Flow in Alaska

For those of us who love lean, flow is a fascinating topic, whether we’re talking about how parts flow through a factory or how patients flow through a hospital.

I’ve just returned from two weeks’ vacation in Alaska. I didn’t spend my time there thinking about work, or even about lean; my wife and I were there simply to enjoy ourselves.

And let me say that the sights in Alaska are truly magnificent. If you enjoy viewing scenery and wildlife that you will see just about nowhere else in the world, I highly recommend the Tundra Wilderness Tour in Denali National Park, a ride on the White Pass Summit Railway in Skagway, and a visit to Mendenhall Glacier in Juneau. (The glacier is what you see in the picture.)

But while I was in Alaska, I couldn’t help but be intrigued by the flow challenges facing the tourist industry there. I don’t know whether this has ever been studied from a process viewpoint, or mapped; if not, it could be turned into a remarkable case study.

The biggest challenges involve cruises. Hundreds of thousands of people cruise Alaska every summer. The main starting and ending points for these cruises are Seward and Whittier, near Anchorage to the north, and either Seattle or Vancouver to the south. Some cruises travel in only one direction; others begin and end at the same point. (We cruised from Seward to Vancouver.) At least four or five different cruise lines offer Alaska cruises.

Caribbean cruises can select stops from among quite a few islands, but Alaska cruises have fewer choices. You can sail into Glacier Bay, and make stops at Haines, Skagway, Sitka, Juneau and Ketchikan. That’s about it. As a result, many ships stop at the same ports at the same time.

For example, while we were there, I saw four ships docked at Skagway simultaneously. That represents more than 5,000 passengers all descending at once on a town whose population is less than half that figure.

The towns have limited docking facilities. We actually docked at Haines and took a ferry to Skagway. As far as I know, only one ship can dock at Haines at any moment. (Most of Alaska is pretty rustic. Haines doesn’t even have any traffic lights.)

When we went to Ketchikan, we didn’t dock until the afternoon – after at least one other ship had finished a morning visit and left.

A cruise line may list two dozen excursions available at any given port. These include helicopter and plane flights, hiking or kayaking, historical tours of towns, visits to native villages, and many more. Any one of these excursions may be open to passengers of several different ships.

So as the passengers pour off a given ship, a horde of tour guides and buses are waiting, holding up signs and pictures so each passenger can find his or her excursion. And of course, many passengers don’t sign up for excursions, but simply decide to explore the town on their own.

Similar situations exist inland. Like many people, we were traveling on a land/cruise package that also took us far inland, to Fairbanks and Denali, before the cruise – which involved travel, also arranged by the cruise line, on trains and buses.

There are many different land packages. We met people in Fairbanks who were ultimately headed for the same cruise as us, but were traveling to different land locations first. Think of the coordination involved. (I even met a man whose package was taking him to Prudhoe Bay, on Alaska’s northern coast, where he planned to take a polar bear swim in the bay. I guess he wants to be able to say he did it.)

And of course, none of this includes the many tourists who travel through Alaska on their own, not part of any package. (However, we were told that, with the rising price of gas, the number of RVs seen in the state has dropped dramatically.)

For the most part, it all works pretty well. There are occasional glitches, like when we had to wait an extra half hour for our ferry to Skagway, on an unprotected dock in the chill, damp air (Alaska is having a colder-than-usual summer). We were told everything in Alaska is on “ish” time – your ferry doesn’t pick you up at 3, but at “3-ish.”

And while occasionally the parts of the process can make you feel like you are on an assembly line, that doesn’t last long. I highly recommend going to Alaska.

I don’t know how it is all coordinated. Clearly, the cruise lines, the ports and the local excursion providers work closely together. I’d love to see it laid out on a process map.

Is there a lean manufacturing graduate student out there looking for a thesis project?

Lean Jobs: You Need Real Experience, and Six Sigma Helps, Too

Will your lean skills help you get a job? Yes – if you also know Six Sigma, and if you’ve got solid experience putting those skills to work, according to a study by an executive recruiting firm.

In its 4th annual study of Internet job postings, The Avery Point Group found that,
for the first time, “demand for Lean talent has grown to eclipse and slightly exceed that of Six Sigma,” the company said in a statement.

“This is certainly a major center of gravity shift from our first study in 2005 where Six Sigma talent demand outpaced Lean by more than 50 percent,” says Tim Noble, managing principal of The Avery Point Group.

