Why Lean is Occasionally UNHEALTHY

Derived from studies of the Toyota Production System, the concept of Lean has been credited with universal applicability across all sectors from manufacturing to service, and in public and private sectors. Since 2001, Lean has progressively been adopted by healthcare organisations in various ways, for various reasons and to various degrees of success. Despite the promise of Lean to enhance quality of products and services through the elimination of non-value-adding activity, and thereby a reduction of overall cost, many organisations who attempt to adopt Lean, fail to successfully implement and subsequently fail to sustain Lean practices across the organisation.

In healthcare, many reasons for implementation failure exist, from an expectation that Lean will ‘plug the financial gap’ to a lack of engagement from middle managers… ‘A manager’s focus is compliance’ ‘are we hitting our targets; are we doing what is expected of us?’, and resistance from clinical professionals: ‘we’re not Toyota and we don’t make cars’ and ‘we’ve been doing this for years, if there was a better way don’t you think we would have done it by now?’

A few healthcare organisations have been successful at implementing Lean across the organisation and even reaching beyond the organisational boundaries to primary and tertiary services. Sustainability, however, appears vulnerable to shifts in the political and financial context. My recent research (2016) reveals how sudden changes in the political and/or financial context of healthcare organisations can quickly derail even the most prolific of Lean implementations. So, how can organisations adopting Lean sustain implementation and mitigate the effects of a fast moving political and fiscal context?

At a more micro level, the power base of professional workers remains a crucial factor in the adoption of new management practice and the implementation of new ways of working. The capacity of professionals to influence the fate of implementing change programmes per se is significant and presents an important area for research. Research is needed to understand how we might mitigate such barriers to Lean implementation and sustainability of Lean within professional contexts to realise an organisation-wide service improvement effect.

So you want to work in Operations and Supply Chain Management?

Well, it’s the start of a new academic year. A new cohort of Undergrads arriving at WBS and all must read OM as a core subject. Many, unfortunately, do not ‘get’ (or want to get) Ops, but some do. In conversations we have with alumni and through our work, the topic of talent in O&SCM often comes up as an area that firms struggle with. As O&SCM academics we always knew that it was a REALLY important area, it appears that the wider business community has woken up. So, what would we recommend to employers and potential employees as the key ingredients for a successful O&SC manager?

1. Deal with both hard and soft data

O&SCM is about two things. Understanding how to fulfil customers effectively and understanding what you should and should not do and how to do them. Some data are hard. Customer demand volumes, volatility, prices. Other data are soft, especially in SCM where relationships with suppliers can be critical. Other data are uncomfortably grey. You think you understand costs but all you have is price data not costs. That’s a bunch of different types of data that need to be dealt with and the best managers understand the different types, how they can be used and how much faith can be placed in them.

2. See the big picture

This is both vertical and horizontal. Vertically, good Ops Managers need to deal with the functions that ‘surround’ operations (typically sales and procurement) and reconcile the inevitable tensions to effectively fulfil customer demand. Horizontally, it is about understanding how what you do at the operational level affects the organisation. For example, how much inventory? Too much stymies cash flow, too little can expose your operation – and customer – to non-delivery. Decisions taken at the operational level impact the firm. Good managers understand why it does and what needs to be done.

3. Understand uncertainty and complexity

Operations and supply chains are inherently unstable and complex. How big is the supply base? What is the demand and supply volatility? Can this uncertainty ever be mitigated or does it have to accepted? Being able to understand this complexity and the interdependence will allow better decisions to be made. For example, if you have an unseasonably warm October (uncertainty!) and there are no summer fashions in store, how do you get your Eastern European supply base to change it’s schedule and deliver in a short time frame without affecting other deliveries (complexity!)? This leads me onto the next thing.

4. Prioritization

Ops and Supply Chains are dynamic. There is volatility at both a customer, supplier and resource level. Customers can increase or decrease orders on a whim, a supplier can go bankrupt or supplies don’t turn up (or are wrong when they get there), and resources, both human and equipment don’t always behave in the way you expect. All of this means that if you want to work in Ops and Supply Chain you need to be able to prioritise and reprioritise (and reprioritise again) to deal with the uncertainty and complexity.

