The casino bus case study

Caesar Casino Case Study

Copyright © 2014 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor Nancy Lea Hyer (Vanderbilt), Brad Hirsch, and Professor Karen A. Brown (Thunderbird) for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.

Nancy Lea Hyer Brad Hirsch Karen A. Brown

Implementing LEAN Operations at Caesars Casinos

In December 2014, Brad Hirsch stood on the gaming floor of the Harrah’s Metropolis Casino and Hotel in Metropolis, Illinois. Hirsch had assumed the position of Senior Vice President and General Manager at this Caesars Entertainment property in mid-2014. Caesars’ culture was strongly oriented toward optimizing the customer experience. This history, coupled with increased competitive pressures and new corporate financial goals for 2015, had created the motivation to intensify improvement efforts at the Metropolis facility. Hirsch had successfully led employee-centered initiatives to apply LEAN1 operating principles in three of the company’s casinos in Tunica, Mississippi. He believed that what he learned from those experiences would be applicable at the Metropolis location, but wondered if he should consider a modified approach that could potentially produce results more quickly with the help of a team of internal experts.

In 2014, Caesars Entertainment, based in Las Vegas, Nevada, was the world’s most geographically diversi- fied provider of casino entertainment. With 68,000 employees worldwide, it operated 50 casinos in the U.S., Egypt, England, South Africa, and Canada, under the names Harrah’s, Caesars, Rio, Flamingo, Paris, Bally’s, Horseshoe, and London Clubs International. Its largest concentration of properties was in Las Vegas, where nine of its casinos occupied 1.25 miles on or near Las Vegas Boulevard, commonly known as The Strip. In 2013, the company had net revenue of $8.6 billion U.S.

Caesars had developed an industry-leading loyalty-card program, introduced sophisticated customer-service measurement systems, and had been the first to apply LEAN process-improvement concepts to casino opera- tions. (For more on LEAN principles, see Appendix A.) As Hirsch thought about the challenges that lay ahead for LEAN implementation aimed at customer-service enhancement and operational effectiveness at the new Harrah’s Metropolis Casino and Hotel, he reflected on his previous experience in Tunica.

LEAN Implementation at Caesars in Tunica, Mississippi At the end of 2008, Tunica, Mississippi, located about a 45-minute drive south of Memphis, Tennessee, was the fourth-largest gaming market in the world with more than $1 billion in annual revenue. Three of Tunica’s nine casinos were owned by Caesars. These three generated $545 million in revenue and accounted for 50% of the Tunica market. Over 4,000 employees worked across the three Caesars properties, delivering hospitality and entertainment services to 8,000,000 guests annually.

In late 2008, the economic environment for the Caesars Tunica casinos was a serious concern. First, the U.S. macroeconomic collapse of the Great Recession had led to reduced customer spending on entertainment. As a consequence, casinos in the region experienced declines in revenue, and competition for market share was intense. Beyond the impetus for improvement inspired by macroeconomic challenges, all Caesars-owned properties embraced customer service as an essential element of the corporate operating strategy, and strove to continuously increase customer satisfaction as gauged by rating scores. Every week, Caesars surveyed a random sample of recent customers for each property. Survey respondents assigned scores of A, B, C, D, or F for various dimensions of their Caesars experience (staff helpfulness, staff friendliness, speed of service, and other metrics). Data showed that moving a customer from a B to an A score resulted in up to a 12% increase in customer

1 Caesars Entertainment capitalized the word “LEAN” to emphasize its role as a systematic program and distance it from any connotations associated with a more narrow view that might suggest downsizing.

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spending. On a quarterly basis, weekly service-score data were averaged and used as a factor in determining staff bonuses. The higher the percentage shift of B scores to A scores, when compared to the same quarter the prior year, the higher the bonus for team members. At the end of 2008, the Caesars Tunica leadership team sought to deliver more conversions from B to A scores, both to increase customer loyalty in a hypercompetitive landscape, and to maximize team-member bonuses and enhance employee satisfaction.

