This is an old story, from May, that I've meant to write about for a while. Peter Orszag, the Director of the Office of Management Budget wrote a piece in the WSJ about healthcare.
He wrote:
The good news is that there appear to be significant opportunities to reduce health-care costs over time without impairing the quality of care or outcomes. In health care, unlike in other sectors, higher quality currently seems to be associated with lower cost — not the opposite.
Well at least he is right that you CAN improve quality while reducing costs. ThedaCare is just one of many hospitals that are using the lean methodology to do just that. As CEO Emeritus John Toussaint said on Fox News, their hospitals are delivering 25% lower cost, shorter length of stay, and better quality through the use of lean methods and lean thinking (the culture and management system).
Where Orszag misses the boat is the “unlike in other sectors” part. He is showing his economist roots. My MIT Leaders for Manufacturing program classmates got into a huge fight with our economics professor who was teaching the outdated “economic quality level” concepts, which assumed that better quality cost MORE and there was, therefore, a tradeoff where better quality wasn't worth the better cost. He couldn't understand our lean thinking and we gave up the fight before he flunked us.
This ignores the basics of Lean thinking that trace back to the book The Machine That Changed the World
- Better quality materials
- More expensive equipment
- More inspection steps
Toyota, through lean production, proved that better quality could indeed cost less if you prevented defects from occurring, partnered with suppliers and employees, and built quality into the product the first time (using methods Dr. Deming taught them).
Lean is lean — the mindset. Better quality costs less in any lean environment. And this is true in healthcare. Better quality, the old fashioned way, in healthcare relies on similar failed strategies:
- Hiring the “best and brightest”
- Newer, better equipment
- More inspection steps
At least Orszag understands what's possible – and what's happening – in healthcare. Now he needs to understand the other 83% of the economy, eh?
Regardless of your industry, do you have examples of how better quality costs less through Lean?
p.s. Wanted to give a mention to this year's Deming Conference at Purdue University.
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Point in case, in plastic injection, a midsize plant (18 presses from 300 tons to 900 tons) in a 40 week period, managed to reduce its rejects from 2.7 % down to 0,5%, which, in terms of Cost Of Non Quality, is a reduction from 2.2 percent of sales down to 0.4 percent – from doing very, very basic Jidoka.
In distribution centers the typical method for increasing customer order accuracy is to hire more "auditors" to check orders before they're loaded onto the truck. Through lean methods (standardized work, poka-yoke) we can increase order accuracy the first time (i.e., when the employee picks the order), thus eliminating the cost of auditors as well as monetary penalities we may incur from the customers for shipping inaccurate orders.