However, the company said in a statement the increased interest in lean “has not come at the expense of Six Sigma; rather, this year’s study continues to confirm an overall increasing demand for continuous improvement talent, with Lean driving most of the recent talent demand growth.”

In addition, the statement said, “for those companies seeking Six Sigma or Lean talent, fully 50 percent are looking for practitioners to have both skill sets. Further, the study indicated that job postings are making increasing demands on candidates, requiring them to possess a much deeper knowledge and experience skill set with regard to their Lean backgrounds versus prior years.”

"No longer is it acceptable for candidates to claim to have a Lean Sigma or Lean Six Sigma background," says Noble. "Companies want to see candidates that have the hardcore Lean experience gained in a true Lean transformation setting, and that can’t be gained from an environment where Lean is an afterthought or a lesser appendage to an existing Six Sigma program.”

I’m not surprised by that last part, about candidates being able to prove what they have done. However, it was a pleasant surprise to hear how much interest in lean has increased. I don’t know whether that is uniformly true across all industries, but it is encouraging news.

If you are or have recently been a job-seeker, does your own experience bear this out? And if you are an employer, what do you look for?

More Medicare Patients are a Problem for Hospitals

I’ve written before about how financial incentives drive improvement in healthcare. A new article from HealthLeaders describes one such incentive I hadn’t thought about before: growing numbers of Medicare patients.

I previously discussed – and praised – the fact that Medicare is no longer paying for treatment of some medical mistakes. The problem pointed out by this new article (written by Philip Betbeze) is that, when it does pay, Medicare doesn’t pay all that well.

You depend on Medicare. That's too bad, because Medicare's a lousy payer. And here's a disturbing thought: You're going to be depending on Medicare a lot more in the coming decade. As the baby boomers age, more of your income is likely to hinge on a payer that reimburses hospitals about 90% of costs, at best, and doesn't do much better for physicians. Depending on many factors, a given facility's reliance on Medicare is relative, of course—but for many hospitals, Medicare represents 50% or more of their payer mix.

What does a patient mix that skews more heavily toward Medicare mean for the long-term viability of hospitals? The forecast is far from clear, but one thing is certain: Hospital leaders are going to have to get much more creative to maintain the level of service they're used to providing and the margin they're used to producing…

Even as government payers, including Medicare, are under severe pressure to cut costs, a glut of beneficiaries will move onto Medicare's rolls in the coming years as the baby boom generation ages. For hospitals, those patients are likely to need far more services—but bring in far less money per capita—than they did as commercially insured patients. Hospitals' age-old coping method of cost shifting to commercial plans also becomes problematic under the boomer load. For years, hospitals have used their negotiating clout with insurers to supplement the money they lose with government payers to make a small margin. But as fewer people remain on commercial plans while Medicare swells, this tactic loses its effectiveness. And as commercial premiums continue to rise faster than gross domestic product, companies are catching on to the disproportionate burden they shoulder to keep hospitals whole in the face of Medicare's failure to pay its fair share.

The article suggests that some hospitals are likely to close as a result. Others are looking at ways to increase revenue by offering additional services not dependent on Medicare.

But the best option is, almost certainly, to deliver services more efficiently, at lower cost. And at least a few hospital leaders recognize this.

"There are plenty of things we can do that can encourage a more efficient way to deliver care that don't mean less money to provide those services," says Bill Atkinson, president and CEO of WakeMed Health & Hospitals, which includes a 720-staffed-bed Level I trauma center in Raleigh, NC. "I'm of the school that believes there's too much money available. Hospitals are so busy chasing the large dollars that they don't really take time to figure out how to provide care more efficiently, because there's always another pool of money to chase. If it were finite, we would all have to stop and figure it out. But it's never been that way."

Medicare is now requiring hospitals to report quality measures. Hospitals get extra benefit for reporting those measures. But ironically, the benefit is just for the reporting. There is, at this point, no extra benefit for actually improving results.

Healthcare is on the very edge of what I would call a tectonic shift in its financial systems. Those hospitals that embrace a lean approach, enabling them to do more with less, and do it better, are the ones that will survive and prosper.

By the way, I will be on vacation the next two weeks, so you may not see many posts during that period. Enjoy your summer, and I'll be back soon.

Toyota Cuts Back – But Not on People

Not surprisingly, I see a significant difference between Toyota and the U.S. automakers in how they respond to changes in the market for cars and trucks.