Members of the Tunica executive team recognized that to reverse the declines in revenue and challenges to profitability, and improve service scores and market share, would require engaging the entire organization. However, one challenge was the absence of a consistent and systematic problem-solving approach through all layers of the 24-hour, 7-day a week business. As one associate observed, “If your supervisor is passionate about casino cleanliness, casino cleanliness becomes your top priority. But your next supervisor, or the supervisor of the next shift, might focus on a completely different aspect of the customer experience.” Hirsch recognized that LEAN, with its easy-to-understand tools and concepts, could create a consistent and focused approach to process improvement for all layers of the business.

Kaizen Events as the Organizing Framework for Implementing LEAN at Caesars Tunica, Mississippi, Casinos

In December 2008, Hirsch was appointed Regional Director of LEAN for the three Caesars casinos in Tunica. He and the executive team saw the urgency for change, and knew they had to make the right improvements and sustain them. Hirsch created a Regional LEAN Team by recruiting two experienced, high-potential leaders from the casino operations in Tunica, each with a passion for process improvement. The team agreed to orchestrate the LEAN rollout around a series of kaizen events. These were intensive five-day workshops involving employees from multiple functions and levels working together to identify and improve target processes.2 For example, an early kaizen event focused on improving hotel operations—from check-in to check-out. The kaizen team included a department manager, bellhop, housekeeper, front desk clerk, supervisor, information-technology associate, and a gaming-floor employee. The department manager’s participation ensured that she understood the work under- taken during the kaizen week and would be prepared to lead the follow-up activities that grew out of the event.

An initial challenge was that, to some casino employees, the word lean implied cutting jobs. To address this challenge, members of the executive team consistently communicated that the goals of eliminating waste via LEAN efforts were to improve the customer experience, increase process effectiveness, teach problem-solving tools, and improve employees’ work environments—not to cut personnel. Sharing this message was important, but Hirsch and his team knew they simply had to start conducting kaizen events so individuals would SEE that jobs were not being eliminated. As Hirsch explained, “We thought our behavior would speak louder than our words, and it did.”

The five-day kaizen workshops—each of which followed a similar structure (see below)—yielded immediate, tangible improvements and laid the foundation for post-event efforts to establish a LEAN culture throughout the organization. During calendar year 2009, Hirsch and his team staged 63 five-day kaizen events. These events resulted in improved customer-service scores and $3 million in documented savings. Each five-day workshop in- cluded a set of activities intended to build knowledge, engage participants, solve problems, and develop solutions.

• Kaizen Day 1 Every kaizen event began with education about LEAN concepts. A major component of this education was teaching employees to recognize waste (or, in Japanese, muda). Hirsch and his team used a memorable acro- nym for teaching waste recognition that seemed to resonate through the entire organizational hierarchy— DOWNTIME (defects, overproduction, waiting, not engaging people, transportation, inventory, motion, and extra processing). At each kaizen event, the facilitator explained DOWNTIME using examples from the casino environment.

2 C. Marchwinski and J. Shook (Editors), Lean Lexicon: A Glossary for Lean Thinkers, Fourth Edition (Cambridge: The Lean Enterprise Institute, Inc., 2008, p. 41.)

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– Defects: Defects are mistakes that result in items being scrapped or reworked. Delivering a drink to a customer with ice when the customer has requested no ice is a defect. Checking a guest into a hotel room with the incorrect bed type (i.e., two queen-size beds instead of a king-size bed) is a defect. In both situations, wasteful rework is required and the customer is left with a poor impression.

– Overproduction: This is production in excess of what the customer requires. Customers in one restaurant were sometimes served water with three lemon slices. Most customers were satisfied with a single lemon slice. As Hirsch explained, “Customers write us all the time to tell us what they love about our casinos in Tunica, but occasionally getting additional lemons in their ice water is not a cause for customer delight.” Producing three times as many lemon slices as necessary was waste because it consumed money and time without creating additional value for the customer.

