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.

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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.

3 Reasons the General Public Doesn’t Think Healthcare Can Improve

Mark Graban

Lean thinkers see the waste in healthcare when they are at the hospital “gemba“. I think this is true whether you are a Lean person who is new to healthcare or if you’re a long-time hospital person who has learned Lean. Experts (doctors) ranging from John Toussaint to Patricia Gabow to Don Berwick all estimate that between 30 to 50% of healthcare spending is waste.

It seems that, often, when you take this sort of discussion to the general public, people react emotionally as if “reducing waste” equates to not providing people the care they deserve – they think Lean healthcare is about taking away, instead of reducing cost and improving quality. I think this happens even outside of charged political circles. Why is that? I have a theory.

Some of the common waste is described in this article about a new Master’s Degree program at Dartmouth:

Disney knows precisely how to gauge the wait for rides at its theme parks.

Major airlines know how to maintain near-perfect safety records on their aircraft.

But hospitals? Most don’t know how to avoid making patients wait — some just build bigger waiting rooms.

Medical centers spend increasing amounts of money on patients, but don’t necessarily deliver better care.

And estimates suggest that each year in the United States there are 15 million incidents of medical harm, some of which result in injury or death.

Now, a new master’s degree program at Dartmouth College is intended to bring more of the business of safety, cost-effectiveness, and efficiency into medicine

My theory is that the general public puts a lot of faith in our healthcare system – blame TV or the movies, I guess. Would they think that a program like Dartmouth’s is even needed?

I think people find it hard to believe the 30 to 50% waste estimates because they assume healthcare is fundamentally pretty perfect, or that it should be.

It breaks down into three categories… because we have the following, we should already have perfect waste-free healthcare delivery:

  1. We have highly trained, motivated people who care a great deal about patients
  2. We have relatively new, modern hospital buildings
  3. We have amazing healthcare technology (equipment, software, and medical knowledge)

So what could go wrong, given those three things? Yet, Lean thinkers know the overall system just doesn’t work. I think it’s hard for the general public to see that 1+2+3 = a lot of waste when they would likely assume 1+2+3 = awesome.

So when errors occur, the general public wants to blame and punish individuals – assuming they must be bad people working in an awesome system. When cost is high, people want to blame the greedy or the incompetent. People don’t tend to look at the overall system, they wouldn’t expect the problem is bad processes, not bad people. The general public assumes quality is good, when the data show otherwise.

It’s safe to say there are indeed a lot of great things about modern healthcare (see 1, 2, and 3, above). But we don’t get the high quality and patient safety we deserve and we, in America, certainly spend way more than we have to — and this high spending is partly due to waste, not due to 1, 2, and 3.

Do you think the public shares that perspective that I described above? Does that common (and arguably incorrect) view get in the way of the public calling for real systemic improvement that reduces cost and improves quality/safety? If so, how can we change that perception that 1+2+3 automatically equals awesome?

Selling restaurant reservations at a discount

Martin Lariviere

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

A few weeks ago I wrote about how Groupon promotions can create operational headaches for participating service providers. In short Groupon coupons drive traffic but service providers can be easily overwhelmed, making it hard for new and current customers to make appointments for service. Now the New York Times reports on VillageVines, an alternative site that provides local promotion support (Pay Full Price for a Meal? That’s So Yesterday, Sep 8).

Like Groupon, VillageVines makes deals available on-line for registered uders. However, there are important differences. First, VillageVines specializes in restaurants as opposed to covering the waterfront from apparel boutiques to salons. Second, they don’t sell coupons but reservations.

With VillageVines, registered users get a daily e-mail and pay $10 for a reservation, which they book through the site or through MenuPages.com, thanks to a new partnership. They get a discount, usually 30 percent off their bill.

The distinction between coupons and reservations may seem trivial but it actually makes a real difference. For customers, there is no need to print and remember to carry the coupon. The discount is in the firm’s reservation system and should be taken automatically. Certainly, a classier way to handle getting a discount when on a first date.

The bigger issue is how this solves problems for the restaurant. Because customers are buying reservations they have to pick a date and time before they fork over their $10. Consequently, the firm can shape the demand they get by limiting the number of reservations they give out and specifying when the discounts can be used. If the existing customer base does not fill up the house on Tuesday evening, that’s when you offer reservations on VillageVines. Further, customers know what they are buying. This scheme eliminates customers buying a discount only to find they can’t get an appointment for two months.

So this is a very clever solution to the issues that have arisen with Groupon. Of course, from the member’s perspective it doesn’t replace Groupon. Here you only get restaurants so if you are more interested in apparel shops it doesn’t do much for you. The question is whether this format can be easily carried over to other settings. I am not sure that it can. This works for restaurants because on-line reservation systems exist on a common platform and are integrated with other restaurant systems. There is no such standard approach for other local services — even those that commonly use appointments. Part of that is because people don’t generally shop around for dentists and barbers the same way. People generally like variety in eating so there is a benefit to having one site that allows access to a variety of firms. On the other hand, most  customers are happy to deal with one dentist and one barber once they identify a good alternative.  I don’t see what a hair salon gains from putting its appointment book on a common platform with other salons. Without  that common platform, this becomes a difficult system to implement.

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.

It’s All About Transportation

Dr. Anna Nagurney

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

The media has had extensive coverage of transportation news and research, which is very gratifying (and which is getting me really psyched to teach my Transportation & Logistics class).

News about Professor Arnie Barnett’s study, “Cross-National Differences in Aviation Safety Records,” which appears in the August issue of the INFORMS journal Transportation Science, has now gone viral with articles on it from The Washington Post to The Sydney Morning Herald, with the latter with the attention-grabbing headline of “Your Chances of Dying in a Plane Crash? It Depends Upon Where You Fly.”

As those of us who have had the privilege of interacting with Professor Barnett of MIT’s Sloan School of Management know, Professor Barnett has a fear of flying. We hosted Professor Barnett in our Speaker Series several Falls ago and he was fantastic! Coincidentally, as a frequent flier, this summer, I was trolling the Internet for safety stats on several airlines since I had a heavy travel schedule for speaking engagements that took me to South America and Eastern Europe. My intuition told me to be careful in deciding which airlines (and which routes) to fly and now Barnett’s paper confirms that caution should, indeed, be taken.

Plus, who could have missed the news about the South Korean female, Ms. Cha, a 69-year-old widow with four children, who on her 950th attempt passed her written driver’s test and then on her 10th attempt received her driver’s license! She has been lauded as a national hero for her determination and for never giving up. She actually said that she enjoyed taking busses to her driver’s ed classes since she had only a minimal elementary school education and minimal literacy and craved learning! Her goal was to be able to get a license so that she could take her grandchildren to the zoo.

As for another transportation news story, Michael Grynbaum, writing in The New York Times, has further coverage on the closure of Broadway in NYC, as well as on the history of the design on the street grid dating back to the early 1800s! My most recent paper, just published in Europhysics Letters, was on the related topic of network topology, traffic, the Braess paradox, and the wisdom of crowds.

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.