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Lean in Offices, Hospitals, Planes and Trains

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by Steve Corbett of Mckinsey shown at the 1st Lean Service Summit on 23rd June 2004 run by the Lean Enterprise Academy

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Lean in Offices, Hospitals, Planes and Trains

  1. 1. 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
  2. 2. 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
  3. 3. 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 1933 Sakichi’s son, Kiichiro Toyoda, leveraged the loom patent to establish theToyota Motor Company Lean applied to more than manufacturing © Copyright 2004 McKinsey & Company
  4. 4. 3Source: “Toyota Production System”, Taiichi Ohno, February 1988 Customer service 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
  5. 5. 4 Toyota’s approach has driven dramatic results Ranking by sales Million units sold Rank 1 2 3 4 5 6 7 8 9 10 Expected to be global market share leader by 2010 1950 1970 2002 GM 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 2002 GM 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
  6. 6. 5 Toyota is valued at more than its 4 closest competitors combined Market cap, March 2004 US $ Billions 27 24 135 14 42 GM Ford Toyota VW DaimlerChrysler © Copyright 2004 McKinsey & Company
  7. 7. 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
  8. 8. 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 restrictions around 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
  9. 9. 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
  10. 10. 9 Lean is equally effective in service environments Key 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
  11. 11. 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
  12. 12. 11 Why lean is important in offices Retail 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
  13. 13. 12 Lean’s impact Retail 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
  14. 14. 13 CREDIT UNDER- WRITING EXAMPLE Streamline physical flow … to “production”From convoluted… Denial PC PC PCPrinter PC PC Printer Fax Fax x x x x 3 regional queues x 3 2 Print report 1 Receive fax PC PC Printer Printer x x Order 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 Processors Receive 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
  15. 15. 14 Key factors for success Retail 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
  16. 16. 15 Why lean is important in retail stores Retail 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
  17. 17. 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
  18. 18. 17 Division of labour between distribution centre and store Retail 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
  19. 19. 18 Key factors for success Retail 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
  20. 20. 19 Why lean is important in hospitals Operating 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 and private hospital systems © Copyright 2004 McKinsey & Company
  21. 21. 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
  22. 22. 21 Planning makes the difference Operating theatre example From doctor scheduling Schedule 8:00 17:30 Actual 8:00 17:30 To data scheduling Schedule 8:00 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
  23. 23. 22 Key factors for success Operating 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
  24. 24. 23 Why lean is important in trains Train 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
  25. 25. 24 Lean’s impact Train 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
  26. 26. 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
  27. 27. 26 Key factors for success Train 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
  28. 28. 27 Why lean is important in airlines Airline 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
  29. 29. 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 Impact Substantial 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
  30. 30. 29 Focused process redesign and preparation Aircraft 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 Start Standardized path Wait Setup © Copyright 2004 McKinsey & Company
  31. 31. 30 Key factors for success Airline 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
  32. 32. 31 Lean is equally effective in service environments Key findings Lean tools work But you need to tailor your approach And that takes perspiration, not inspiration © Copyright 2004 McKinsey & Company
  33. 33. 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
  34. 34. 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

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