Is a Lean Supply Chain Strategy Practical?

Imagine that your company makes parts that are used in your own assembly plants around the globe. Do you:

a) Make all the parts in one place and ship them to your plants?
b) Construct a parts-making plant near every assembly plant?
c) Have a few parts-making plants, each serving assembly plants in a given region?
d) Use a combination of parts, some from your own plants, some from outside suppliers?

From a lean perspective, the ideal answer would be b), since that eliminates much of the waste of transportation. However, I recognize that building a whole series of plants to make parts is expensive and may not be practical.

For heavy-equipment manufacturer Caterpillar, the answer in at least one case was a), make all the parts in one place. A Caterpillar plant in Oxford, Mississippi, was the only facility making high-pressure couplings used in nearly every piece of equipment the company makes. And as a
recent article in The Wall Street Journal notes, that strategy runs a serious risk of disruption if disaster strikes.

For Caterpillar, the efficiencies from centralized production of the couplings had made the decision make the most sense. Greg Folley, who runs the Caterpillar parts division that includes the critical plant, says were it not for the efficiencies, “we’d be less likely to put all of our eggs in one basket.”

In recent decades, more companies have farmed out production to cut costs and spread the risk of disruptions, says Susan Helper, a professor at Case Western Reserve University in Cleveland who has studied supply chains. But those which do may lose some production flexibility and control over their intellectual property, Ms. Helper says. At Caterpillar, “the general strategy is right, but maybe they did it to excess,” she says.

On Feb. 5 of this year, the Oxford plant was hit by a tornado. No one was seriously hurt (workers took cover after being warned), but the plant was disabled. Part of its roof was torn off.

Caterpillar sprang into action and quickly determined that it had about two months supply of the couplings spread throughout its supply chain, either awaiting completion at the Oxford plant, sitting in parts depots or en route to assembly plants. But those assembly plants, responding to strong demand, were, in many cases, operating at capacity.

Outside vendors were brought in to help manufacture couplings. An intense repair effort at Oxford got the plant working again in two weeks, though initially it made uncompleted couplings that were shipped and worked on elsewhere, then returned to Oxford for further work, then shipped and finished at a facility in Ontario (total travel about 6,000 miles).

So far, no plants have halted assembly, and the company says the disaster did not affect first-quarter earnings.

But the article, written by Ilan Brat, notes that Caterpillar is now reviewing its strategy.

The company is considering adding some machines at factories that can duplicate some of the couplings production. Managers also are reviewing operations world-wide to determine how to cost-effectively reduce risk at key points. Steven Wunning, a group president, says Caterpillar is considering building another plant outside the U.S. to supply future growth and help if there’s another calamity.

Was Caterpillar’s original strategy wrong? What should they do now? How is your company dealing with these kinds of issues?


Terrorist Watch List Needs a Lean Fix

The Department of Homeland Security could use a few lean lessons in problem-solving.

Specifically, when you identify the root cause of a problem, you develop a solution that addresses that root cause – not the consequences that result from it.

The cause, in this case, is the department’s terrorist watch list – which leads to problems for a lot of innocent people whose names may be on the list incorrectly, or are similar to names on the list.

This problem was highlighted in a
recent editorial in The New York Times:

One major airline registers 9,000 false hits every day, according to Michael Chertoff, the secretary of homeland security. These travelers and thousands more must routinely step aside and provide firmer proof of identity.

Instead of trying to fix the troubled list, Mr. Chertoff has proposed that victimized travelers and the airlines fix the problem. He has suggested that these travelers volunteer to let airlines keep a record of their date of birth, so their bona fides can be more easily verified.

Considering the dimension of the no-fly snafus, this is hardly a cure-all. Each airline is free to decide whether to take part, and whether it wants to pay to alter its computer systems. Harried fliers would also have to file with each airline they patronize.

Meanwhile, the terrorist watch list keeps growing, exceeding 900,000 and adding up to 20,000 a month, by some estimates. Lately, even federal air marshals assigned to flight security complain they have been barred at check-in when their names triggered false positives, according to The Washington Times…

A redress program was started at the Transportation Security Administration, and an estimated 15,000 have managed to get their names off the list.

