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How Lean is Amazon?

by Tom Ehrenfeld
November 4, 2020

How Lean is Amazon?

by Tom Ehrenfeld
November 4, 2020 | Comments (22)

Amazon founder/CEO Jeff Bezos’s congressional testimony this summer clearly focused on scoring political capital. He talked about creating a million jobs, touted Amazon’s support of thousands of small businesses that sell their products in Amazon’s stores, and pointed out campaigns by the company to help the homeless and meet the goals of the Paris Agreement.

Amazon founder Jeff Bezos has frequently cited Lean Thinking by Jim Womack and Dan Jones as one of his favorite business books, and his annual letters (which provide invaluable insights into the thinking and practice of Amazon leadership) have referred to andon cords, Kaizen programs, and eliminating the root cause of errors.The key message however came when Bezos shared the core vision that has driven Amazon since its 1994 launch: obsessive customer focus. He cited “a constant desire to delight customers drives us to constantly invent on their behalf. As a result, by focusing obsessively on customer, we are internally driven to improve our services, add benefits and features, invent new products, lower prices, and speed up shipping times – before we have to.”

If that language sounds vaguely, well, lean, then it should prompt a healthy debate: How lean is Amazon? And what can we learn from it?

We know that lean thinking has deeply influenced the thinking of Amazon founder Jeff Bezos. He has frequently cited Lean Thinking by Jim Womack and Dan Jones as one of his favorite business books, and his annual letters (which provide invaluable insights into the thinking and practice of Amazon leadership) have referred to andon cords, Kaizen programs, and eliminating the root cause of errors.

Today the company faces broad cultural and economic factors constraining its relentless growth – all of which threaten its ongoing commitment to core lean principles. At such a massive scale, every major decision by Amazon carries with it multiple consequences, making a clear judgment about its commitment to lean orthodoxy confusing.

This piece is an effort to identify where and how the company has adopted core lean ideas, and to note the challenges it faces sustaining this work. So let’s start by exploring the company’s lean cred.

Lean principles and operations

The most explicit resource detailing Amazon’s applied lean principles can be found in this interview with Marc Onetto, a GE veteran who went on to serve as Amazon’s head of global operations during its years of early growth. The spirit of lean management has long fueled Amazon, he claims, saying Bezos has from day one been relentlessly customer-centric.

His article elaborates how Amazon has applied numerous lean practices to fulfill its mission.

One key challenge from the beginning has been creating the optimal blend of people and machines that deliver value, a problem they tackled with a classic lean tool. “Given the business evolution of Amazon from a bookstore to the store for everything, we had to reinvent automation, following the lean principle of ‘autonomation’,” he says: “keep the humans for high-value, complex work and use machines to support those tasks. For Amazon, “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.”

Yet the company’s reliance on lean principles doesn’t stop there. Onetto cites Amazon’s use of standard work, its emphasis on data as the basis for decision-making, and its operational habit of kaizen as further evidence of its lean influence.

Onetto also touts the company’s practice of pulling the andon cord in its customer service department. This practice eliminates tens of thousands of defects per year, he noted, while empowering front-line workers. Today the company uses a formal Amazon Virtual Andon as part of its AWS operations, and sends vendors an email with “Andon Cord” whenever defects that must be immediately resolved occur.

When it comes to the foundational practice of respect for people, Amazon’s operations have drawn widespread scrutiny for seemingly unsafe and unseemly practices. If true, such behavior conflicts with the spirit of respect for people.Finally, the company’s well-publicized process of decision-making seems to be propelled by lean principles. Former Amazon executive John Rossman says the company uses metrics to “relentlessly pursue root-cause understanding and correction.” His book Think Like Amazon shares how Amazon required everyone to develop a balanced, well-engineered scorecard of metrics as the basis for decisions. “Real-time metrics are the lifeblood flowing through the veins of Amazon.”

Finally, Amazon’s continued use of continually-improving operations to deliver the value that customer seek (and not the physical thing itself) calls to mind the core message of Womack/Jones’s Lean Solutions, which is that the ultimate goal of companies is to partner with the consumer to deliver exactly what the customer seeks; where and when they want it. Amazon's inexorable march towards fulfilling this promise suggests a lean ideal at the heart of its work.

