Lean thinking comes to a Starbucks near you
The benefits of lean production has been documented by many academic articles, case studies and success stories from all sectors of the economy including manufacturing, services and healthcare organizations. Chapter 12 of our textbook describes lean principles and also discusses several examples and case studies (e.g. Toyota, Zara, Bose Corporation).
A couple of years ago we started hearing the news that once fact-growing company Starbucks was starting to experience some financial difficulties. Clearly its net income took a sharp decline during late 2008.
However more recently Starbuck has again started showing growth in its net income and stock valuations. So what may be the cause of this reversal of trends? How about a careful and successful implementation of lean thinking as one of the possible causes? A recent article in The Wall Street Journal explains how Starbucks was able to apply lean thinking to reduce waste and improve the performance of its store operations.
To view an interactive display of Starbuck’s application of lean principles click on the image below.
Unintended Consequences … of Airline Baggage Charges
Those days are long gone when an economy class passenger could check-in two pieces of luggage for free when flying a commercial airline in the United States. Almost all major airlines now charge $25 or more for each check-in piece of baggage (for example — see baggage rules for United Airlines here: http://www.united.com/page/article/0,6867,52481,00.html). By the way, one notable exception to this policy is Southwest Airlines – they love baggage (see: http://www.youtube.com/watch?v=Pl16hPa1qkQ)!
So why have all major airlines started charging for checked-in baggage? Clearly one motivation behind the new baggage policy is cost reduction due to reduced handing of luggage by the ground staff. Furthermore, if passengers start carrying less baggage then the net weight of an airplane will be reduced leading to lower fuel costs. On the other hand, if passengers continue to carry the same amount of baggage as before then the airline gets additional revenue due to checked-in baggage charges (see: http://blogs.wsj.com/middleseat/2010/05/06/ticket-change-fees-surpass-baggage-charges-at-some-airlines/) for additional details. Win, win both ways for the airlines – or maybe not.
Well, no action goes without reaction, and sometimes they cause many unintended consequences. So let’s discuss some consequences of checked-in baggage fee policy:
Marketplace Effects:
By charging a specific price for every component of a service, the airlines may be converting their market offerings from a “service” to more like a “commodity” and less like an “experience” (see Figure 3.9, page 81 from the textbook inserted below). Past research suggests that such a move will make it harder for airlines to differentiate themselves from each other ultimately leading them to charge only market prices and not premium prices.
Operational Effects:
Since checked-in baggage is not free, passengers are more likely to carry the maximum-size permitted baggage with them as a carry-on luggage. However the storage space in a passenger cabin typically does not have enough capacity to store high volume of luggage carried by majority of passengers. Therefore, during the busy periods and in nearly full-flights, this shortage of capacity requires that the airline check-in the excess baggage (for free!) during the last phase of the passenger boarding process. Such last-min onboard baggage checking means a lot of manual handing of luggage by airline personal in a short amount of time. It is quite possible that during the busy period such last-min loading of luggage may lead to flight delays. Furthermore, some of the last minute luggage may not get loaded on the airplane on time — leading to additional headaches for the passenger and additional costs for the airlines (see http://online.wsj.com/article/SB10001424052748704423504575211960765813420.html?KEYWORDS=airline+baggage+#articleTabs%3Darticle) for a related discussion.
What Next?
Some recent news reports had suggested that now airlines will start charging for carry-on luggage too! Well, this new policy will solve some of the operational problems associated with passengers carrying too much carry-on luggage! At the same time, it will make airlines even more-so like a commodity product. Thankfully, many airlines have decided not to implement such policy (see — http://www.nytimes.com/2010/04/19/business/19bags.html?src=busln).
Toyota’s safety recalls – Are they indicators of problems associated with quality management, outsourcing or simply indicators of setting inconsistent competitive priorities in operations strategy?
