lean in offices, hospitals, planes and trains

Last Modified 04/06/2004 4:36:35 PM Eastern Standard Time

Applying Lean in Offices, Hospitals, Planes, and Trains

Presentation by Stephen Corbett

Lean Service Summit Amsterdam

June 24, 2004

© Copyright 2004 McKinsey & Company

1

A 100-year evolution: From Jidoka to TPS – and beyond

From fabric to car manufacturing

Offices, hospitals, planes, and trains

Going further


2

From loom to lean – an ongoing evolution

Taiichi Ohno built upon Sakichi’s & Kiichiro’s ideas to create the Toyota Production System (TPS)

1902 WWII 1950 1980 2000

TPS rolled out to Japanese suppliers

TPS goes international with foreign transplants

Bankruptcy

Sakichi Toyoda invented an automated loom that stopped immediately when threads broke

1933Sakichi’s son, Kiichiro Toyoda, leveraged the loom patent to establish theToyotaMotor Company

Lean applied to more than manufacturing


3Source: “Toyota Production System”, Taiichi Ohno, February 1988

Customerservice

Just-in-time

Continuous improvement

Jidoka

CostQuality

Employee satisfaction

Stability (process, people)Mutual trust between employees and management

The Toyota Production System codified

Lead Time


4

Toyota’s approach has driven dramatic results

Ranking by salesMillion units sold

Rank123456789

10

Expected to be global market share leader by 2010

1950 1970 2002GM GM GM (8.50)Ford Ford Ford (6.82)Chrysler Chrysler Toyota (6.17)Studebaker VW VW (4.99)Nash Fiat DaimlerChrysler (4.54)Kaiser-Frazer Toyota PSA Peugeot Citroën (3.27)Morris Nissan Hyundai (2.94)Hudson Renault Honda (2.82)Austin BL Nissan (2.74)Renault Peugeot Renault (2.40)Toyota

1950 1970 2002GM GM GM (8.50)Ford Ford Ford (6.82)Chrysler Chrysler Toyota (6.17)Studebaker VW VW (4.99)Nash Fiat DaimlerChrysler (4.54)Kaiser-Frazer Toyota PSA Peugeot Citroën (3.27)Morris Nissan Hyundai (2.94)Hudson Renault Honda (2.82)Austin BL Nissan (2.74)Renault Peugeot Renault (2.40)Toyota

Source: finance.yahoo.com; Automotive News; Compustat © Copyright 2004 McKinsey & Company

5

Toyota is valued at more than its 4 closest competitors combined

Market cap, March 2004US $ Billions

27

24

135

14

42

GM

Ford

Toyota

VW

DaimlerChrysler


Lean principles fight four enemies of efficiency

People barriers

• Insufficient support systems

• Inadequate skills• Lacking

organization support

• Limited authority

• Mindset• Information

systems• Workforce• Schedule• Production• Changeover

Inflexibility and non-responsivenessVariability

(time and quality)

• Machine• Man• Material• Environment• Demand• Process/method

Waste (non-value-added activities)

• Overproduction• Transportation/

handling• Inventory• Waiting• Overprocessing• Rework/repair• Motion• Intellect

6© Copyright 2004 McKinsey & Company

Know your enemies … in an automotive plant

People barriers

People not empowered to make key decisions alienates key players and adds extra process steps

Real or perceived restrictionsaround work rules prevent innovative solutions

Inflexibility and non-responsiveness

Variability

Unpredictable and inconsistent work demands – either day of the week or month of the year – complicate staffing and make service difficult

Waste

Moving a car from place to place(e.g., Japan to Europe or UK to France) adds no value and reduces responsiveness

7© Copyright 2004 McKinsey & Company

8




Going further


9

Lean is equally effective in service environmentsKey findings

Lean tools work• They generate substantial improvements across

different environments

But you need to tailor your approach• The levers and tools that unlock value across

environments differ, so you have to adjust your approach

And that takes perspiration, not inspiration• Tailoring solutions is more about leveraging the

organization’s institutional knowledge than developing the solution in advance


10

Lean is often equated with layoffs – but this is not necessarily so

50

60

70

80

90

100

110

4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Current head count level minus 10% attrition