But about respect for people?

Lean principles clearly inform many of the company’s operations and strategy. But when it comes to the foundational practice of respect for people, Amazon’s operations have drawn widespread scrutiny for seemingly unsafe and unseemly practices. If true, and widespread, such behavior conflicts with the spirit of respect for people.

Numerous articles have called out the company for exposing its delivery drivers to unrealistic deliverables that “repeatedly emphasized speed and cost over safety,” resulting in excessive crashes and in fact deaths, according to this article. While all companies doing deliveries at the scale of Amazon encounter accidents as part of doing business, this piece argues that the company placed a higher premium on fast delivery than it did on driver safety.

Another well-known charge for the company has been that the company’s push to maximize delivery of packages has led to excessive injuries among warehouse employees, who had to scan new items very 11 seconds. “Ruthless Quotas at Amazon Are Maiming Employees,” charged a lengthy article in the Atlantic. Adding to that have been more recent charges that the company has exposed its employees to coronavirus. And finally, the company has been criticized for its 2018 median wage per employee of…$28,446.

Any company that has grown to such unfathomable scale with such extensive success as Amazon inevitably encounters episodes such as these – and is certain to expect ruthless coverage from a pitiless press. Which does not however mean that some of these charges are not grounded in fact.

And yet the key question for lean thinkers remains: How effectively has this company based its success on known lean principles? And what should be learned from this, and applied to future stars?

Keywords:  andon,  customer focus,  innovation,  leadership,  value
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22 Comments | Post a Comment
Daniel Jones November 04, 2020
1 Person AGREES with this comment

Amazon along with Tesco in the UK were the first to understand the profound significance of the Toyota Parts Distribution System described in Lean Thinking and Seeing the Whole Value Stream that drove Amazon to progressively drive towards overnight deliveries, against conventional logistics practices. This is the flip side off its obsesive customer focus. Fundamentally changing retail for ever and everyone!



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Tom Ehrenfeld November 04, 2020

Thanks for the comment, Dan. Interesting that your terrific book Lean Solutions barely mentions Amazon--yet Amazon's success is quite resonant with that book's core message (of being flexible and resilient in understanding how to deliver solutions above all--beyond any tangible things)...



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Kurt Horst November 06, 2020
1 Person AGREES with this reply

I was lucky enough to help Amazon start their version of Six Sigma and Lean back in 2000 as their first external Black Belt hire (I learned as a GE Supplier).  Jeff Wilke and Jeff Bezos personally drove the thinking.  When Bezos visited a Fulfillment Center, he skipped the front office and walked directly to shipping to work, as he wanted to be as close to the customer as he could get.  The first book I was given to study was "Learning to See".  I learned a great deal in the one year I was there and have many stories of great leadership.  I seriously doubt the thinking has changed from back then.  It was always "Customer-centric" and still is.  We focused on making the work on the shop floor easier and less error-prone.  Very data driven and focused on continually reducing lead time.  I'll never forget a quote, "I wake up paranoid every day that someone else will take our business, so we all better be improving every minute of the day to keep it."



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Tom Ehrenfeld November 06, 2020

Wow, Kurt. Great story to share! You are always welcome to say more about this....

Not asking you for anything inappropriate here, but I gotta ask: do you think that Amazon continues to apply lean thinking and practice to its operations and management?



dan markovitz November 04, 2020
1 Person AGREES with this comment

Wall Street's acceptance of comparatively low profits at Amazon is an important factor in enabling the company to pursue lean. 

Most US companies are punished by Wall Street analysts for not maximizing short term profits. That's one reason why it's so difficult for public companies to fully commit to lean principles over the long term. But for whatever reason, analysts have given Amazon a pass over the past decade, and not demanded the same level of profitability.

It will be interesting to see how strong Bezos is committed to lean if that changes, and the stock market requires higher quarterly profits from the company.

 



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Tom Ehrenfeld November 04, 2020

I believe that Amazon has chosen to delay profits (not pursue low profits) in order to build for the long-term, which has allowed it to create robust and well-guarded systems that deliver high margins and high profits. And for the past few years, the market has richly rewarded the company for this. 