In Chapter 12 of the textbook we provide detailed description of Toyota’s production system and their various innovative operations management practices. Over the last three decades Toyota has received many awards for their excellent quality and performance. The marketplace has rewarded them with higher sales and market-share, ultimately making them the world’s largest producer of automobiles.
So what went wrong in January 2010? Are the safety recalls due to faulty gas pedals an example of an isolated, one-time problem or are they symptoms of bigger long-term problems with Toyota and also the automobile industry?
Exhibit 1 shows some of the major recalls associated with the automobile industry during the past few years (source: The Wall Street Journal). The problems range from faulty seat belts, air bags, cruise control switches, ignition modules, sudden acceleration and sticky gas pedals. It is also interesting to note that many of the same problems are associated with multiple brands produced by different companies.
The above trends make us wonder about the root causes of quality problems. Clearly the final responsibility for producing and delivery high-quality products resides with Toyota. So perhaps because of their exponential and sudden growth Toyota has relaxed their quality standards and is not paying the requisite attention to quality of incoming parts and raw-materials? Or perhaps it has changed its competitive priorities from quality to something else which has lead to these problems?
One could also argue that the root cause of these quality problems lie with the extreme and expanding practice of outsourcing common in the automobile industry. For example, were the gas pedals associated with safety recalls produced by Toyota or were they manufactured by a supplier company? Who was responsible for designing these components? Some recent reports published in various newspapers suggest that the safety recalls illustrate the problems associated with the entire production system – such as supplier involvement in product development (e.g. concurrent engineering), outsourcing, extreme modularity in design, lean production concepts, and also pressure to reduce costs of commodity components.
Questions
Q1. How has operations strategy and competitive priorities evolved in the automobile industry during the last 100 years (Hint – about a hundred years ago, one could buy any care from Ford as long as it was black!)? (Chapter 1)
Q2. What are the positive and negative tradeoffs associated with outsourcing production functions to supplier organizations? (Chapters 12 and 14)
Q3. What quality systems and procedures and systems should Toyota have followed to ensure that faulty automobiles are not delivered to the customers? (Chapters 2 and 11).
Exhibit 1
iPad – Lessons in Operations Strategy, Quality Management and New Product Introduction @ Apple
Even several months before the introduction of iPad by Apple CEO Steve Jobs on January 27th, 2010 the media was humming with the anticipation of this new revolutionary product. The 9.7 inches touch-screen mobile computing devise is supposed to let users play games, check emails, watch videos and read books on an attractive product with a vibrant color screen. This device can either take advantage of the existing wireless internet networks or access information via AT&T’s 3G networks around the United States. The iPad (some say a big brother of iPhone) is priced between $499 – $829. Additional specs about this product are outlined below in Figure 1 (source: Wall Street Journal: January 28, 2010).
Figure 1: Some features of iPad
The ultimate success of this product will be determined on a number of factors including pricing, product features, quality, competition, and apple’s ability to consistently enhance the future generation of products. Nevertheless regardless of its success or failure, iPad is destined to encourage the development of a series of products that will be introduced by companies in the upcoming months that have the potential to revolutionize the mobile computing and the telecommunications industry.
Apple’s introduction of iPad and other innovative products since its inception provide many lessons for effective operations strategy (Chapter 1) and quality management (Chapter 2) and new product development (chapter 3). An example of major products launches of Apple are summarized below in Figure 2 (source: Wall Street Journal: January 28, 2010).
Figure 2: Major Product Launches by Apple
Clearly some products such as Macintosh (1984), iMac (1998), iPod (2001) and iPhone (2007) have been highly successful; while some other products (e.g. Lisa (1983), Newton (1992), Apple TV (2007)) have been equally big failures. Furthermore, while several apple products were designed to appeal to new markets and consumers, many similarities can be seen across its product offerings. In addition, there is a common perception that apple products are generally more expensive than its competitors. They’re also supposed to be astatically more pleasing than other products the marketplace.
