How Amazon Transformed Its Operations with Lean Principles

Amazon is renowned for its customer-centric model and rapid growth, evolving from an online bookseller in the 90s to the everything store valued at over $1 trillion today. While many people were essential to building this company, Marc Onetto was critical in its initial adoption of lean practices within Amazon's industry-leading retail distribution network.

It was 2006, and Jeff Wilke was entering his seventh year working in logistics at Amazon. While Wilke had completely overhauled Amazon's supply chain in that time, he felt that the overall progress had begun to stall at its fulfillment centers. He wanted to shake things up, so when Jeff Bezos offered him a job as head of Amazon's North American retail division, it was the perfect opportunity.?

The first step would be finding a suitable replacement for the role. At first, Wilke looked around his logistics cohort, but the more he looked within his team, the more he realized that a different approach was needed. Wilke had been a proponent of Six Sigma, as had many of his fellow executives. While sometimes useful for fixing quality in process-intensive high-technology parts, Six Sigma was less applicable to the logistics of fulfillment centers and delivering orders to customers. Wilke knew he needed a fresh perspective to build upon the transformation he had initiated, so he looked at outside hires. His search landed him on Marc Onetto, a former General Electric executive with radical ideas.?

Onetto had been an early adopter of Six Sigma at GE, learning the ins and outs of the system, but that's where the similarities stop. Onetto felt that GE's implementation needed to be more dogmatic and consider the eccentricities of the assembly and manufacturing of its intricate equipment. After some research of his own and the advice of his Black Belts, he went to Japan with his team to learn more about lean manufacturing from an ex-Toyota executive named Nakao-San of Shingijutsu. Once he came back from Japan, Onetto and his team immediately started applying lean principles to GE with great success: Just shortly after implementing Jidoka, they completed a simple 15-minute fix to the materials resource planning (MRP) system, resolving a massive risk of late customer deliveries.

Once in his new role, Onetto wanted to see if he could do the same at Amazon. Looking at Amazon's customer-centric model, Onetto wanted to use lean to find and eliminate customer issues. The Jidoka principle of empowering frontline workers to stop production when they detect defects had universal applications beyond manufacturing. Fundamentally, it aimed to prevent quality failures, rapidly diagnose probable causes, and authorize employees to take action when problems arose, ultimately increasing customer value. While it would be a tall order to implement, Bezos gave Onetto the green light on the project.

Onetto helped develop a process at Amazon fitting Jidoka by empowering customer service agents. When a customer complains about a product, and it shows that another customer reported the same defect, the agent would be given the power to stop its sale without authorization from a manager. This action would then send the product to Amazon's quality lab for an inspection. Over time, this procedure would eliminate thousands of negative customer experiences.?

Additionally, Onetto spearheaded software and process improvements to boost efficiency. A new program called Mechanical Sensei helped determine the most strategic locations for new fulfillment centers by upgrading logistics systems to simulate and optimize warehouse workflows. Beyond the warehouses, though, Onetto extended lean thinking to customer service centers. By mapping out the customer value stream, he uncovered significant waste. Agents previously had to click through 29 screens to access information needed for a typical customer inquiry. Onetto's team slashed this to just eight clicks by redesigning support tools to match customer needs. Through iterative kaizen events, they continued to refine processes to cut waste and hassle at every customer touchpoint.

Over Onetto's seven years, Amazon's operations increased enormously while increasing efficiency. Onetto helped grow revenue from $7 billion to $70 billion, expand the number of fulfillment and customer service centers, and increase employees from 12,000 to 120,000. By focusing on customer experience and engaging in lean practices to improve it, Amazon set new standards for operational excellence in retail. Lean principles proved essential for translating Bezos' customer-centric vision into reality across massive systems, moving millions of packages per day.

Amazon is now defined by speedy delivery and exceptional convenience thanks to its early bet on lean techniques introduced by Onetto. As the company continues expanding into new sectors like grocery and healthcare, lean principles will continue to enable scaling complexity while keeping customers happy and coming back.