5. Seek a ‘global’ rather than local solution

Too many times we see functions that place the emphasis on the function. This can lead to dysfunctional behaviours and dissatisfied customers. Occasionally the Ops and Supply Chain function(s) may need to keep a hit to keep customers happy (your 3PL will love you for all of those expedited orders). But this means that nearly everyone is happy(ish).

6. Cope with responsibility without power

More often than not, people within Ops and Supply Chains have lots of responsibility. Most firms spend over 75% of COGS on ‘supplies’ and Ops is what allows organisations to create ‘stuff’. So, important right? But, more often than not, this responsibility comes without power. Most firms have COO’s, many firm’s have CPO’s, but that’s a limited amount of power for all that responsibility. Especially given the impact that Ops and Supply Chain plays on the financial performance of an organisation and customer satisfaction. So accept it, and deal with it. Power comers with expertise, not role.

7. A deep understanding and passion about O&SCM

So few of our students want to work in Ops and Supply Chain. But lots of them want to go into Management Consulting. The majority want to go into Banking but Investment Banks from our understanding overwhelmingly hire highly numerate grads (Maths and Physics mainly). Part of this is that Ops is viewed – or possibly we teach it – as a very factory or process centric subject. Part of this is is that it doesn’t seem particularly cool. I would argue that if you want to go into Consulting, understanding about process design and objectives, standardisation and effectiveness, in addition to improving customer satisfaction are ALL critical. This is understanding that O&SCM is a vital area for all organisations. In addition, if you are going to be doing it, and living with it, you need to be passionate about it. You need to be fall in love with it again and again, even when you have a bad day.

8. Deliver from day one

Seems pretty logical right? Ops and Supply Chain Management is about effectively fulfilling customers (both internal and external), so if you are going to work in it you need to be able to deliver. And this needs to be from the start. I also suggest that this needs to be done consistently and pro-actively without starting any fires. Consistency is key…

9. Taking a long view

This is slightly paradoxical given that I have stressed how much of O&SCM is dynamic and complex. But, improvement takes time. More often than not many years. So, deal with the day-to-day but also never lose focus of how long real change takes. One of my favourite anecdotes is that it took Toyota decades to perfect and embed Lean. Why do we expect to be able to do it inside 12 months? By taking a long view you can deal with this.

10. Build relationships

This is the glue that holds everything together. And, these relationships need to be both internal and external. Relationships allow you to understand uncertainty within the customer and supply base, and allow you to create the global solution within a firm. Without them you have limited information, limited knowledge and no goodwill. People who want to work in O&SCM need good interpersonal skills in order to build lasting, strong relationships.

 

 

Standardization across the automotive sector: too much of a ‘good’ thing?

One of the ways in which OM is used in practice is to drive standardization in sub-systems and components. These are, more often than not, procured from suppliers as it has been estimated that in excess of 70% of the cost of a product is outside the OEM. Through the standardization of components, efficiency and economies of scale can be achieved that can (in theory), drive the profitability of an organization significantly. Great. But, what if it goes wrong?

Could recent large-scale automotive product recalls signify that we currently have too much of a ‘good’ thing? The automotive sector is an industry where component and platform sharing is prevalent, leading to the potential for a single component failure to necessitate a recall on a massive scale, as the component will be shared across a lot of models. Toyota in particular In September 2014, Toyota announced the recall of 690,000 Tacoma pickup trucks in the US because of a potential vulnerability in the vehicles’ suspension systems and in October another 1.75 million cars have been recalled linked to brake systems and potential fuel leaks. General Motors has reportedly recalled more than 30 million cars so far in 2014 alone. Whilst some argue that the current trend to recall large quantities of vehicles has helped auto-manufacturers stay in touch with the customer, showcase their superior customer service and (hopefully) entice customers to invest in the beautiful shiny new model that happens to be on display as the customer returns their car for ‘repair’, we might also ponder the not insignificant costs that must be attached to the recall process.