Projected administrative staff needs

Number of administrative staff

0

Two factors typically alleviate the staffing challenge• Sales increase as cost and service improvements are achieved• Attrition rates remain constant or increase as the nature of the work does not change


11

Why lean is important in officesRetail banking example

• Retail banking’s consolidation has achieved structural and scale advantages – but significantly disrupted the customer base

• Improving operating efficiency creates superior results without harming service


12

Lean’s impactRetail banking example

Bank’s overall objective

Reduce costs by $10 million across• Loan processing• Branch operations• Cash vault• ATM processing

Approach

• Develop current and future state visions for key areas

• Leverage front-line employees that know the business’s nuts and bolts

• Apply lean manufacturing toolkit to generate solutions– Reduce handoffs in loan

processing– Make branch operations more

visual– Optimize cash logistics

Impact

Approximately $10 million in ongoing savings• 43% improvement in

item processing• 65% increase in deposit

productivity• Every deposit

adjustment reviewed the same day vs. 32% previously


13

CREDIT UNDER-WRITING EXAMPLE

Streamline physical flow

… to “production”From convoluted…

Denial

PC

PC

PCPrinter PC

PC

Printer

Fax Fax

x x xx

3 regional queues

x

3

2 Print report

1 Receive fax

PC

PC

Printer Printer

x xOrder

x

4

x

x

x

Fax

PC

4 & 7

60 paces

30 paces

PC

6 Receive documents from vendors

8 Mail back to branches

5 Order documents for equity second decision

Fax

4&7

5&6&8

1

PC PC

Printer

ProcessorsReceive fax

X

X

X

X

X X

Phone underwriting

10 paces

Order/receive documents; mail back to branches

Single queue

Printer

2 Print report

3


14

Key factors for successRetail banking example

• Use hands-on activities to generate support and understanding

• Get leaders on the floor so they really understand issues

• Use pilots to iterate on solutions and then roll out across the organization

• Pick two areas to focus on with talented team, then leverage the team’s members to improve other areas


15

Why lean is important in retail storesRetail distribution example

• A more intuitive layout enabling customers to quickly find what they want with minimal assistance increases sales

• Eliminating challenging activities greatly improves employee retention, reducing training costs and improving customer service

• Implementing a more efficient receiving and stocking process allows labour to be redirected to sales activities


16

Lean’s impact Retail distribution example

Retail chain’s objectives

• Improve customer experience by streamlining sales floor

• Decrease receiving time

• Improve employee morale

Approach Impact at 6 months

Receiving• Load trucks at DC in store-friendly

format for orderly and efficient put away

Sorting repack items• Ship similar SKUs in coded bins to

eliminate the need for re-sorting

Putting away• Have small items go to sales floor

first (vs. large box items that clutter the sales floor)

$45 million in total savings (155 of total base)

• 10% drop in truck receiving hours

• Repack sorting eliminated

• Greatly improved store layout

• Vastly improved employee satisfaction


17

Division of labour between distribution centre and storeRetail distribution example

50

50

100

Distribution centre

Store Total

38

52

90

Distribution centre

Store Total

Total cost reduced but DC

cost was increased

ILLUSTRATIVE


18

Key factors for successRetail distribution example

• Think of the process as a vendor-to-customer value stream not by functional areas

• Shift costs between functions (DC shipping vs. store receiving) to minimize overall spend

• Get front line to believe in changes to assure continued adoption


19

Why lean is important in hospitalsOperating theatre example

• The demand for operating theatre hours is expected to grow at 9% CAGR over the next 3 years, increasing pressure on an already constrained resource

• Restricted operating theatre availability damages service quality and staff morale

• Cost of new operating capacity is prohibitive in both public andprivate hospital systems


20

Lean’s impact Operating theatre example

Hospital’s objectives Approach Impact

• Boost operating theatre capacity by 10% in 1 year

• Increase patient and staff satisfaction

Move to historical-based scheduling

Improve pre-op• Standardize anaesthetic

evaluation• Ensure chart completion

Improve intra-op• Implement and enforce

start time matrix• Create equipment buffer

• 61% improvement in cases starting on time

• 22% drop in elective cases running after 17:30

• 4% increase in theatre operating time


21

Planning makes the differenceOperating theatre example

From doctor scheduling

Schedule8:00 17:30

Actual8:00 17:30

To data scheduling

Schedule8:00 17:30

Wait

1 2 3 4 5 1 2 3 45

Actual

8:00 17:30

1 2 3 4 1 2 3 45


22

Key factors for successOperating theatre example

• Remove doctors’ discretion to improve scheduling accuracy

• Focus on the simple things (e.g., data on the chart, availability of inexpensive equipment) to improve entire process

