Wednesday, September 10, 2014

Lean Manufacturing in the IT industry: The Amazon Story

The Spirit of Lean has been with Amazon since 2007. Jeff Bezos, CEO of Amazon has always adopted a customer centric model. He believed that customer should not be charged for the waste and focus on waste prevention, which is the fundamental concept of the Lean Principle.
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“ Lean manufacturing, Lean enterprise or lean production, often simply, "lean", is a production philosophy that considers the expenditure of resources in any aspect other than the direct create of value for the end customer to be wasteful, and thus a target for elimination.”

Bezos pointed out that Lean principles make a lot of sense in IT industry. Many companies are implementing CRM (Customer Relationship Management) tools to understand the needs of the customer and to optimize their business mode. IT professionals are being trained to understand the business model they are in and how it is impacting the end customer.

It is amazing how Amazon, an E-commerce company has studied this model and blended it well with their operations. Given the evolution of Amazon from a bookstore to a store of everything, they had to re-invent and implement  various levels of automation.  The operations team used humans for creative and flexible work while machines were deployed for process oriented work. The result was a very efficient human being assisted by a machine, which met the standards of a Six sigma process.

Some of the principles of Lean or TPS (Toyota Production Systems) techniques that were applied were:

  •       Standard work
  •       Kaizen
  •       Pulling andon cord

      The biggest challenge for IT industry lies in eliminating defects from software creation. It will an interesting next few years to see how the application of Lean principles to the software creation evolve.

Standard work:
The problem with most companies including Amazon was that most workers are assigned vague tasks and it is difficult to measure their productivity.  To counter this, there was a very well defined standard process that was defined to describe the task of each worker. An example of this can be seen in their fulfillment centers. The workers who stowed the items on the shelves also had to scan each item so that the computer can maintain the inventory. By defining a standard approach for this, a target productivity of 20 minutes was set for each worker to unload the trolley.

Kaizen:
“Kaizen is the philosophy of continually improving the products, processes, and activities of a business to meet or exceed changing customer requirements and the organization’s standards in an effective and efficient way.”

Jeff Bezos introduced a program where all the senior executives had to work in the customer service department at least one day in a year. During his time at the center he was in the “Receiving” department where all the defective shipment items would arrive. To counter this problem, the team implemented a ‘three strike’ packing process. The merchants were coached on the guidelines of shipping and in the later stages a warning was issued to eliminate defects.  Failure to comply with these guidelines resulted in the termination of contract with Amazon.

Pulling the andon cord:
The andon cord is another well-known innovation at Toyota, which allows the frontline workers to make suggestions for quality improvement. In the event that a customer service agent calls and complains about a defect, the workers keep a track if there is any pattern in the defect being reported. The frontline workers stopped the production line if there were instanced of defects reported and the production again started after the defect was fixed. This process saved tens of thousands of defective items from being shipped. As per reports, 98% of the time andon cord is pulled only when a real defect was found.

Jeff Bezos is adopting the Lean principles in every line of business to improve efficiency and deliver customer satisfaction.  AWS (Amazon web services) is a revolutionary cloud solution, which is changing the face of IT industry forever. This platform was delivered on a pay as you use where the customers get an insight into the usage and costs associated with utilization.


References:

http://www.cnet.com/news/bezos-amazon-web-services-is-lean-manufacturing-for-it/



http://www.zdnet.com/amazon-ceo-bezos-aws-is-lean-manufacturing-kindle-fire-for-it-7000008115/




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