Standardization can significantly reduce the cost of producing vehicles, however, like all good things, we need to balance our desire to reduce costs with our need to ensure quality. Where supply chains are concerned, the predominance of a cost reduction strategy can escalate to the point that quality becomes overlooked. Consider these two core points:

  1. Cost based procurement creates fragility

Standardization of sub-systems and components allows purchasing to drive volume breaks and also creates competition between suppliers to offer the best price. These are then negotiated down. This creates two potential areas of fragility. The first of which is that the firm has created enormous exposure to risk by putting all it’s eggs in one basket. The second is that a supplier is really not going to take further short-cuts in order to eke out some profit from what was already probably a razor thin margin?

  1. Cost based procurement affects the wider system

There is the argument that the 2010 recalls that Toyota issued – and put forward by Akio Toyoda, the CEO of the firm – were due to them pursuing growth that was not sustainable according to the Toyota Production System (TPS). TPS (and Lean) is a socio-technical system; it’s people that implement processes and people need to learn. This takes time. When rapid growth is pursued, systems can be implemented but humans will take time to learn them and create other the implicit systems that allow Operations and Supply Chains to work. Thus, fragility in the system was created leading to recalls as systems were treated as technical whilst ignoring the social aspect of them.

OM prescriptions

So, what can be done to make organizations less exposed to recalls? We have three short prescriptions:

  • Don’t put all your eggs in one basket. Whilst dual sourcing can increase transaction costs (i.e. what it costs to complete the transactions) as a firm is essentially doubling up resources, it spreads risk. If the material and design of the sub-system or component is solid, then process failure is generally the root cause of a recall. Lightning is unlikely to strike twice.
  • Allow suppliers to make a profit. A slightly more expensive supplier with goodwill is likely to be less of a headache than a cheaper, disgruntled one. Disgruntled suppliers are costly, but because organizations tend not to have any understanding whatsoever of transaction costs (too difficult to measure), then piece part price is used to represent cost. Goodwill will allow some transparency into what is actually going on. After all, you’d rather have a thriving supply base than one on life support.
  • Consider the speed at which the system works and remember it’s technical AND social. Too often we consider TPS and Lean as just a tool-set but it took Toyota many decades to implement. That’s because they did it right and considered it as wide-scale cultural change. When firms become more reliant on supply chains (and 99.99% of firms are), then this wider system needs to learn the system. So that’s even wider-scale change then. The additional advantage is that treating the supply chain as a socio-technical network creates informal knowledge exchange (remember that?) allowing information to flow that can allow early problems to be recognized. In theory, recalls shouldn’t be as frequent because they would have been identified far earlier.

Too much of a good thing really can be a good thing. But only when done well.

How NOT to design a service satisfaction survey

A follow on from my experience with the service network that fixed my MLC (remember that?). When I picked my car up I was asked to fill out a short survey on how my customer experience was. The questions – and my thoughts about them – went something like this:

1. How was your customer experience today? Today it was great. I got my car back, it worked, and I hadn’t had to pay any money. However, the total experience was less than great.

2. How was your service advisor today? As before. Marvellous. He had told me I could get the MLC back early, had checked out another possible fault and got a price on some new tyres for me. But remember… Services are delivered by more than one party. Let’s figure out how they ALL performed…

3. How would you rate us for value for money? It was free, gratis, I paid nothing. But why there was no option to say that this was warranty work on the form?

I also noticed that the scales were colour coded. Bright, solid green for very good, solid red for very bad. Surely human nature draws us to respond in the positive? The survey was also filled-in in front of the service advisor. Surely, off-line provides a better response? So, what can be done to improve the reliability of these surveys? Here’s a few suggestions:

1. Focus on the TOTAL experience, otherwise people will break it down into times and the full picture won’t be revealed.

2. Acknowledge that there’s a network, find out who the customer came into contact with, and how each of them rated. This was a dealer survey but surely Premium German Car Maker would be interested in how THEIR service network is performing?