The process is frustratingly slow, and the list of those cleared is not shared among federal agencies, leaving customs and border protection bureaucracies free to recycle erroneous challenges, according to Representative Yvette Clarke of New York. Her measure to streamline the redress process, and ensure that the correct information is distributed across the government, is under consideration in the House. It deserves swift approval as an act of travelers’ mercy and homeland security.

Write your congressman.


Insurers to Pay to Keep Patients Healthy

Incentives matter.

That is at least part of the reasoning behind a new approach to healthcare reimbursements being tried in southeastern Pennsylvania.

Philadelphia Inquirer reports the region’s largest health insurers will start paying more than 150 family doctors and other caregivers to more closely track their patients’ care and conditions.

The story, written by Josh Goldstein, says the effort “seeks to make caregivers more accessible to their patients through e-mail and phone calls and to educate them to take better care of themselves.”

"The first thing we hope to accomplish is to increase the use of evidence-based medicine and improve the quality of care," said Richard Snyder, senior vice president for health services at Independence Blue Cross. "And by keeping control of chronic illnesses that we know over time will deteriorate, we hope we will decrease costs."

The story notes that some experts are skeptical the effort will save any money.

Regardless of that, for me the most interesting part of the article is this statement:

Instead of the traditional way - paying by the procedure - the program will reward caregivers for how well they dispense proven treatments and keep patients healthy.

I have written previously about how insurers are ending payments for certain treatments necessitated by medical errors. That gives healthcare providers an incentive to avoid those errors.

If that is the stick approach, this one is the carrot. Author Mark Graham Brown, who has written several books about metrics, including Beyond the Balanced Scorecard: Improving Business Intelligence with Analytics, taught me a long time ago that incentives should reward outcomes, not activity.

Providing incentives to keep people healthy is definitely the way to go.


Does Barack Obama Like Lean?

I’m not sure whether I’ve ever heard lean principles discussed as part of a political campaign, and I certainly haven’t heard it during the current presidential campaign.

However, Barack Obama recently released what he called his
manufacturing agenda. And a couple of points caught my eye.

The agenda covers a wide range of topics, from environmental issues to education to trade policies, all from the perspective of how they relate to manufacturing.

I will not try to assess whether the bulk of these proposals would help or hurt manufacturing and the country. That’s not the focus of this blog. I’ll leave that to others. (The National Association of Manufacturers
has already offered its comments – some positive, some not.)

But two of Obama’s points got my attention:
  • Create an Advanced Manufacturing Fund to identify and invest in the most compelling advanced manufacturing strategies.
  • Double funding for the Manufacturing Extension Partnership.
After looking at the more detailed description of the proposals available on Obama’s website, I believe he is using the phrase “advanced manufacturing strategies” to refer primarily to technology. I hope there are people who can convince him that a lean strategy is, in fact, the most advanced manufacturing strategy.

(By the way, I’m not at all sure the federal government should have a fund to invest in manufacturing strategies. I tend to believe that is more a function of free markets. But the subject is at least worth discussing.)

Obama’s mention of the Manufacturing Extension Partnership is more on point. The nationwide network of MEPs has a long history of assisting manufacturers, often by helping them implement lean strategies.

He says the Bush administration has slashed MEP funding, and he would double it. He doesn’t list any figures.

His statement is correct as far as it goes. In presenting the federal budget, the Bush administration, at least in most years, has proposed cutting MEP funding. However, in most years, Congress has revised the budget to increase MEP funding, or at least keep it stable.
Regardless, it is good to hear that Obama supports the MEP program.

Oh, and I did take a look at the websites for both John McCain and Hillary Clinton. I couldn’t find anything on either site specifically about manufacturing.

Which candidate (if any) do you believe would best champion the cause of lean manufacturing, or at least strengthen U.S. manufacturing?


Lean Improvements Really Do Reduce Hospital Infections

I’ve written several times about efforts to reduce infections in hospitals through lean process improvement.

A couple of months ago I described how Blue Shield of California was spending nearly $6 million in such an effort. The insurer recognized that reducing hospital-acquired infections means patients are healthier, they spend fewer days in the hospital, and they – as well as the hospital and/or insurer – save lots of money.