Finally, the launch of iPad and its uncertain market potential creates an interesting production planning problem for the company. For example, if Apple forecasts sales of 2 million units the first year, what happens if the actual sales are 1 million? or 4 million? How do they or should they build a responsive supply chain to facilitate the uncertain demand for a new product?
Discussion Questions
- Based on the information provided above, what can you infer about apple’s dominant competitive priority? Is it cost, quality, delivery, or flexibility, or some combination of the four? (Chapter 1).
- Which of the eight determinants on product quality does apple emphasize In its products? (Chapter 2)
- Explain how Apple can use the newsvendor analysis and related concepts to build a responsive supply chain for their new products such as iPad (Chapter 6).
- Explain which of the following new product development concepts are applicable to the development and launch of iPad? Explain, why? (Chapter 3)
- Time based competition
- Continuous or disruptive innovation
- Mass customization
- Modular design
- Concurrent engineering
- Product platforms
- Reverse engineering
Additional Information:
Watch iPad Launch Video: http://www.apple.com/ipad/#video
Wall Street Journal Articles about iPad: http://topics.wsj.com/subject/A/apple-ipad/5857
Airline Security: Efficiency vs. Safety
How often have you stood in line to go through security at the airport and been mildly annoyed … or downright angry. Being an operations professor I can’t help but observe the process and think of ways to “do it better” – while also feeling pressure to “keep the line moving”. While there is clearly a need to maintain security, one wonders if the many hoops that we have to jump through are the right hoops. And then, there is always the one annoying individual who seems to have no comprehension that:
- There are other people in the line
- They can’t take their pocket knife, 5 gallons of water or 92 pound suitcase through.
- The poor TSA employees (in the U.S. – in other countries there is another acronym) face three conflicting pressures: keep the line moving, catch the bad guys/gals and deal with the public – who often can be inept, clueless or downright difficult.
I’m sure you have bumped into one or more of these people. Recently, I was in line and in the process of getting naked. Taking off my shoes, belt, wedding and class rings, watch, medical ID bracelet, phone and spare change (believe it or not I am not a jewelry wearing kind of guy). Did I forget the part about taking out my laptop? We might as well have to get naked ….
So, I had just put my cellphone in one of the plastic trays – precariously balanced on top of a 6 foot high stack of empty trays – because the people in front of me were taking their precious time and talking to their friends in the next line. So, this older gentleman takes a break from his critically important conversation with his friend in the other line, turns and without looking, grabs the tray with my cell phone and starts to walk off. Given that I was busy, and I was in another country where I speak very little of the native tongue, all that I could manage to do was yell – NO! at about 150 decibels. This stopped cell phone grabber in his tracks and I received an apology – I think in French – and we all proceeded on our way. I was a bit embarrassed, but my cellphone was OK.
Similar scenes play out thousands of times per day at airports around the world. Almost no one involved in this dance enjoys it, but we must do it. …. And yet, does this process have even a reasonable chance of catching the bad guys/gals? We all want the process to work – and yet there are enormous operational challenges. There are tradeoffs between efficiency and the quality of the safety scan. There are human challenges – no matter how the system is designed and what technology is used, there is always the issue of 1) getting employees to do the proper things thousands of times per day and of 2) getting passengers to understand and follow the rules.
So, next time you are experiencing the security line, see what you can do to make it flow more smoothly, make the TSA employees feel appreciated and observe the process and think about ways it can be improved to make it less burdensome, more efficient, less costly and/or more reliable.
Discussion questions:
- Describe how managing the security process at airlines uses principles or methods of quality management (Chapters 2 and 11), process design and analysis (Chapter 4), technology (Chapter 13) or lean production (Chapter 12).
- How might optimization or simulation modeling be employed to improve the process?
- What suggestion(s) do you have for improving this process?
- How might TSA officials better “train” or communicate with passengers to streamline security?
- What is your most interesting security experience? Why did this occur? Was this a system flaw or simply an outlier – i.e. is it an assignable cause or is it an alpha error?
Sources:
- Many, many personal experiences.