3. Remove ambiguity. Let the customer say if it’s a warranty claim or their own hard earned cash that they have parted with. Surely whether someone pays or not will absolutely influence their perspective?

4. Minimise bias. Don’t colour code things and don’t get people to fill these things in live. It absolutely creates bias, but try to get the form filled-in in a way that creates opportunities for improvement. I am not precisely sure how to do this but it does not involve an opportunity to win an iPad…

I’m not anti-survey, I’m anti bad survey. They should be designed so that action can be taken where performance is sub-standard and without this design, an opportunity for improvement can be missed.

Is my wife fulfilled?

by Nigel Pye

Let me tell you a little about my sainted wife.  In addition to being a domestic goddess, she spends a lot of her time training for triathlons, being walked by the dogs, or generally doing important stuff out and about.  How she used to find the time to hold down a full-time job I’ll never know.   To optimize her time, most of her non-food shopping is done on-line.  She will take care in surveying the purveyors of goods,  She will form her opinion of who she should buy from based on many factors:

  • Price;
  • Delivery costs;
  • Availability;
  • The look and feel of the web site;
  • When the site was last updated;
  • Which credit cards do they take;
  • Can she use PayPal etc.

Having carried out this survey my wife then commits to buy.  At this point the firm operating the web site have been rewarded for all their hard efforts in addressing her list of bullet points. It would be reasonable to assume that this site will be bookmarked and may now be one of her first points of call when she comes to buy a similar item, but not necessarily so!  It is at this point, as the picker is dispatched in the warehouse to find my wife’s item, that the firm jeopardizes their potential for getting return business from the Pye household.

You will not have failed to notice the plethora of courier and delivery vans that ply their trade on our roads these days.  Given the number of times I have been stuck behind such vans, were I to own such a firm, I would consider putting my rival’s logo on the back, hoping to put-off the annoyed queue of drivers behind me from using their services.  But I  digress … Dr Pye next receives an email acknowledging her order and then the firm chooses (or more likely has pre-chosen) a company to fulfil their promise.  A second e-mail, or perhaps text message arrives giving my wife a tracking number.  This is usually linked to the web site of a courier firm and allows her to follow the journey of her much anticipated item(s).  It is at this point that the selling firm’s fate is sealed regarding repeat business.  To save litigation let’s just say that if the selling company has chosen Firm A, they are in with a strong chance of another order.  If they have chosen Firm B there’s a possibility, but if they have chosen Firm C, they need to have exceptionally good deals to have any hope of repeat business.

You see, the link from Firm A provides a one hour slot for delivery and a link to a GPS track and trace that shows where the delivery van is and how many deliveries need to be made before they turn up Chez Pye.  This allows Dr Pye to know if she can fit in a training ride, run, or walk the dogs, or any of the other things that take up her busy day. Visibility makes Dr. Pye happy.  Firm B provides a four hour slot, usually 8AM-12PM or 12PM-4PM.  This too can be deemed acceptable, not as good as Firm A, but acceptable.  Firm C simply say that her item will be delivered between 8AM and 8PM on a given day.  This is unacceptable, to the particular customer we are discussing (and, I would suggest, most other customers), as no external activities can be planned to take place that day, it may be that you can’t even do the gardening for fear of missing the 10 second pause between the driver pressing the door bell and driving away.  The selling firm that choses Firm C will be getting no more business from us.

As has been pointed out on other posts on this Blog, it is the whole supply chain that delivers customer value, and through a particular choice of fulfillment partner, a firm may have saved pennies from their delivery costs, but they have dented their reputation, probably lost repeat business and possibly the business of Dr Pye’s friends, since in addition to sharing information on retailers’ prices and offerings her circle are now sharing which sellers use which fulfillment partners to deliver the goods.  It is unfortunate that some of the big players in the market are not consistent in their choice of delivery partner and so we could play the game of delivery lottery, but given the brief time that it takes to compare prices, the Pye household will pay slightly more for the goods knowing that they will be delivered by Firm A, rather than get a cheaper price that may be fulfilled by Firm C.  After all what is an extra pound compared to the opportunity cost of a whole day spent ‘productively’ at home?

