable. Is that consistent with trying to solicit feedback over Facebook?

The Golden Hour

By Gerard Cachon and Christian Terwiesch, The Wharton School at the University of Pennsylvania. Source: Matching Supply with Demand.

Christian Terwiesch

Gérard Cachon

Sirens and speeding ambulances are the symbols of emergency care. The basic idea is that the sooner we get seriously injured trauma patients to the hospital, the bigger the chance of their survival. The first 60 minutes after an accident are known as the “golden hour”. Getting the patient to the hospital in this golden hour is claimed to be critical. This is intuitive. But, unfortunately, this claim is not really supported by a whole lot of empirical data. In fact, the authors (who are ER physicians) of a recent Slate story discuss the statistical evidence supporting the myth of the golden hour. They discuss a recent study published in the Annals of Emergency Medicine that finds no support for the importance of extra speed.

But why then, are the ambulances driving so fast? From an operations management perspective, two explanations come to mind. First, the fact that an extra couple of minutes do not matter much in predicting patient survival rate does, of course, not imply that the driver can stop at the next Starbucks… Second, there might be an alternative explanation for the speeding ambulance. Let’s call it the NY cab driver syndrome: The faster you drive, the sooner you will be available for the next trip. After all, it is all about productivity.

Green buildings, LEED, and energy efficiency

By Anna Nargurney, Isenberg School of Management at the University of Massachusetts Amherst. Source: RENeW.

Dr. Anna Nagurney

Did you know that buildings consume 70% of the electricity used in the US? Although there has been clear progress in terms of making appliances more efficient, an enormous amount of energy is still wasted in buildings. Equipment may be left operating when it is not needed, air conditioners may be running full blast where there are no occupants, and mechanical and electrical infrastructure may become less efficient over time.

When one considers how much time humans spend in buildings it is imperative that research into sustainable buildings receives full consideration and support.

Alec Appelbaum has an excellent Op-Ed piece in The New York Times, “Don’t LEED Us Astray.” LEED, which stands for Leadership in Energy and Environmental Design, is a program which awards points for incorporating eco-friendly material and practices into buildings’ design and construction. It has brought great attention to environmental awareness from the buildings and construction sector, as well as from consumers.

The United States Green Building Council gives out the LEED certification, with the highest level being “platinum,” and such certification has now become the most-widely used green building measure in the US.

Appelbaum, in his article, notes that much more should and could be done regarding the LEED certifications, since they provide a snapshot of a building at a point in time. According to Appelbaum, and I concur: some certified buildings end up using much more energy than the evaluators predicted, because the buildings are more popular than expected or busy at different times than developers forecast, or because tenants ignore or misuse green features. The governmentshould institute regular audits or “check-ups” to ensure that the certified buildings are performing energy-wise, as certified. Those who perform well may get tax credits or even subsidies for outstanding performance.

I would argue that one needs to capture the entire life cycle of the building (clearly a challenging research and practical problem, but manageable). In order to do this, we need to develop green building supply chain design models. We have, recently, taken a step in this direction with our study, “Sustainable Supply Chain Network Design: A Multicriteria Perspective,” which is forthcoming in the International Journal of Sustainable Engineering.

Given how much time people spend in buildings and, hence, how important buildings are to our health and well-being, and that of the environment, we, as a nation, need to push the frontiers of energy research in this direction.