Dabbawala and six sigma

Based in India, the Dabbawala organization is the buzz of the six sigma consulting world. To quote from the Economist’s article: 

“Using an elaborate system of colour-coded boxes to convey over 170,000 meals to their destinations each day, the 5,000-strong DABBAWALA collective has built up an extraordinary reputation for the speed and accuracy of its deliveries…

At 9am every morning, home-made meals are picked up in special boxes, which are loaded onto trolleys and pushed to a railway station. They then make their way by train to an unloading station. The boxes are rearranged so that those going to similar destinations, indicated by a system of coloured lettering, end up on the same trolley. The meals are then delivered–99.9999% of the time, to the right address.

Apparently there is now an HBR case on the organization.  This is probably worth checking out further if you need to discuss quality management.

The Economist, July 10, 2008
THE CULT OF THE DABBAWALA

Women need more capacity – potty parity laws

When it comes to potties, “separate but equal” may not be equal enough – NY’s City Council decided that public venues like arenas, nightclubs and theaters must provide a female-to-male restroom ratio of two to one. This provides an entertaining context to discuss queuing theory.

We all know that women often have to queue to use the restroom while men usually do not. To devise the appropriate solution, it is important to know why. Queuing theory provides useful guidance.

In short, a queue will form when the load on the system exceeds its capacity, where the load is the arrival rate multiplied by the time to process each request. Think of load as the desired number of flushes per minute and the capacity as the feasible number of flushes per minute. This raises several possibilities for why the queue in the women’s room is longer:

(1) The arrival rate of women is higher, either because there are more women than men at a particular venue (doubtful at Madison Square Garden’s Monster Truck Smash) or because women need to use the restroom more often (absolutely true in some families);
(2) The arrival rate of women is more variable. Hard to imagine this is so unless the women’s basketball team bus arrives or women have a greater tendency to use the restroom in packs.
(3) Women have a longer processing time. Data could in theory be collected on this, though discretion would be appropriate;
(4) Women have a more variable processing time. Again, many theories, little hard evidence;
(5) Less capacity per restroom – How many people can flush simulataneously in a restroom? On a per square meter basis, urinals are very efficient.

When it comes to restrooms we probably do not want to consider options that would either strive to (i) decrease the mean or variance of their arrival rate or (ii) change their restroom behavior to decrease the mean or variance of their “processing times”. That leaves cause (5) above as the solution – increase capacity. 

A simple solution to increase capacity is to pool capacity – unisex restrooms.  This, of course, is a non-starter in some cultures. The obvious alternative is to add more women’s restrooms (i.e., more possible flushes per unit time),  which is exactly what NY City has legislated.

This leaves open two questions – why do we need legislation to fix this? (i.e., why doesn’t the market work here) and how do we get men to leave the seat down?

NY Times, July 18, 2008
A ‘Women Only’ Restroom Renovation Tips the Balance at Grand Central
http://www.nytimes.com/2008/07/18/nyregion/18bathrooms.html

Quality management at the American Red Cross

According to the FDA, the American Red Cross is not as good at ensuring quality in the nation’s blood supply as it should be.  In fact, ” … despite $21 million in fines since 2003 and repeated promises to follow procedures intended to ensure the safety of the nation’s blood supply, it continues to fall short.”

This article describes some basic failures of quality management and illustrates some opportunities. For example, the Red Cross lacks a system to track errors (blood units that should not be introduced into the system) and hence has no mechanism to identify root causes and to develop solutions. 

Next, because it is a large ($2.1 billion in revenue) and decentralized organization (they use to have 53 operating regions and now 10) they lack uniform standard operating procedures.  Even when they have standard procedures, workers do not always follow them.  For example, a phlebotomist is suppose to swab a patient’s arm for 30 seconds and then let that area dry for 30 seconds, but those times are not always followed.  One solution is to make phlebotomists wear timing devices to ensure compliance. Another is to redesign the process to be more robust, especially with respect to ensuring that people comply with the standards.

The news is not all bad. A key lesson from quality management is the elimination of variability.  Red Cross workers sometimes forgot to ask all of the pre-screening questions to potential donors, thereby letting some donors pass even though they shouldn’t (e.g., if they had visited a malaria risk country).  To standardize the process, now potential donors must complete an on-line questionaire – the computer doesn’t forget to ask the question, so variability in the process is reduced.

NY Times 7/16/08 – Problems persist with Red Cross blood services
http://www.nytimes.com/2008/07/17/us/17cross.html

Allocation and production when demand is hot

Although most of the news in the U.S. auto industry is bad, Honda is selling more of its small car – Fits and Civics – than it can make.  So this creates two problems – (1) how do you allocate vehicles when dealers are scrambling for more and (2) how can you make more of the hot selling vehicles?

Honda uses turn-and-earn allocation – if a dealer sells a vehicle, they earn the right to another one. Seems fair but more importantly, it makes sure that dealers don’t charge too much or else risk slowing their sales, thereby jeopardizing future allocations (our conjecture, not in the article).  In other words, its a legal way to discpline dealership pricing and sales effort.

But Honda still wants more of those Fits and Civics, so it is making plans to move truck capacity around and free up capacity for its smaller vehicles. Toyota and the other makes are doing the same thing.  The winner from all of this will be the firm that has the most flexible production – who can turn a truck assembly line into a small vehicle assembly line the quickest and at the lowest cost?  Flexibility is like insurance – its seems a waste when you don’t need it and critical when you do!

