Amazon and Lean Thinking
By now, nearly everyone has heard of Jeff Bezos, the founder of Amazon. He left Wall Street at 30 years old to start an online bookstore in a garage in Seattle in 1994. Seeing an article about the massive growth of the internet in 1994, Bezos realized that things were about to change. At the end of 1999, Amazon's sales had risen to about 2 billion.
Jeff Wilke, Amazon's number two person, is less well known. Wilke joined Amazon in 1999, and when he retired in 2021, Amazon was doing around $1 billion every day. His background was in operation research. Wilke graduated from the School of Engineering and Management's Leaders for Manufacturing program at MIT (now called Leaders for Global Operations). He also served as vice president and general manager of pharmaceutical chemicals at AlliedSignal (now Honeywell). Wilke was well versed in Lean Manufacturing and Statistical Process Control when he joined Amazon. When Wilke joined Amazon's operations in 1999, he said MIT's Leaders for Global Operations playbook was what Amazon needed.
Wilke joined Amazon in September 1999, just in time for the fourth quarter holiday rush. In addition to his VP and General Manager duties, he helped with the wrapping and packing orders that year, wearing a flannel shirt. This flannel shirt would become his signature during every holiday season. The email Jeff Bezos's sent on August 21, 2020, announcing Wilke's retirement, was titled "Hanging up the flannel."
Wilke established a culture of operational excellence based on Lean, statistical process control, theory of constraints, and purpose-built software. His first focus was the distribution systems. Amazon's growth caused some wear and tear on its "disruption centers," designed after Walmart. In 2000, Amazon was the only e-commerce retailer selling at scale on the internet. Conventional distribution models were not suited to this model.
Wilke's first move was to change the name to fulfillment centers. Distribution centers transport wholesale products, while fulfillment centers store products before they are shipped to customers. Wilke also started recruiting scientists and engineers to work on supply chain algorithms. Wilke's implementation of operational management tools like statistical process control and Lean management enabled Amazon to scale for 1-Click ordering and eventually, in 2004, launch Amazon Prime. At first, Prime shipping costs exceeded customers' actual charges. Bezos and Wilke took a chance on Amazon Prime. They had built a strong foundation, and they knew it would eventually pay off. Then they allowed merchants to store their products in Amazon's fulfillment centers. This enabled Amazon to offer two-day delivery. As a result, Amazon became a distribution center for other merchants.
Jeff Bezos was familiar with operations management principles. Goldratt's The Goal was one of his favorite books. However, it would be fair to say that Wilke is responsible for most Amazon's Lean thinking. Amazon introduced a virtual Andon Cord to empower employees to address defects immediately. The Andon Chord, a Lean concept, is part of the Toyota Production System.
When Marc Onetto arrived at Amazon in 2007, lean management was already in place. Amazon practices "go to Gemba," where the work is done, as part of their culture. Kaizen, or continuous improvement, was deeply ingrained in their corporate culture. Andon Cord was a vital customer service principle. Amazon periodically refunded a customer, the Andon Cord, without complaining. I still get a refund for a poor-quality Prime video every once in a while from Amazon.
Due to Wilke's influence, continuous improvement was a huge part of Amazon's DNA. All senior management had to work in customer service at least one day a year. The executives could see events from the front line, understand the problems, and help find solutions. All of this indicates that Amazon's growth was heavily influenced by the work of Walter Shewhart and Dr. Deming in the area of Statistical Process Control, Taichi Ohno's Toyota Production Systems, and James Womack's Lean Thinking. They are all interconnected. In 2022, Amazon's market cap (how much the company is worth) was almost as much as Canada's gross domestic product at around 1..5 trillion. Wilke, at 53, is worth approximately 400 million today in Amazon stock. He was recently asked why he's not on the golf course, and his reply was because I'm learning Python. I love operations people.