Has Amazon pursued a lean path with its long-term strategy?



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dan markovitz November 04, 2020

No, of course Amazon hasn't chosen to pursue low levels of profitability. But Wall Street doesn't reward delaying profits either. It's all about making the quarter. 



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Cliff Ransom November 04, 2020
1 Person AGREES with this reply

Actually, Dan, it's worse than you stipulate. Amazon, I believe, still loses prodigious amounts of money in its retail operations, but it also runs Amazon Web Services, which is massively profitable.

In addition,Wall Street has given Amazon a pass for at least the last 20+ years, not just the last decade.  Amazon also helped popularize the foolishness associated with "adjusted" Generally Accepted Accounting Principles. You know, Operating Income before raw materials, utilities, sales and distribution costs, labor, and a few other pesky line items.

As I watch the astounding brick-and-mortar expansion of Amazonn's distribution system, I am reminded of Jim Womack's famous axiom, "The indicator that does not lie is inventory."

On the other hand, my experience suggests that it is often counterproductive to generalize about the investment world. The leanest and best run companies that I follow for my institutional investment management clients all benefit from price-earnings valuation multiples significantly higher than the average company.

Finally, as Tom's post went to print, he and I discussed the ways in which Amazon can be massively customer UNfriendly. For example, Amazon collects a huge percentage of merchandise revenue, declines to tell the vendor who the ultimate buyer is, and, most recentlly, contracts to produce "house brand" products for it to sell in direct competition with its own customers. Given the clout of the organization, no buyer (including this writer) or seller can resist the power of its distribution channel.

Tom: how about making today's blog post the first of a series of exploration of other companies' "Leanness" or lack thereof?  It might be a very short series, but I'm sure that you could add a lot of value.



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Tom Ehrenfeld November 05, 2020

Thanks for the smart reply Cliff. I don't believe that Amazon currently loses "prodigious amounts of money" in retail, but have not pored over its financial statements on that. Yes, AWS provides massive profits to the company--a somewhat underreported aspect of the company's operations and profits. 

The company's history of what you call unfriendly behavior towards customers and vendors is troubling, to me at least. Again, I consider this partly a function of following one principle (lowest cost/hassle to customer) relentlessly. But over time the systemic costs mount. 



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michael Ballé November 04, 2020

Great post Tom, and as story that needs to be told, a testimony to the power of customer satisfaction and just-in-time as well as a cautionary tale about respect-for-people.

I remember visiting a Daihatsu plant (part of the Toyota group, but not Toyota) and Just-in-time was amazing, with several completely different models in sequence and high standardized work, but, when I was there, little sign of kaizen - and so many micro problems and productivity losses I'd not seen in any Toyota plant in Japan. 



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Tom Ehrenfeld November 04, 2020

Yes, thanks for the comment. What's striking to me about Amazon is that it appears (and I have not been able to visit its gemba!) that it is fairly relentless about refusing to accept internal defects that might eventually bear upon quality delivery to the customer....



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Sarah Lethbridge November 04, 2020

Great read thank you - I agree with the point around autonomation but i believe it is a little more than just enabling humans to focus on value work. We know that a lot of lean improvement involves 'waste swopping' - "I'll accept 'more transportation' to achieve 'lower inventory'".  I believe that Amazon has targeted autonomation specifically as a waste ELIMINATION strategy - maybe that's why they're not scoring as highly on the respect for people front?! I wrote about this here: https://blogs.cardiff.ac.uk/sarahlethbridgelean/confront-waste-to-innovate/



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Tom Ehrenfeld November 04, 2020

Thanks Sarah. I read the post you cited, quite good. Can you say more however specifically about autonomation and what you refer to as "waste swopping"?