Well guess what? Lean efforts to reduce infections actually work. A recent example was reported last week by the Wall Street Journal’s
Health Blog:

One kind of hospital-acquired infection — ventilator-associated pneumonia — plummeted by 78% between 2005 and 2007 at the New York City Health and Hospitals Corp., the organization said. Another, central-line infections, fell 55%. Surgical-site infections fell as well, but not as dramatically.

Another way to look at it: The country’s biggest public hospital chain — with 11 facilities and 30% of its patients uninsured — has averaged 5.2 months without a central-line infection, and 5.8 months without a case of ventilator-associated pneumonia.

These remarkable improvements are achieved by adopting “best practices,” which are often quite simple – for example, keeping the patient’s head elevated (in the case of ventilator-associated pneumonia) or making sure medical staff wash their hands frequently (in the case of central-line infections).

(There is also an article about this progress in The New York Times today.)

The WSJ blog article, written by Theo Francis, poses an interesting question:

HHC boasts that it now has 3.4 central-line infections for every thousand days patients have the catheters, and 2.3 hospital-acquired pneumonia cases for every thousand days patients are on ventilators. But how does that stack up against other hospitals?

Good luck finding a clear answer. Some studies suggest a national rate of central-line infections could be 5.3 per thousand central-line days. But most hospital-quality groups point to the CDC, which in turn collects data from a sample of facilities — 211 last year, out of nearly 5,000 acute-care hospitals — that aren’t necessarily representative….

Still, don’t expect to see such comparisons come up much. Health-care quality gurus frown on it as critically flawed.

“It’s hard to even the playing field between hospitals that see different types of patients,” says Andy Hackbarth, who heads up measurement for the Institute for Healthcare Improvement’s Five Million Lives campaign to improve hospital quality. “A hospital that’s taking a lot of really serious cases, like trauma patients, you would expect to see a higher rate of infection there given the same quality of care.”

That may be. But if you spend less time in the hospital and feel better because you weren’t infected while there, so what? The goal here, as it should always be in lean improvements, is not to match the record of someone else, but to always strive for perfection.


Notes on the TWI Summit 2008

Today we have a guest posting by Donald A. Dinero, author of Training Within Industry: The Foundation of Lean. He was active in the TWI Summit held last week, and offers his impressions of that event.

The second annual TWI Summit was a worthwhile week for all who attended. Like any masterpiece, the TWI programs and principles are inspiring by their power and simplicity and thereby promote continual study.

Alan Robinson captured the essence of TWI in his Keynote speech. Dr. Robinson captured our attention when he said that the TWI programs are not as relevant today as they were during the 1940’s – they’re MORE relevant. His point was that the real engine of an organization’s improvements lies in the ideas and creativity of its employees.

In today’s successful companies, 80 percent of improvements come from front line people. Many managers do not realize this or do not know how to effectively tap this rich resource. Although the TWI programs provide many benefits to organizations, two general positive effects are that they change the way employees think about their jobs, and they tie standardization together with ideas. These two effects alone can be responsible for bringing an organization to the next level.

As with last year’s Summit, participants came from around the country and around the world. This year’s winner of the distance prize came from Singapore. Most were not coming to learn about TWI for itself, but rather to investigate how it would help them in their lean journey. The message to them is to believe Ockham’s Razor: The simplest solutions are usually the best. There are many tools to use in operating as a lean organization, but to capture the substance of what it means to be lean one must start with the TWI programs.

This year’s Summit was a full week and started with a day of workshops giving an overview of TWI and also telling how to deploy it. The next day and a half was filled with three keynote speeches – from David Meier, Art Smalley and Dr. Alan Robinson – and 18 presentations. By including a ‘town hall’ meeting and a reception, the Summit’s organizers gave everyone an opportunity to meet with the presenters and keynote speakers and ask specific questions.

This Summit was better than last year’s and next year’s will be even better. The organizers strongly believe in continual improvement and they strive to stay on that path.

Although the TWI Programs were developed in the United States during WWII, no one really knows why they faded from use here. From 1970 on, there is little note about TWI in the US. The TWI Summit is helping us bring back these fundamental learning disciplines so that everyone can learn and practice their skills in order to be more successful in whatever they do.

