If you’ve read anything about lean management, you will probably have noticed a preoccupation — I might almost say, an obsession — with the concept of ‘delays’. Sometimes delays are caused by work sitting in ‘queues’, and the longest queues form in front of ‘bottlenecks’, and delays can be reduced by eliminating ‘waste’ and improving ‘flow’, so if you’ve seen those terms too, there have been delays lurking in the background. (If you haven’t noticed this by the way, then you may not have been reading reliable sources, and I cannot recommend This is Lean highly enough).
But why are delays such a central concept in lean? Why do they matter, and what should you do about them?
These questions came up recently when a client asked for help with the following problem:
We’re an online retail business, and as we grow we need to understand more about when we should be re-ordering products, and how much inventory to hold. We want to protect our cashflow by not having a lot of capital tied up in stock. How can we work this out?
I think this is a really interesting question, and reading it you may have some ideas about how you would tackle it. There’s a good chance your first thought was another word beginning with ‘d’, that’s one of the defining features of our time: data.
I think data is a very important part of this problem, as it is in so many business sitautions. After all, eBay and Amazon are, in some sense, data businesses. Although to the consumer, they are retail outlets, eBay says its biggest asset is customer data, and lot of Amazon’s activity is driven by APIs. One of the first things that I wanted to look at with the client here was: do you have access to good quality, realtime and historical customer demand data? (And it is demand data that really matters here, not just sales data for various reasons, one of which I’ll cover later).
There’s another piece of the puzzle here that’s not as obvious as data, but is an important part of solving this problem in the long-term, and is a great illustration of why delays are so central to lean thinking.
To reveal that puzzle piece, ask yourself the question: why does a business need to hold inventory at all?
The lowest possible risk scenario for a business would be to hold zero stock, and to only order (or make) a product on demand when a customer orders it. Then absolutely no cash is tied up in stock, there’s no risk of ending up with products that you have to sell at a loss if demand dries up, and you have to put only minimal resources into forecasting demand. The whole problem of “how can we build a system that allows us to predict when we should re-order” more or less disappears in a puff a smoke and no longer needs to take up management time. This ‘zero stock’ approach is not just a thought experiment. People do it and make money from it. It’s what drop-shipping is.
Given that drop-shipping exists, and is so low risk, why doesn’t every retail business operate in this way? The answer to that lies in the heads of customers. When we buy things, we may be sensitive to the lead-time, and want the items not as and when they’re ready, but by a specific point for a specific purpose (or even just ‘soon’, because it makes us feel better). If I need to change the battery in my razor and I don’t have any in the house, I’m more concerned about how quickly I can get them than where I get them from, and so an online store that could deliver them to me the same day would win out over one that would take longer. What does that tell us? It tells us that to make a drop-shipping model a success, we must be able to fulfil our customer orders within the timeframe that’s acceptable to them for the product they’re ordering. If we can’t do that, our clients will go elsewhere. The demand will still exist, but we will not be making sales. (This is one of the reasons why demand data matters more than sales data!)
This exploration of customer psychology shows there’s a tweak needed to our ‘lowest risk’ scenario. To reduce the risk of lost sales, we should aim for an approach where we maintain zero stock, but can still get products to customers on time. If our supplier can deliver a product directly to the customer on the customer’s desired schedule, we don’t need to keep our own stock. But if our supplier takes longer than the customer will tolerate, we have to maintain our own inventory to create a buffer. The reason we require buffer is because of the time it takes for our supplier to fulfil our orders. In other words, the need for inventory is caused by delay.
This point is super-important: the reason any business holds stock is as a result of delays. And this illustrates why lean theory is so focused on delays: if we can reduce delays, we can reduce the amount of stock we need to hold. This in turn reduces the level of risk the businesses is carrying, and frees up working capital.
Some delays are beyond our control. There may be relatively little we can do about our suppliers lead times (although Toyota has actively worked with suppliers to reduce their delays from the early days of the Toyota Production System). But there are plenty of delays that are within our control, and every one that we can reduce translates into a smaller inventory. The causes of delays in a business can be anywhere. As well as our working methods, things like HR processes, warehouse or office layout, and team meetings can all be targets for improvement. Each of these and many other domains are ripe for investigation. This is why its central to the lean approach that everyone in an organisation is recruited, as an on-going part of their job, to be a detective on the hunt for inefficiency that they can eliminate.
Making the hunting of delays part of everyone’s job is how you initiate a process of continuous improvement, which is absolutely central to lean philosophy. Lean is all about orienting an organisation’s culture towards finding and eliminating waste (or, to take the positive mirror image, to delivering value). The challenge faced by this retail business illustrates why this lean concept is so useful, and why delays are so important to notice. It’s not just retailers that can benefit: any organisation can find ways to do more of what it cares about the most, without needing to increase the resources it has available, if it’s willing to dedicate some of those resources to self-improvement.