Dear Gemba Coach,
I’m the lean director at a hospital where the board keeps investing and then asking us to cut costs. I understand lean aims for better patient care and reduced lead times, but I’m having trouble reconciling this with my CEO’s demands. Any advice?
Well, relax and enjoy your problem as our British colleagues would say – this is a very common situation that gets us to the very heart of lean thinking, so this is well worth exploring carefully. Both lean and mainstream management seek the same things – competitive edge through better service and greater productivity, but they have radically different ways of going about it.
Let’s go to the gemba and look at a fairly noncontroversial hospital operation: blood tests (as opposed to care where what is “good care” is hard to pin down and very, very context dependent). Blood samples from the patient are placed in tubes, reagents added, tubes go into the centrifuge for a few seconds and then examined with a microscope. Obviously, procedures range from simple to very complex where the cellular mix has to be adapted in several steps, depending on the nature of the test.
Essentially we have a highly skilled operation, requiring rigorous steps, including labeling, mixing components, and judgment in interpreting how cells appear under the microscope. But, all in all, it’s a matter of tens of minutes. At the extreme, we can imagine live blood testing that, from pinprick to plate to microscope takes a few minutes at most.
A hospital, however does a great many of those a day, so a valid question is how to raise the productivity of blood tests, and here we have two completely different approaches.
Different Views of Productivity
Mainstream thinking looks at the unit cost of each blood test, and the calculation is that investing in a blood testing automated machine that batches tests and thus performs many in a fixed period of time makes a lot of sense. It will require consolidating all blood tests at the machine in order to use the machine efficiently, but will also need far less lab personnel per blood test. The machine takes samples from a track and then does dilution, adds reagents, mixes, and conducts analysis through software. It can perform at throughputs as high as close to 10,000 tests per hour. This is smart because:
- Quality is better because there is less risk of human error.
- Costs are lower because fewer personnel are needed.
- Amortization costs go to the central hospital budget, and not to the standard cost of blood testing.
Lean thinking takes a very different view of blood testing productivity and would focus on lead-time. The question is very different: how quickly can we get the final product, the analysis results, to the doctor? If we look at it this way, each ward would have its own laboratory, and the question is what range of tests each ward could perform on its own. This is a core lean issue – if we want to develop autonomy closer to customers, we also need to develop flexibility, which in some cases, such as blood testing is far from obvious.
Still, some tests are needed urgently by the doctor to make a correct diagnosis, whereas others are background checks to make sure we’re not missing something in the patient’s general condition. Indeed, some tests results can be checked after the patient has been released, since they are needed to put to rest unlikely cases.
From that point of view, productivity is seen as the patient’s reduced stay in the hospital since tests are delivered as quickly as possible on demand. The automated machine cannot do this because it needs to batch all samples first – samples have to be gathered at some point to be taken to the lab. Then it treats samples one batch at a time, and releases results after a fixed time, usually a couple of hours since taking the sample. This is too slow for the urgent result needed and too fast for the background check. We have late delivery in the one case and overproduction in the other.
We can visualize two very different ways of operating:
- Mainstream: Samples are gathered ward by ward, conveyed to the central lab, batched in the automated machine. Results are then organized and released at a set time to the wards. As a result, the ward’s work is organized around the release of results where diagnostic and therefore care can be resumed. The investment in the central, automated lab makes sample analysis very “efficient” from a unit cost analysis, but very cumbersome overall.
- Lean: Samples are picked up in all wards hourly, sorted and sent to different lab units according to need and specialty. Results released as soon as ready. This requires greater logistics rigor and effort (picking up every hour) but now the blood testing process is embedded in the care and wards can organize around patients rather than blood tests, diagnose faster, and reduce the overall length of stay in all cases that permit it.
Organize Around the Patient
How does this affect productivity? In the first case, blood testing unit productivity hinders ward productivity as doctors and nurses are dependent on the blood testing automated process to carry out their work. In the case of nurses, this applies to all logistics. Because logistics delivers materials in big batches to wards, nurses spend as much time dealing with ward logistics as they do with patient care, and can’t organize themselves effectively because their timetables are ruled by deliveries.
With rigorous regular just-in-time deliveries on the other hand, the ward can now organize around patients, waste less time in waiting for this or that and dealing with huge batches when they come, which means wasting more time in opening pallets and sorting through everything. As a result of a more stable work environment, ward managers can better organize standard work and, in the end, need less nursing personnel to care better for the same amount of patients.
The lean approach is that better control of logistics leads to a more stable work environment which enables frontline managers to create continuous work for all (eight hours of standard work for each person) and deliver both better quality and higher productivity. Lean work requires less people and less storage space, so the overall square feet of the ward can be lower as well:
Better working capital use → better fixed asset use → higher productivity → better margins
Top executives sign off on investments expecting cost reductions in returns. Since centralized investment require very high volumes to have effective payback, in most cases, the hoped for cost reductions never materialize. Having committed to these cost reductions to their own bosses, executives then seek cost downs where they can by putting pressure on running costs. The outcome is as you say – huge investments working poorly on the one side, and mindless cost reductions creating operational fires on the other. It sounds absurd (actually, it is absurd), but in fact reflects the hard facts of a theory of productivity which assumes that unit cost goes down when volume goes up – in a world where volumes hardly ever go up, but demand for variety does.
On the other hand, focusing on controlling and then reducing lead-times by tightly controlled logistics leads to freeing the value-adding teams to organize around their job and not around subsidiary deliveries (how often have you had to wait at home because you’ve ordered something that will be delivered “within the day”). This, in turns enables teams to focus on better doing their work with less wasted time, which means higher service and productivity.
Rather than invest and then recoup the investment by arbitrarily reducing operating costs, lean thinking leads you to increase your inventory turns (improve your use of working capital) by using your equipment more flexibly (improve your use of fixed assets), which delivers overall productivity without having to reduce running costs AND will lead to overall cost reduction as exceptional costs due to mishaps disappear.
Yet, as you say, the challenge remains: how do we convince top executives?
