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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
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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
© Copyright 2004 McKinsey & Company
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
A 100-year evolution: From Jidoka to TPS – and beyond
From fabric to car manufacturing
Offices, hospitals, planes, and trains
Going further
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
25
Instability causes railroads to operate well above their lean capacity
2001 average
Stable technical limit
Yard A Yard B
2001 average
Stable technical limit
2001 average
Stable technical limit
16
9
2001 average
Stable technical limit
11
9.5
9
3
13
10
49
31.5
2001 average
Stable technical limit
Hours ACTUAL SHORT-LINE, CLOSED-CIRCUIT EXAMPLE
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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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
© Copyright 2004 McKinsey & Company
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
© Copyright 2004 McKinsey & Company
32
A 100-year evolution: From Jidoka to TPS – and beyond
From fabric to car manufacturing
Offices, hospitals, planes, and trains
Going further
© Copyright 2004 McKinsey & Company
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)
© Copyright 2004 McKinsey & Company