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
1933
Sakichi’s son,
Kiichiro
Toyoda,
leveraged the
loom patent to
establish
theToyota
Motor
Company
Lean applied
to more than
manufacturing

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

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

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

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
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

8
Going further

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

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 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

12
Lean’s impact
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 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

14
Key factors for success
• 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 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

16
Lean’s impact
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 store
50
50
100
Distribution
centre
Store Total
38
52
90
Distribution
centre
Store Total
Total cost
reduced
but DC
cost was
increased
ILLUSTRATIVE

18
• 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 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

20
Lean’s impact
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 difference
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

22
• 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 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

24
Lean’s impact
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
locomotives
maintenance hours
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
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

26
• 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 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

28
Lean’s impact
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
turnaround time
• Non-routine task
times reduced

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

30
• 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 environments
Key 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

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (15)

Similar to Lean in Offices, Hospitals, Planes and Trains

Similar to Lean in Offices, Hospitals, Planes and Trains (20)

More from Lean Enterprise Academy

More from Lean Enterprise Academy (20)

Recently uploaded

Recently uploaded (20)

Lean in Offices, Hospitals, Planes and Trains