Last year there were about 100 participants at the Summit. This year there were almost 200. Next year I’m sure there will be even more. My goal is to spread the word of TWI to the extent that it is so much a part of our culture that Summits will not be necessary; but until that time, I’m looking forward to next year.


Where Do You Find Lean in a Hospital? Check the Closet

What is the key to improving the quality of care in a hospital?

The supply closet and the bed linens.

That seems to be the finding of one of the more interesting reports I’ve seen recently concerning a hospital improvement project.

case study focuses on St. Joseph’s Hospital in Parkersburg, West Virginia, owned by Signature Hospital Corporation.

Signature says the improvement effort focused on a disorganized supply closet. Nurses made numerous trips to the closet during the day. A review of the closet found:

The storage room included 2,000 individually packaged spoons and 48 boxes of cereal, along with items used once per quarter.

Patient personal care items (e.g., shampoo and combs) were stored with suture removal kits.

Five storage towers contained so much linen that it was difficult to pull it out and linens fell on the floor.

The closet was reorganized, with related items grouped together. Also, the linen distribution process was streamlined to eliminate multiple handoffs.

The results:

The average nursing unit saved approximately 9,500 feet in walking distance per 24 hour period. This equals 3,467,500 feet (or 656 miles) saved for the average nursing unit on an annual basis.

When this project is implemented in all nursing units, it will save more than 19,000 miles in the hospital on an annual basis.

The hospital saved $4,300 annually in linen cleaning costs (per nursing unit). Linen storage space was reduced by 66 percent.

In a news release, Signature said the saving of 19,000 miles of walking translates to the addition of 10,000 hours per year of bedside care with no increase in staffing. Even if the figure is overstated somewhat, that’s quite an improvement.

Signature attributes the gains to a lean strategy.

The dramatic changes are the result of Signature’s “Lean Thinking” initiative, a quality improvement discipline perfected by Toyota that the Houston-based hospital company is enacting in its community hospitals across the U.S.

Kudos to Signature for moving in the right direction.


Using Lean to Avoid Outsourcing

A lot of companies issue news releases saying how they are going to become better by implementing lean strategies. I recently ran across one such release that seemed a bit different.

Usually this type of news release says the company is trying to reduce costs, improve profits, gain a competitive edge, etc. But the latest news release from D’Addario & Company, a New York maker of music instrument accessories such as guitar strings and woodwind reeds, offers a slightly different justification.

D'Addario is undergoing the company-wide overhaul to avert outsourcing, stay competitive, and remain manufacturing in the U.S. for another 100 years… While many U.S. firms are staying profitable by outsourcing their manufacturing, D'Addario is using a Japanese system to keep manufacturing in the U.S. D'Addario CEO James D'Addario said, "Our Italian culture taught us the art of making strings for musical instruments. America taught us that even when you're on top you must strive for improvement and we want to keep improving, in the U.S., which has been good to us and has been our manufacturing home for 100 years."

Accepting the release at face value, I must say it’s nice to hear a company say its goal is to avert outsourcing.

D’Addario is working with consulting group PRIMEX and, the release says, “received a seven figure grant and job protection from New York State. According to New York State's Empire State Development Corp., ‘D'Addario’s commitment to Long Island in the face of other offers [will] preserve 700 jobs.’"

Also, D’Addario publicly stated some of its goals for the new strategy.

What to Expect at the End of Phase One by End of 2008:
* 25% Productivity improvements.
* 50% Reduction in FG (Finished Goods awaiting sales: from 50MM to 25MM) and WIP.
* 30% Less space utilization.
* 60% Quality improvement.
* 50% Reduction in cycle time.

Setting goals of this type is not unusual; including them in a news release is.

I wish them luck. We’ll see where they are at the end of the year.


Helping Schools Become Lean

Education is a field that is ripe for lean transformation, but there isn’t much happening yet in that regard.

However, I recently came across a consulting firm devoted specifically to lean education – that’s something new, at least in my experience.

The firm is
Lean Education Enterprises, located in Shoreview, Minnesota. Its two principals are Joseph and Betty Ziskovsky, and they provide organizational assessment and coaching services for process improvement in student learning, teaching, and administrative support. Joseph is a business guy and Betty is an educator.

