Thanks for your comments.

Yes, thanks for the correction on leveling production, versus leveling demand.

Eliminating the “reserve” and put everything in “prime” was something that we looked at. But, we determined that it wasn’t entirely possibly to have a Lean factory at Amazon. Lot purchasing to receive the price/quantity breaks was one reason — and this was a policy decision that was difficult to battle. There were other reasons also, but we definitely looked at shrinking the Reserve bins.

We need to talk more. I’ll be sharing some of my experiences here soon on my time at Toyota, Hebron, KY — the auto supply parts distribution center, not the auto making plant.

Pete

The idea of amazon not being able to be “lean” depends on your definition of lean. Even without leveled demand/production, if amazon were to focus on the people side of lean, they would have huge opportunities for improvement. I love amazon, I order from them all the time and can only think of one screw up in 9 years of being a customer. But, that said, I’m sure there’s room for improvement…. did they look at the Toyota leadership model or just the lean/TPS tools?

TPS is basically 1) reduce waste and 2) respect people. Most American companies seem to focus only on the first part. It’s a rare company that sets a goal of treating people with respect, valuing their ideas, and challenging them to get better. Most companies view their workers as robots without brains. Getting past that and getting toward continuous improvement, that’s something any company can work on, with the right leadership.

Let’s keep talking! Congrats on getting the blog launched. It’s an interesting mix of topics here!

But still, Toyota doesn’t really have level demand. They level production at the assembly plants through the use of dealer lot inventory. Toyota is leveling “demand” as seen by the factory and they are definitely leveling demand on the suppliers, which has huge benefits.

Does that approach really apply to Amazon? I’d argue that Amazon is more like Dell. Dell has very un-level demand. And, because they don’t have dealer lots, Dell can’t level production. They have to allow capacity to fluctuate with demand. If capacity fluctuates perfectly with demand, then cycle time would be constant (which is what Dell quotes, a constant 5-day lead time) — that’s another example of Little’s Law.

Dell does have a very unique opportunity to truly level and shape demand through sales tactics… but they’ve barely scratched the surface on doing that. Dell has a lot of wasted capacity early each quarter because of their un-level sales and un-level production. This creates a lot of stress on suppliers when they have to ship a ton of parts to Dell at the end of the quarter. One thing that helps level things for the suppliers, actually, is that Dell’s end-of-quarter month is one month later than HP’s.

So anyway, when talking about leveling, be careful in the distinction of leveling demand and leveling production. Don’t level production in a way that hurts the customer. If Dell were to take a hard line and say “it’s cheaper and more efficient for us to level production…. so you have to wait 60 days for a PC” they would go out of business. The goal is making the customer happy and making money. Don’t put leveling ahead of that goal.

Another thing that impacts the load on suppliers is how often you order. If Amazon ordered weekly from a vendor, that’s going to cause less of a burden than ordering 4x the amount once a month. Oftentimes, though, companies “optimize” shipping cost by ordering less often, sometimes ignoring the cost of holding the extra inventory and always ignoring the cost to the supplier.

If Amazon had true pull from their suppliers, they could shrink the “reserve inventory” and replenish right to the “prime inventory?” Dell might want you to think they do that, but their “reserve inventory” is cleverly held offsite by a vendor. Dell only has the prime inventory (about 4 hours worth) in house.

Anyway, Peter, I don’t mean to dump all over your post. Good stuff and great topics to discuss. Please take my comments in the spirit of continuous improvement. If you think I’m off base, let’s debate it constructively here or on my blog.