– Waiting: Waiting-time waste occurs when employees are idle or when customers must wait for service. Time spent waiting adds no value to the product or service. If a gaming table runs out of a particular dollar-value betting chip, the table-games supervisor signals for a chip replenishment. Chip replenishment is a time-consuming process that, because of regulatory standards and asset protection protocols, requires supervisor verification, travel to and from the cashier cage where money and chips are held, and engaging a security guard to oversee the transport. During portions of the process, patrons and employees sometimes must wait to resume gaming activity, which affects profitability of gaming operations. Similarly, if a hotel- room attendant cannot finish cleaning a room because sheets or towels from the laundry aren’t delivered on time, the attendant may be forced to wait. This yields non-value-creating payroll expense and a delay in room readiness for customers.

– Not Engaging People: Organizations incur waste when they don’t routinely ask employees, “What would you change that would make your job easier to do and allow you to better serve customers?” Prior to the introduction of LEAN methods, the majority of tactical process changes occurred as a result of a top-down approach. Although some of these top-down solutions produced improvement, they did not always achieve their highest potential. Without immediate feedback from the employees actually doing the work, managers could not fully appreciate delivery-system challenges. For example, employees in one area struggled to transport food carts across deep-pile carpeting in corridors, resulting in relatively long transport times and employee fatigue. During a kaizen event, the employees who had experienced this performance obstacle greatly appreciated having their voices heard.

– Transportation: This is the waste of resources, time, and effort involved in moving items and tracking their locations. Damage and non-value-added payroll expense are always a risk when items are transported, and transportation adds to process throughput time. Moving food, for example, does not add to its value. One kaizen team tracked the life of a beer and discovered that a beer could be put into storage in up to five different locations before being acquired by the beverage server for delivery to customers. Limiting transportation frees employees for higher-value work, and, in the hospitality industry, can also help protect product quality.

– Inventory: Inventory waste is incurred when material on hand exceeds current demand. Excess inventory costs money, takes up space, can create a safety hazard, and becomes obsolete when customer requirements change. Inventory is, in essence, dead money—money has been spent on something that is doing nothing to create customer value. An examination of one of the Tunica warehouses revealed multiple pallets of boxes of paper used to print vouchers for customers cashing out from slot machines. Each month, a team ordered approximately $10,000 worth of slot paper, regardless of current inventory levels. This order level had historically enabled the property to have the right quantity of slot paper on site. However, as business levels declined for casinos in the Tunica region and slot volumes became more variable, a six-month supply of slot paper accumulated in the Caesars Tunica warehouse.

– Motion: Any movement that does not add value to the product or service represents waste of motion. In a food-service area, bottles of water were stored in a large tub-like container of ice (rather than a refrigerator) to keep them cold. Servers incurred waste of motion every time they reached into the container, withdrew a cold bottle of water, grabbed napkins from a nearby dispenser, and dried off the bottle before placing it on a tray to deliver it to a customer.

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– Extra Processing: Extra processing occurs when unnecessary, non-value-adding work is performed. For years, as part of the property’s security protocol, a security guard used a metal-detecting wand to scan bags of trash coming out of the casino’s cash-counting room to ensure that coins were not being smuggled out. This practice continued after the casino eliminated all metal coins from operations. No one questioned the protocol to wand the trash because it was always done this way and was assumed to be a regulatory necessity.

D-O-W-N-T-I-M-E proved an effective analytical tool to help front-line personnel see the various types of waste in work processes. In addition, Day 1 training also introduced several LEAN tools. Participants learned about value stream mapping, spaghetti diagrams, 5S, Five Whys, one-piece flow processing, the pull discipline, and the basic problem-solving approach (i.e., define the problem, seek out root causes, identify potential solu- tions, test them, keep what works, repeat). With an understanding of these LEAN principles and tools, the teams were ready to improve their own processes. At the end of Day 1, each team agreed on the processes that would be the focus of the week’s kaizen improvement efforts. The selected processes presented the greatest opportunities to improve customer service and reduce waste.