I don’t know them personally, and I’ve never worked with the firm. But they seem to have the right focus on their website.

I particularly like a page in the site on the “
7 Wastes of Education,” which lists the wastes and provides specific examples of each one.

They also have several case studies on the site of the kinds of things they’ve accomplished, though the specific schools and districts involved are not named.

As I said before, so far there has been little application of lean in education. I
wrote previously about one educator’s efforts to improve college courses.

Do you have any experience with lean in education? Where in education would you like to see it applied?


Technology is Not a Threat to Manufacturing

I’m frustrated by a column appearing on Forbes.com, which offers some valuable insights into manufacturing today while simultaneously putting forth some incorrect and misleading statements.

The column, written by Kevin O’Marah, chief strategist at AMR Research, is entitled “The Real Threat to U.S. Manufacturing.” O’Marah argues – correctly in my view – that free trade agreements, currently under attack by many politicians, are not the problem their critics make them out to be.

He focuses on BMW, and its “bustling” plant in South Carolina, and Caterpilllar, as examples of companies with U.S. operations competing successfully in global markets.

The difference is not really foreign ownership, or even non-union workforces, but rather strength in the face of competition. There is no need for protectionist policies when manufacturing sees itself as part of a global value chain…

Protectionism is rising as the economy falters and politics takes center stage. As companies like Caterpillar and BMW show, however, there is not necessarily a link between free trade and job losses…

All the ingredients are there for Americans willing to learn and change. NAFTA has nothing to do with it.

I agree with all of that. But O’Marah also talks about what he perceives as the true threats to manufacturing.

One, he says, is labor unions. I’m no defender of unions, and sometimes they can be an obstacle to implementing the kind of lean transformation necessary for competing in today’s markets. However, I think O’Marah may be going a bit far when he says that unions “are political bodies interested more in votes than wage increases.” You can draw your own conclusions.

My real beef with O’Marah is when he says the other major threat to manufacturing is technology. Consider his statements:

Twenty-first century manufacturing is about an automated, integrated manufacturing process. Manufacturing automation will take over one manual task after another--first in the United States, then China and then eventually everywhere…

The implication is clear: Old-fashioned factory work need not be done by people.

For supply-chain professionals and manufacturing engineers, decisions about jobs are all part of an equation, and the math often says robots are better than people. Where cheap labor offers a lower cost, jobs are created, but this changes as wages rise and technology replaces manual work. This dynamic holds true from Japan and Korea to China and Eastern Europe, all of which have seen huge capital investment gradually replace workers…

The threat to our traditional manufacturing employment base comes not from Mexico, or even China, but from a volatile mix of technology whose productivity beats human labor and unions who think more like political parties than economic agents.

First, it is clear that O’Marah is talking about manufacturing jobs disappearing, not the actual companies.

More importantly, he is, for the most part, wrong. Yes, technology does often improve productivity, so that fewer workers are needed to perform the same work. However, he clearly thinks we are coming closer to the “lights-out” factory, where virtually all work is done by robots. That has been talked about for decades, it hasn’t happened yet, and it’s not going to happen.

It seems to me that some of the information O’Marah provides undermines his own argument. Have BMW and Caterpillar thrived by replacing workers with robots? I don’t think so. Like most successful companies, they have developed strategies built on the skill and expertise of their workforce – as well as technology – aimed at providing value for their customers.

Technology and improved productivity need not be threats to manufacturing jobs. The best companies (which do make clever use of technology) maintain jobs, and even add them, by growing their business. And they do that by becoming lean, intelligent competitors who understand their customers and the marketplace.


Hospitals Need a Team-Based Approach

Much of what has been written about applying lean to healthcare focuses, appropriately, on the inefficient, error-prone processes at hospitals.

good article put out by H&HN (Hospitals & Health Networks) offers a different but equally important focus, on the need to change the structure and culture of hospital operations.

The article is written by Dr. Charles Shaney, SVP and chairman of surgical services at William Beaumont Hospital in Royal Oak, MI, and by David Ellis, corporate director of planning and future studies at Detroit Medical Center and publisher of Health Futures Digest.