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Sarah Lethbridge November 05, 2020

Sure. We know that Jidoka means automation with a human touch - separating man's work from machine's work.  Just a theory, but I think Amazon has pursued automation with a different vision -  waste elimination is its primary automation goal.  It's why it's pursued Amazon Go at HUGE expense - because it's closer to the lean ideal and they think and know that the ultimate experience is no waste.   https://youtu.be/NrmMk1Myrxc It's why they have patented drone deliveries, https://www.thedrive.com/article/13950/amazon-drone-patent-describes-a-delivery-drone-that-will-talk-to-you it's about technology that gets closer to one piece flow. It's why they bought Kiva systems and it became Amazon Robotics. https://amazonrobotics.com As I try to explain in that post, lots of lean is about increasing some types of waste because you prefer that waste to another type of waste, mizusumashi, milk rounds etc, increasing transportation, pushing the waste outwards, imperfect improvement that's better than nothing in the absence of a technological advance.  Amazon seeks to eliminate wastes through technological innovation, I think it's what drives it and I think that its really interesting and important to think about the magical 7 wastes in terms of how they can help companies to know how and where to innovate. But yes, whereas Toyota values people, I think Bezos would be happy if they could be completely unnecessary to his operations!



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Tom Ehrenfeld November 05, 2020

Yes, Ohno wrote of autonomation (in his Toyota Production System book) that it indeed is a seamless blend of people and machine--that "stopping the machine when there is trouble forces awareness on everyone." Really fascinatining aspect of a complete lean approach! So I don't see how Amazon could make people "unnecessary." That is, I hope that is not the plan!



Ricky Mankavech November 04, 2020
1 Person AGREES with this comment

Very interesting post, thank you. I am not surprised that another one of today's big companies used lean principles to get that way. I am currently a supply chain management student and seeing that another huge company uses lean principles really demonstrates to me how important this way of thinking is and how important it is in business evolution. I think that the evolution of Amazon from a bookstore into today's Amazon is almost impossible without the use of lean principles. Amazon's lean principles drive their decision making, continued self improvement, and decisions based on data, all things that I think separated themselves from other companies and made them what they are today.  



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Bob Emiliani November 05, 2020

I have followed Amazon and Jeff Bezos for years, and I agree with Cliff and Sarah in terms of becoming less friendly to sellers and customers. Amazon are doing much more in recent years to serve their own interests. They throw labor at problems like General Motors once did, and headed towards robots and automation as GM once did. Their poor treatment of workers has been well documented. Amazon's new publicity campaings are reminiscent of what Walmart did 15 or 20 years ago after public opinion shifted on them (unfavorably). I hear the talk about Lean, but the evidence for it seems to be fading. 

In the U.S., the trend over the past 10 years or more is increasing inventories, despite all the Lean efforts, JIT, point-of-sale data, demand planning, improvements in forecasting, S&OP, financial planning, etc. Why is this happening? Warehouses. The inventories/sales ratio in 2020 is as high as it was in 1996.



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Tom Ehrenfeld November 05, 2020

And what happens when you get as big and influential as Amazon is that you become as much of a symbol to everyone of beliefs and suspiscions. I don't disagree with the charge that reported Amazon practices conflict with the core ideal of respect for people. I also long for more direct observation of the Amazon gemba--which unfortunately is currently problematic, and which the company's very tight control of the press has been and will I suspect continue to be quite challenging. 



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Stefan Diarbi November 09, 2020
1 Person AGREES with this comment

What a great post! As a supply chain student currently working towards my green belt, this really opened my eyes to a lot of information regarding Amazon's success and Lean. Lean has helped the company evolve from the Kindle to being one of the most customer-centric  companies on earth. Without the constant developments and adapting the business to the constantly changing markets, Amazon would have a hard time succeeding without Lean. 



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Tom Ehrenfeld November 10, 2020

Thanks Stefan. Please pass along any papers that you end up writing on this topic!



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Chris Freitas November 17, 2020

One section of this blog that really interested me was the part discussing the optimal blend of people and machines. In order to be lean you need to be able to find the equal balance of where a human or robot should be placed. As a current student trying to receive my green belt I have learned more and more about lean principles and operations. It seems to me that Amazon has a good well-rounded understanding of when to use humans and when to use robots. But this lean concept can sometimes be hard to understand when you’ree a new company.

 



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neri November 18, 2020

it would be interesting to see the report of how robust their automation line was after covid. im also interested in seeing if their resilience affected their customer service these last few months. 



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