Automotive News, June 17, 2008, Honda dealers scramble amid stampede to small cars

24h wait in the ER / video of a patient collapsing while waiting

Long waiting times and crowded ERs have unfortunately become rather common in the US – sadly enough, the country has gotten so much used to this fact that a crowded ER or a diverted ambulance is not news any more. The tragic story of a NY woman collapsing in the ER of a psychiatric ward, however, made it into the national news. Her collapse and subsequent death were captured by the video system installed in the waiting room and the video made it onto YouTube. When the patient collapsed (after having waited for 24h), nobody (neither patients nor hospital employees) noticed or cared. A sad reminder about the importance of service operations management (including the management of waiting times) and quality management. For more details, see:

NYT July 2, 2008: Video of Dying Mental Patient Being Ignored Spurs Changes at Brooklyn Hospital 
http://www.nytimes.com/2008/07/02/nyregion/02hosp.html

Make or buy? It is still a question

Sharp plans a $9b investment in a new manufacturing plant to make LCDs and solar panels.  Apple doesn’t make its electronic components but instead focuses on design and outsources production.  The make vs buy strategic decision is still relevant and challenging!

Many electronic components quickly become commodities, so why would Sharp want to own its own manufacturing plant – in Japan no less, a high labor cost country?  They claim that they will be able to pack enough distinctive technology into the LCD to allow them to earn a healthy profit.  Whether this is a good idea or not will probably hinge on the nature of the technology.  If the technology is modular, so that it can be designed without a specific manufacturing process in mind, then they will probably have a hard time.  On the other hand, if the technology is integral to the product and its manufacturing process, then this could be the right decision.  To explain further, Apple probably doesn’t need to know much about the manufacturing of flash memory chips to include them effectively and creatively in its iPods.  Hence, the outsourcing approach can work for that technology.  To answer whether in-house manufacturing is valuable or not with LCDs requires knowing more about the particular technologies they have in mind. Not surprisingly, they don’t reveal that information in the article.

WSJ July 9, 2008 – Sharp Focuses on Manufacturing

Steve & Barry’s – don’t invest quite yet

One of our first posts was based on a May 1, 2008 article on Steve & Barry’s, the cheap-chic retailer that sells brand name fashion for ridiculously low prices.  In fact, their prices are too low – they are apparently about to file for bankruptcy or liquidate, according to a July 9, 2008 article.  It seems it is still true that you cannot sell below cost and make it up in volume.

So as we wipe “half the egg off our face”, let’s look again at their business model.  We wrote:

How do they do it? Manufacture in low labor cost countries (but others do that). Don’t advertise (that is different for a fashion retailer). Locate in underperforming malls (definitely not the Zara strategy). And an obsession with coping with razor thin profit margins. Unfortunately, the article doesn’t describe more of their operations,

The Monday-morning-quarterback in us is willing to hear some skepticism above. For example, manufacturing in low cost countries is not unique.  It appears that their obsession with coping with razor thin profit margins is not obsessive enough to yield a positive profit margin, especially given that the article was short on details.

The conclusion – Zara is still the cheap-chic company to pay attention to and copying them is tough, even if the strategy is slightly different.

NY Times, July 9, 2008: Retail Chain Said to Face Bankruptcy

http://www.nytimes.com/2008/07/09/business/09shop.html?ref=business

High fashion improves the supply chain

Apparently even high fashion designers like Bulgari, Valentino and Gucci are paying attention to their supply chains and striving to improve performance.  They are making sizable investments in information technology to (1) cut lead times and (2) track sales data to better match the products in the store with what is selling.  In some cases they have learned the hard way – Gucci reported that a supply chain glitch lowered its quarterly sales growth by 2%.  Valentino hopes to reduce its lead time from Italy to the US by a couple of days.  These companies still rely on the novelty of their designs and the cache of their brands, but even they can appreciate the value of a smooth process.

WSJ June 27, 2008: Logistics are in Vogue with Designers

How to reduce congestion?

Fewer drivers are using Manhattan’s bridges and tunnels, which should mean that there is less congestion in the city. One obvious explanation is the increase in fuel prices. Another is the increase in tolls that went into effect March 2008. Either way, economics seems to work – raise the cost of something and people do less of it. But this raises an interesting question – what is the best way to reduce congestion within the city?

Mayor Bloomberg had proposed a congestion tax of $8 for entering a certain portion of Manhattan during peak times. That is a fee targeted at usage when the system is most highly congested, which, according to queuing theory, should be a more efficient approach than raising the cost of fuel, which applies for travel at any time. However, the increase in fuel costs may be equally effective if consumers are only able to choose alternative means of transportation at peak times. For example, consider two trips – a visit to a friend’s house for a dinner party or a commute to the office. The train may bring the person to the office, but not to the friend’s house. Hence, as fuel prices increase, the first trip to be dropped is the car drive to the office. Hence, it is an open question as to how much more effective a targeted congestion tax would be. However, it is clear that an increase in the cost of fuel funds oil producers whereas a congestion tax funds the city’s efforts to improve transportation – they may have similar effects on congestion, but not on the allocation of resources.

Politics Failed, but Fuel Prices Reduce Congestion
NY Times July 3, 2008
http://www.nytimes.com/2008/07/03/nyregion/03congest.html