Service Networks and my Mid-Life Crisis…

Let’s get one thing clarified first. My Mid-Life Crisis (I’ll shorten this to MLC) is a thing and not an emotional or psychological condition. As I was turning 40 I decided to do the sensible thing and buy a bright red sports car. This is my MLC. The MLC was ‘pre-loved’ (academics aren’t that well paid) from a premium German manufacturer (I am protecting the names of the other parties here) and as I didn’t want to be landed with some unexpected, massive bill later on, I took out an extended warranty.

Last weekend the MLC began to emit a noise that sounded expensive and then another expensive looking light appeared on the dash as I drove home (they really should be flashing pound signs rather that icons that allegedly look like engines). I phoned the dealer and asked for it to be booked in to be looked at (and hopefully repaired under warranty). They booked me in for the following day but asked me to ring the roadside assistance number that came as part of the warranty as they did not want the car to be driven. That’s one hand off from the dealer to a third party…

I called the assistance number and they offer me a specific technician for the MLC but between 7-9AM the next day as they have no available technicians. I politely declined and decided to take it to the dealer at the allotted time the next day. The assistance company then called me to say they have found a specific technician who turned up at the allotted time (about 2 hours after calling), plugged the MLC into a computer, diagnosed the fault, said it’s safe to drive and that he cannot fix it and I should take it to the dealer. He also kindly notified his organisation that I might need a courtesy car.

I took my MLC to the dealer on the following morning where I was greeted by a happy chap who directed me to take a seat and I then see ‘my’ service advisor (a further hand-over). The advisor was very polite and informed me that it should be covered under the warranty (great!), but I could not have a courtesy car for two weeks as they normally have 15 of them but 5 have been crashed (not so great). He also informed me that if the repair is over £500 then he needed approval from the warranty firm for the repairs (not good, more waiting). The car should be fixed by noon of the following day and after signing a bit of paper and handing over the keys I headed to work.

Some time later, ensconced in the Ivory Towers of WBS, I received a call from the manufacturer’s courtesy vehicles provider to make me aware that I could have a car and to let them know if and when I wanted it (yet another handover). The interesting fact about this is that his call was prompted not by the dealer, but by the repairman logging it on the previous night. I then received a sequence of calls from ‘my’ service advisor keeping me updated (they identified two faults but there was really only one and they had to seek approval from the warranty provider to carry out the repair), and my MLC was now fit to drive again. So, all’s well that ends well right? Not quite…

Let’s consider the number of party’s I interacted with. 1) The nice lady at the dealer, 2) The nice lady at the automotive assistance place, 3) The repairman, 4) My service advisor, 5) The courtesy vehicle provider, and 6) (indirectly) the warranty provider. That’s a whole sequence of potential break points in the service. Also, if I had needed a car (but remember I was told I could not have one for two weeks?) to get around and couldn’t do it that would have seriously affected my view of the premium German brand. So what can we take away from this?

Organisations must consider that services are delivered in networks. Networks have break points and that failure of ANY of these points leads to me – or you, or your customers – having a negative view of said firms products or services. This could lead me to take my business else where. So, how can organisations get round this? First, make sure that using the service appears simple. As a customer I had clear visibility of a major part of the service network. I didn’t need (or want) this and it probably increased my frustration. Second, take ownership of the network. This does not mean in-sourcing it, but it does mean maintaining a consistent experience throughout. After all, if it does go wrong, people can go elsewhere…

 

Why can’t we all just get along? Creating the conditions for (non) collaboration

I went to lunch this week with a former CPO from a large industrial firm and a purchasing director from an automotive firm. Over lunch I was asked the question: “why do we find collaboration so difficult in supply chains?” My response was that there are a number of reasons behind this and nearly all of them can be addressed. I believe the reasons that apply to collaboration between firms also apply to collaboration within the firm, so, in no particular order:

1) Mutuality. Collaboration is mutual and has common goals. I have often heard a firm use the term ‘strategic partner’ then fail to apply strategic thinking (“we’ll put you on the approved supplier list”) or partnership behaviour (“can we see your accounts”). Collaboration has to be about both sides putting something in, to both get something out. It requires common, agreed upon (i.e. mutual) goals. After all, you both have to have skin in the game.

