22 June 2017 | Sutton & Rao provide interesting case of Tamago-Ya on supply chain management and quality control. The authors also discuss how accountability works and what constrains Tamago-Ya faces.
Japanese company Tamago-Ya (“Egg-House”) produces organic box lunches and sells them to Tokyo office workers for about $4.
Tamago-Ya assembles their lunches near the Haneda Airport, a sixty- to ninety-minute drive from their customers in the Shinjuku business area in downtown Tokyo.
The typical order comes from a workgroup that buys twenty to forty lunches every weekday.
Each lunch box contains six or more items, and customers have a fairly long list of options. Each lunch is made fresh that morning and delivered warm.
Examples of food items include stir-fried beef with oyster sauce, boiled spinach with sesame dressing, coleslaw, and steamed rice.
The company takes orders between 9 a.m. and 10: 30 a.m. each day. The lunches are delivered by noon that same day—so there is little margin for error in assembly or delivery.
Of the sixty thousand to seventy-five thousand lunches that Tamago-Ya delivers each day, late orders are rare and fewer than fifty are wasted (they have a .006 percent failure rate).
Stanford’s Jin Whang, an expert in supply chain management, asked founder Isatsugu Sugahara if his company had a sophisticated computer system for forecasting demand and scheduling. Sugahara explained that Tamago-Ya was decidedly low-tech.
The company relies on market intelligence from van drivers—mostly high school dropouts, many of whom were arrested in their youth. These drivers interview and choose the customers in their territories. They reject customers when it will be too difficult to deliver lunches on time—such as someone in a location that requires a difficult U-turn on a busy road.
Each driver owns his or her route, and drivers’compensation depends on how many lunches their customers buy and whether they can keep waste low—they earn as much as $ 80,000 a year.
Boxed lunches are delivered in reusable containers that drivers collect at about 2: 00 p.m., which gives them the chance to find out what customers liked and didn’t like that day—and to get an idea of what customers will order the next day.
Every evening, each driver talks to the area manager overseeing his or her team. Forecasts from these conversations are sent to the central office so they can plan the next day’s production. Suppliers deliver raw materials such as spinach, fish, and eggs to the Haneda facility by 5: 00 a.m. the next morning—the order is an educated guess based on intelligence from the drivers the previous evening and past experience with what and how much customers order at different times of the year and days of the week and in different weather. Customers order more lunches when it is raining, for example.
Tamago-Ya also relies on these estimates to start making lunches and loading vans even before orders start arriving at 9: 00 a.m.—shortly thereafter, the vans start leaving for Tokyo. The first vans start arriving before 10: 30 a.m., and vans with extra lunches are positioned in Tokyo to allow for last-minute adjustments.
If more lunches are ordered than anticipated, suppliers rush in the needed ingredients and Tamago-Ya quickly assembles and delivers them.
Tamago-Ya’s founder was a high school dropout himself. He is convinced that the methods his company uses to motivate and instill accountability in workers, especially among those crucial drivers, explain why his company has grown and performs so well.
By getting to know customers’needs and personal quirks, drivers have the knowledge required to give them superb service. Drivers also feel beholden to the company: they are paid well and strive to reciprocate Sugahara’s faith in them by turning in superior performance.
Accountability works best when it is a two-way street
At Tamago-Ya, drivers feel and act like owners—like independent contractors—because they choose customers and routes. At the same time, they feel obliged to customers, peers, their area manager, and, of course, CEO Sugahara, who gave many a chance to rebuild their lives.
Tamago-Ya constrains employees in a different way. Drivers rarely have a moment’s respite from customers, peers, and superiors. The method used by Tamago-Ya, a system where employees can never escape those prying eyes, can be remarkably effective— and quite stressful.
Hiring the right people is crucial for propelling scaling, but it isn’t enough. Unfortunately, too many leaders and gurus believe that, if they just buy the most skilled and motivated employees, exceptional performances will inevitably follow. They forget that team and organizational effectiveness requires weaving together people with diverse knowledge and skills— not just gathering a lot of talented people and hoping they can figure out how to work together well.
Trying to scale up excellence by purchasing lots of people who have done stellar work elsewhere is also risky because most stars aren’t portable.
When an external star arrives, insiders become demoralized; senior analysts often start looking for jobs elsewhere, and “junior managers take the star’s induction as a signal that the organization isn’t interested in tapping their potential.”