• Demonstrate results to generate support for changes from medical professionals


23

Why lean is important in trainsTrain yard operations example

Lean offers an opportunity to

• Reposition the industry by improving service and reducing costs

• Capture volume from trucking and competitors

• Change the economics of a somewhat forgotten industry


24

Lean’s impactTrain yard operations example

Railway’s objective• Reduce overall costs

by $10 million, focused on–Yard throughput–Yard work

allocation–Third-party

management• Customers • Vendors

Approach• Leverage the yard’s overall

equipment efficiency (OEE) to identify and prioritize opportunities

• Optimize the yard’s layout• Staff by time of day and

skills needed • Optimize the frequency of

pick-up/delivery to improve car inventory management

Impact$12 million –18 million in ongoing savings• 34% reduction in

train operators• 43% reduction in

locomotives• 27% reduction in

maintenance hours• 22% reduction in

number of cars


25

Instability causes railroads to operate well above their lean capacity

2001 average

Stable technical limit

Yard A Yard B

2001 average


2001 average


16

9

2001 average


11

9.5

9

3

13

10

49

31.5

2001 average


Hours ACTUAL SHORT-LINE, CLOSED-CIRCUIT EXAMPLE


26

Key factors for successTrain yard operations example

• Recognize that constant activity can conceal substantial opportunities

• Change perspective on flexible staffing as many people find flexibility attractive

• Optimize costs by increasing the frequency of pick-up/delivery

–Labour resources can be more evenly distributed

–Equipment (locomotives and cars) can be more effectively allocated


27

Why lean is important in airlinesAirline maintenance example

• Improving maintenance turnaround time can reduce the number of airframes an airline needs to own

• A major airline with established depots can create a new business opportunity (additional revenue stream) doing maintenance for other airlines


28

Lean’s impact Airline maintenance example

Airline’s objectives• Improve cost of

maintaining airframes

• Increase availability of airframes by reducing turnaround time

Approach• Sequence jobs and monitor

performance• Structure work preparation

– tools, materials, and equipment

• Create a new position of “feeder” to get parts and tool requirements

ImpactSubstantial improvement in cost and availability• 33-60% reduction

in labour hours• 40% reduction in

turnaround time• Non-routine task

times reduced


29

Focused process redesign and preparationAircraft maintenance procedures: line maintenance inspection

757 EXAMPLE

From To

• Follow steps in documentation• Overall sequence not optimized• Prep work/setup as part of task

• Overall sequence defined and allocated • Setup/prep may be done ahead to fill

allocated time• Increased productivity, reduced wait time

StartStandardized path

Wait

Setup


30

Key factors for successAirline maintenance example

• Recognize cost and reliability are independant

• Ensure work preparation is conducted in a rigorous and routine manner

• Eliminate workers’ frustrations to gain very high buy-in


31

Lean is equally effective in service environmentsKey findings

Lean tools work

But you need to tailor your approach

And that takes perspiration, not inspiration


32




Going further


33

Basic workplan

Assess platform Change process Roll out

Phase 1 Phase 2 Phase 3

Timing 2-3 weeks 6-8 weeks 2-3 weeks

Major activities

• Define core processes from the customer’s perspective

• Identify which process could be effectively differentiated and what differentiation might mean

• Conduct a detailed diagnostic in the chosen location

• Conduct structured problem-solving sessions

• Define and launch pilot improvement efforts

• Tailor rollout to other locations

• Conduct working session(s) to tailor the approach to remaining processes

• Design the approach for refining the service platform as the strategy matures (e.g., greater emphasis on market segments)


lean in offices, hospitals, planes and trains

Education

hudson renault

studebaker

morris nissan

austin bl

stable technical

renault peugeot

service environmentskey

nash fiat