In terms of production, Toyota’s response is similar to what every other car company is doing: cutting back on gas guzzlers and focusing more on hybrids and smaller vehicles. Every auto company is following that path because of the sudden and dramatic market shift resulting from rising gas prices.

Toyota announced on Thursday the details of its production changes. The company said it will be:
- Manufacturing the Prius at a new plant in Mississippi, starting in late 2010.
- Shifting production of the midsize Highlander SUV (scheduled for the Mississippi plant) to a plant in Indiana (which had been slated to make the fullsize Tundra pickup). Tundra production will be consolidated into a Texas plant.
- Temporarily suspending Tundra and Sequoia production, and production of V8 engines in Alabama, beginning Aug. 8. (No word on how long the suspensions will last.)

What distinguishes Toyota from everyone else is its dedication to the lean principle of respect for people. The announcement of the production suspensions included a statement the likes of which I don’t recall hearing from any other carmaker:

Team members at both facilities, as well as the Huntsville, Ala. plant that builds Tundra and Sequoia engines, will continue to be provided work…

Jim Wiseman, vice president/external affairs for Toyota Motor Engineering & Manufacturing North America (TEMA), said "By using this downturn as an opportunity to develop team members and improve our operations, we hope to emerge even stronger."

Toyota is sending the message that it views holding on to skilled, experience workers as more important than whatever savings might result from temporary layoffs. Now that is how you encourage employee loyalty.

And yes, Toyota is probably better able to afford to do that than GM or Ford, for example. But Toyota is stronger today precisely because it has engaged in these kinds of practices in the past.

I hope the executives in Detroit are paying attention.

A Lean Strategy: Why Mergers and Acquisitions Succeed

Applying lean approaches during a merger or acquisition can not only make it go more smoothly, but can also make the price look better.

Those were some of the insights offered at the recent San Diego regional conference of the Association for Manufacturing Excellence by two speakers from DJO, a $1 billion (revenue) manufacturer of orthopedic and other medical devices.

Luke Faulstick, COO, and Jerry Wright, VP for lean and enterprise excellence, described how DJO has benefited from a lean strategy in its acquisitions of several companies in recent years. (“There is no such thing as a merger. They’re all acquisitions,” Wright said.)

DJO has long been on a lean journey. The Shingo Prize and the Baldrige Award are month the honors won by some of its facilities.

Like any other acquisition, they said, a lean acquisition begins with a deal developed confidentially in board rooms and with Wall Street firms. The difference is that the initial agreement also includes knowledge of the acquired company’s “state of lean.”

Once a letter of agreement is signed and the deal announced, due diligence begins. But in a lean deal, at the same time as due diligence, integration begins (at risk). The price is confirmed.

If the deal is ultimately consummated, integration continues, but is already accelerated ahead of traditional M&A.

One significant point, the speakers said, is that lean enables an acquiring company to better assess the value of inventory that can be turned into cash, traditional overstaffed operations, and competitive advantage possibilities through improvements.

For example, they said, in a typical lean valuation:
Inventory is not calculated at book value, but at 50 percent as is and 50 percent that can become cash
Direct labor required is assumed to be 70 percent of current staffing (with the same assumption for non-overlap indirect labor)
Material cost is assumed to be 90 to 95 percent of current costs

Faulstick and Wright also spent considerable time discussing the importance of addressing management and cultural issues to achieve a successful integration. “If you don’t think about those, they can actually make the merger blow up,” Wright said.

Have you ever been involved in an acquisition where lean strategies were applied? (Or where they should have been?) What is your experience?

“Quiet Time” and “No Email Day”: Eliminating the Waste of Interruptions

The seven wastes defined by lean concepts – defects, overproduction, transportation, waiting, inventory, motion and processing – are all problems in the production process.

However, I was recently thinking about another type of waste, one that stops production completely. That is the waste of interruption. This may have more relevance to non-manufacturing processes.

What got me thinking about this was an item posted on a blog at Intel. Apparently the chipmaker recognizes the waste of interruptions and is testing ways to address it. (My thanks to an Industry Week newsletter for alerting me to this.)

Intel recently piloted a “Quiet Time” program at two U.S. locations (in Texas and Arizona). For seven months, 300 engineers and managers at the sites adopted “quiet time” once a week. For four hours every Tuesday morning, they set their email and IM clients to "offline", forwarded their phones to voice mail, avoided setting up meetings, and isolated themselves from visitors by putting up "Do not disturb" signs at their doorways. (Interruptions were allowed for genuine emergencies.)