They begin by discussing another article, published in the January/February issue of Health Affairs, and written by a nurse involved in the treatment of a critically ill infant.

The baby’s doctor had left instructions for the infant to be weaned off a ventilator, according to well-established protocols. The nurse, Ray Bingham, thought the infant needed to be weaned more slowly than the protocols dictated. Bingham used subterfuge – such as bathroom breaks – to do it his way.

When the doctor returned in the morning, he was angry, though no action was taken against the nurse. The baby survived.

Shaney and Ellis, while agreeing that no healthcare professional should blindly follow instructions they believe may be harmful, take the position that Bingham was wrong. They note that the baby might have done just as well if the doctor’s instructions were followed.

More importantly, Shaney and Ellis see this incident as an example of what is wrong with the way hospitals operate.

As Bingham’s article illustrates, the physician-centric, hierarchical delivery model is seriously flawed…

Our challenge to Mr. Bingham is to share the steps that he has taken to ensure that a nurse in his unit will never again have to resort to a similar strategy to ensure effective communication and the best quality care for his or her patients…

The postmodern health care reality will require a cadre of physicians who not only recognize and value the judgment, skill and experience of other increasingly autonomous and interdependent health care professionals, but also physicians who willingly depend upon such skill to safely and effectively execute life-saving and evidence-based treatments in a patient-centered manner.

The postmodern reality also demands longitudinal and continuous professional evaluation and improvement processes, as well as meaningful incentives that recognize and reward physicians and other members of the caregiving team based on their ability to interact collaboratively. Much as will be the case for health care information technology, we argue that it may be only with a new generation of physicians and other care providers—educated in a team-based and contextual milieu, and for whom no other reality is logically consistent—that we will begin to see truly transformational change in health care delivery.

While the authors don’t use the word “lean,” their discussion of team-based operations and strong communication go to the heart of what lean is all about. I hope they are right that the new generation of professionals will embody this kind of thinking.


Does a Hospital Really Need a Pharmacy Robot?

Can a big, expensive machine prevent medication errors at a hospital? Maybe, but I’m skeptical.

The machine in question is a $1.5 million “pharmacy robot” that recently began operating at Loyola University Hospital in Maywood, Illinois. The hospital says the robot is “designed to eliminate the type of life-threatening human medication errors that injured actor Dennis Quaid's newborn twins.”

According to a
hospital news release,

The robot places single doses of medication in small plastic bags. Each bag has a bar code that identifies the drug. When the system is fully implemented, the nurse will scan the bar code on the medication bag, along with the bar code on the patient's wrist band. If the computer detects it's the wrong drug or wrong dose, a pop-up warning will appear and the computer will sound an alert…

The system is 28 feet long and 13 feet wide. At the front end, a robot arm packages medications in single-dose bags. At the back end, a patient's medication bags are arranged in order of administration and attached to a plastic ring. A card attached to the ring specifies each drug, along with important patient information.
The robot packages 3,200 medications, including tablets, capsules, vials, ampules and suppositories. It works around the clock.

Sounds impressive. So why am I skeptical?

First of all, it sounds like a lot of diligent work is required by human beings to make sure the robot does its job properly. People have to place the medication in the robot so that medication can be dispensed, right?

More importantly, I wonder whether the hospital really examined the issue of WHY medication errors occur. Installing a machine like this seems to imply that hospital officials believe problems are caused by human errors that a machine won’t make.

And while that may be true to some extent, it is also true that a lot of factors contribute to human errors. When I
wrote previously about the incident involving the Quaid twins, I noted the two medications that were mixed up came in identical vials with near-identical labels. When that is the case, isn’t it just as likely a pharmacy technician could put the wrong medication into the robot as it is a nurse could administer the wrong medication?

Further, the pharmacy is only one part of the process by which medications ultimately get to a patient’s room. Has Loyola looked at all the other steps in that process? The bar code system that is part of the new installation may help, but I’m inclined to believe there are other opportunities for mistakes.

I would be more impressed by Loyola’s announcement if, rather than focusing on the robot, they were describing it as part of a broader attempt at process improvement. And I suspect that any reduction in medication errors at Loyola will not be as great as officials there hope.