2) Intent. You must have intent to do it. Collaboration is about adaptation between partners, it’s about joint working. While there can be lots of intentions towards doing it, one party has to move first otherwise we end up with this:

Soldiers

3) Social bonds. Good collaboration needs lots of rich information sharing and deep social bonds. This can be achieved by putting people into cross-functional teams, co-locating staff in a supplier or customer, or structuring working spaces to encourage social connections. One European car manufacturer structures its design offices in a ‘hub and spoke’ where the design teams work in the spokes and the hub contained shared services (photocopiers, coffee, water etc.). People mingle in the hub, informal information flows, collaboration occurs and (hopefully) better design occurs. If it’s not possible to create these interactions structurally, for example your customer or supplier is eight time zones away, then social bonds must be created differently. Frequent visits is one way to do this but the relationship needs to be kept ‘live’ in between visits so pick the phone up and ask them how they are, share information and knowledge to demonstrate your goodwill and intent.

4) Incentivisation. In a previous post I discussed the need for metrics and incentives to be aligned to what the organization wished to achieve. Well, the same thing holds here. If collaboration is to be nurtured, then incentive mechanisms need to be established that foster a win-win environment. They need to be jointly agreed and adhered to. It’s no good looking for “price down”, when the resources of your collaborator are complementary and are tricky to substitute. After all. Collaboration is about leveraging synergies between organisations, not maximizing gains within companies.

5) Trustworthiness NOT trust. This old chestnut, but with a twist. Too many times have I heard that ‘trust’ is key, but the reality is, trust is a pretty difficult thing to grab hold off and influence. That’s why I always say that trustworthiness is more critical (so, are you a person of your word?). It’s then up to the other person to determine whether they trust you (and are they therefore trustworthy?). So, in the end, it’s just about doing what you said you would (and having a person that understands that on the other side)…

So, there we have it. Possibly simplistic, possibly naïve, some simple prescriptions for getting along.

 

 

 

 

 

Get your house in order. Why effective Supply Chain Management starts inside…

Good SCM is about effectively configuring and coordinating supply to meet customer demand. Sounds pretty simple, but why do organisations find it so difficult? I believe much of this has to do to with their structures, methods for incentivisation, differing functional goals and radically different views as to who the customer actually is.

Let’s look at the simple example of the procurement and sales functions. Procurement’s goal as a function is typically focussed on negotiating the best price (let’s leave the thorny debate on whether the cost is actually clear to another time) and they might be looking for surety of supply. They will be incentivised to achieve these. Who’s their customer? That’s probably operations who have different goals. If we then turn to the sales function, what’s their goal? Typically to sell ‘stuff’ to the customer. Their customer is the customer. The sales function will be incentivised to sell ‘stuff’ I would suggest that this creates something of a paradox. Procurement focused on cost, Sales on sales and Ops doing their own thing in between. So, what are the chances of matching supply and demand inside a single organization, let alone the numerous organizations that make up today’s supply chains?

Some organisations I have worked with attempt to create a supply chain function. They attempt to address the structural challenges of effective SCM. All of those I have seen forget to include some functions – typically sales (making the SC function wholly upstream focussed), or operations (meaning a critical component of the supply chain is not integrated). So trying to address this through structural means looks difficult. An alternative option is to consider more integrated goals and incentivisation mechanisms that guide functions towards considering that while they all have different internal customers, together they have one end customer. Once this is in place, intra-functional integration becomes easier and working together becomes part of the day-to-day. Only after learning how to do it can organisations begin to drive real value from their supply chains. So, first get your own house in order.