Lean Innovation at Amazon

Jeff Bezos, always had the spirit of lean management, since the day that he created Amazon. He has been totally customer-centric.  Amazon is a natural place that applies lean principles. In an original article in McKinsey Quarterly, Marc Onetto explains how they’ve worked in practice, and where the future could lead.

The Amazon’s CEO knew that customers would not pay for waste and that focus on waste prevention is a fundamental concept of lean. The company’s information technology was always very good at understanding what the customer wanted and passing the right signal down. For example, the selection of the transportation method for a given package is driven, first, by the promised delivery date to the customer. Lower-cost options enter the equation only if they provide an equal probability of on-time delivery. That’s basically a Lean Principle.

Amazon has more people working in the fulfillment centers and customer-service centers than it does computer-science engineers. They needed the engagement of all workers on continuous improvement from the Gemba (the physical, frontline place of “value work”) to succeed, since they are the ones who are actually receiving, stowing, picking, packing, and sending packages or responding to customers by phone, chat, or e-mail.

Given the business evolution of Amazon from a bookstore to the store for everything, they had to reinvent automation, following the lean principle of “autonomation”: keep the humans for high-value, complex work and use machines to support those tasks. Autonomation helps human beings perform tasks in a defect-free and safe way by only automating the basic, repetitive, low-value steps in a process. The result is the best of both worlds: a very flexible human being assisted by a machine that brings the process up from Three Sigma to Six Sigma.

Another major dimension of the deployment of lean at Amazon was the enforcement of “standard work”: combines the elements of a job into the most effective sequence, without waste, to achieve the most efficient level of production.

Kaizen in the fulfillment center

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. Continuous improvement focuses on the elimination of waste or non-value-added activities throughout the organization.

Kaizen and the whole process of continuous improvement was, and continues to be, a powerful tool at Amazon. That’s partly because for a long time Jeff Bezos has had all of senior management work in customer service at least one day a year. This allowed executives to see events on the front line, to understand the problems that came up, and to help find solutions.

Each kaizen is a very simple thing, but the accumulation of kaizens makes an enormous difference. Amazon also used kaizen at the workstation level to reach new productivity objectives for stowing products. The goal has always been to stow products within a certain time period and with a certain number of frontline staff, because stowing accounts for about 20 percent of the costs in the fulfillment centers.

A challenge for Amazon was that the productivity of the carts was very unpredictable: stowing a small book does not take the same time as stowing a computer screen. They used kaizen to improve the standard work by reducing stowing times, so they solved things bottom-up on the front line to achieve the top-down goals for productivity.

The ideal kaizen teams are a combination of frontline workers, engineers, and a few executives who are going to ask questions and have no preconceived ideas. They put these people together and said, “Here’s a problem; we’re going to improve it.” The kaizen team should be judged on results that will be meaningful for the company in the long term.

Pulling the andon cord

The andon cord is a Toyota innovation now common in many assembly environments. Front-line workers are empowered to address quality or other problems by stopping production.

At Amazon, they discussed implementing the andon-cord principle in customer service. Bezos was enthusiastic about it right away and they implemented it in about six months. The process begins when a service agent gets a phone call from a customer explaining that there is a problem with the product he or she has just received. If it’s a repetitive defect, they empower the customer-service agent to “stop the line,” which means taking the product off the website until they fix the defect. The objective is to start the line again with the defect resolved. They created an entire background process to identify, track, and resolve these defects.

The andon cord has had an amazing impact; it eliminates tens of thousands of defects per year. The other wonderful thing is that the andon cord has empowered frontline workers. The authority to stop the line is an enormous proof of trust for customer-service agents, who usually have no real authority to help to customers over the telephone. With the cord, the agents have been able to tell customers that the product has been placed in the lab for quality problems until the defect can be resolved. At the same time, they offer customers a new product or reimburse them. Customers can see products pulled for quality issues on the website in real time. This has created incredible energy and motivated our frontline people to do great work for their customers.

Next frontiers

Perhaps the biggest challenge for Amazon is the application of lean-management principles to software creation, which is highly complex, with numerous opportunities for defects. Software engineers have not yet been able to stop the line and detect defects in real time during development. The only real testing happens once the software is completed, with the customer as a beta tester.

On the other hand, Amazon is selling 3-D printers, but it has not yet expanded to actual products on demand. Perhaps some manufacturers are beginning to distribute 3-D printed products. It’s not science fiction anymore, but it is still experimental.

It’s fascinating because it’s the concept of print on demand extended to absolutely any product. Today, in some fulfillment centers, there is printing equipment that allows Amazon to print and ship a book within four hours of a customer order for it. 3-D printing is just an extension of this concept to all sorts of goods other than books. The idea of making a product for the customer at the time the customer actually orders it is fascinating because that’s what the creators of lean always dreamed about. It’s the ultimate just in time.

Image credit: businessweek

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Geovanny Romero, NPDP: Manager at Renovallanta-ContiLifeCycle. Managing Director at NPD Strategy in Andean Region. President of PDMA Ecuador. His main interests are focused in Lean Innovation Management and New Product Development. You can connect with him on Twitter @geovanny_romero