According to Intel, the results were positive:

It has been successful in improving employee effectiveness, efficiency and quality of life for numerous employees in diverse job roles. 45% of post-pilot survey respondents had found it effective as is, and 71% recommended we consider extending it to other groups, possibly after applying some modifications.

As expected, this is not a matter where "one size fits all": not all people found this a desirable practice, depending also on their specific job roles. But an interesting finding is that Quiet Time is useful to different people for different reasons. Some people need it to concentrate on creative tasks, as we had predicted, but even people whose work involves ongoing interaction with others found the periodic "breathing space" beneficial in restoring balance and getting back in control of an otherwise hectic work routine. One should, we learned, let each person decide how to use the quiet hours to best effect.

Intel also piloted a “No Email Day” on Fridays, which was not actually a ban on all email, but an attempt to have employees who are physically near each other communicate face-to-face or by phone rather than email.

Fewer employees were positive about that program, partly because many of the people in the pilot group (150 engineers and managers) were frequently away from their desks, making it difficult to communicate in real time. Intel hasn’t abandoned the idea, but may look for a group where people spend more time at their desks.

How much of your time is wasted by interruptions?

The New Gallon Milk Jug: Did Wal-Mart Forget the Customer?

There is an old joke about a meeting of executives of a dog food company. The CEO notes that the company’s product uses the best ingredients and has the best packaging, and asks if anyone can explain why the dog food isn’t selling. A junior executive says, “Dogs don’t like it.”

I am wondering whether there might soon be similar meetings of executives at Wal-Mart and Costco discussing not dog food, but milk.

An article this week in The New York Times describes how the two retailers are starting to sell milk in a dramatically redesigned gallon jug.

The new jug has a box-like shape, and it does have several major advantages over the traditional gallon jug. The traditional jug has to be shipped in crates, and the crates have to be washed afterward. The new jug can be stacked on pallets and shrink-wrapped, so there is no need for crates or washing. Further, the stacking means more milk can be shipped in the same space, which means fewer shipments, saving fuel and time.

So what is the problem? Consumers don’t like it.

The jugs have no real spout, and their unorthodox shape makes consumers feel like novices at the simple task of pouring a glass of milk.

“I hate it,” said Lisa DeHoff, a cafe owner shopping in a Sam’s Club.

“It spills everywhere,” said Amy Wise, a homemaker.

“It’s very hard for kids to pour,” said Lee Morris, who was shopping for her grandchildren.

But Wal-Mart is moving full speed ahead in rolling out the new jugs in its Sam’s Club stores. And it is not hard to understand why.

The company estimates this kind of shipping has cut labor by half and water use by 60 to 70 percent. More gallons fit on a truck and in Sam’s Club coolers, and no empty crates need to be picked up, reducing trips to each Sam’s Club store to two a week, from five — a big fuel savings. Also, Sam’s Club can now store 224 gallons of milk in its coolers, in the same space that used to hold 80.

The whole operation is so much more efficient that milk coming out of a cow in the morning winds up at a Sam’s Club store by that afternoon, compared with several hours later or the next morning by the old method.

While I can’t fault Wal-Mart for pursuing these savings, I have to wonder: Is the company paying attention to the complaints of its customers? Well, yes, but not by improving the design of the jug.

Mary Tilton tried to educate the public a few days ago as she stood at a Sam’s Club in North Canton, about 50 miles south of Cleveland, luring shoppers with chocolate chip cookies and milk as she showed them how to pour from the new jugs.

“Just tilt it slowly and pour slowly,” Ms. Tilton said to passing customers as she talked about the jugs’ environmental benefits and cost savings. Instead of picking up the jug, as most people tend to do, she kept it on a table and gently tipped it toward a cup.

Mike Compston, who owns a dairy in Yerington, Nev., described the pouring technique in a telephone interview as a “rock-and-pour instead of a lift-and-tip.”
Demonstrations are but one of several ways Sam’s Club is advocating the containers. Signs in the aisle laud their cost savings and “better fridge fit.”

Some customers are embracing the new design, but not all.

Lean is all about focusing on eliminating waste and adding value, with value defined by the customer. Wal-Mart has become hugely successful by offering many products at low prices, which many customers perceive as value. (I was shopping at a Wal-Mart just the other day.) But it sounds like, in this case, the company lost some focus on what the customer values.