• Kaizen Day 2 During the second morning, participants mapped the work processes targeted for im- provement. Team members engaged in what was called a gemba3 walk, in which they went to where the work was done, made notes on what they individually saw, and gathered data about each process step. Then they jointly created a large, wall-display value stream map of the process using sticky notes and simple symbols (see Exhibit 1 for an example).

The afternoon of Day 2 was devoted to a waste walk. Armed with a sheet that listed the types of waste and using the DOWNTIME rubric, each participant observed a segment of the process and recorded every waste he or she identified. In some cases, team members counted how often a particular waste (e.g., walking to retrieve a forgotten item) occurred and timed the duration. This information helped teams to understand the effects of the waste on the business. After completing their observations, team members met to share their waste discoveries, recording each waste on a separate sticky note. A typical kaizen team identified between 60 and 80 points of waste in the target process.

As part of the waste walk, a team member equipped with a copy of the area layout would follow a specific person or product, drawing a line from start to finish every time the person or product moved to a new loca- tion. The result, called a spaghetti diagram, often provided compelling evidence of the motion and transpor- tation waste inherent in the current way work was done. Exhibit 2 shows the spaghetti diagram of sandwich production developed as part of a kaizen event focusing on kitchen operations.

In the afternoon of Day 2, team members categorized wastes by moving each pink sticky note into the appro- priate quadrant on a wall-mounted matrix (see Exhibit 3). Specifically, the team determined whether a waste would be easy or hard to remove and whether removing the waste would have a large or small effect on (1)

3 Gemba (also translated as genba) is the Japanese term for “actual place” and is often used to refer to the location where work occurs.

Exhibit 1. Value Stream Map of Hotel Operations

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safety, (2) quality, (3) delivery, (4) inventory, or (5) productivity and cost. These were the five key dimensions on which all areas were evaluated.

Wastes that appeared in the top left (easy to remove, large impact) quadrant (circled) were the first targets of opportunity for the remain- ing days of the kaizen event.

At the close of Day 2, the kaizen team pre- sented the work it had done so far to the property’s executives. The team shared its value stream map, waste-prioritization matrix, and other analyses. This meeting had three goals. First, the exchange of information at the meeting helped ensure that senior lead- ers recognized the goal of the kaizen event, understood the analyses the team had per- formed, and supported the direction the team was headed. Second, the checkpoint meeting provided an opportunity to seek senior execu- tives’ assistance in removing barriers the team anticipated (e.g., the need to purchase equip- ment, or a request for help in rearranging a workspace). Third, the department manager’s involvement in the kaizen team’s presentation helped ensure his or her commitment to the changes the team was developing.

• Kaizen Day 3 On Day 3, the team identified the root cause of each waste in the easy-to-remove, large impact quadrant of the matrix generated in Day 2. In seeking out root causes, kaizen teams relied heavily on the Five Whys lean tool. This technique involves asking why five (or more) times whenever a problem or waste is encountered. For example, a team observed that buffet attendants routinely polished clean silverware. When queried, the area’s supervi- sor noted that over a typical 24-hour period, about four hours of employee time was spent polishing clean silverware. Applying the Five Whys to this waste of motion, the team asked and answered the following series of questions:

• Why are attendants spending four hours a day polishing clean silverware? – Because the silverware has spots that create an unacceptable presentation on the dining table.

• Why does the silverware have spots on it? – Because the silverware comes out of the dishwasher with spots on it.

• Why does the dishwasher leave spots on the silverware? – The dishwasher doesn’t hold a consistent temperature during one of the phases of the cleaning cycle.

Exhibit 2. Spaghetti Diagram of Sandwich Production

Exhibit 3. Waste Prioritization Matrix

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• Why is one phase of the cleaning cycle not holding a consistent temperature? – One portion of the current preventive maintenance protocol is not consistent with what the manufacturer

suggests in the dishwasher’s operating manual. • How can we remedy the situation?

– Revise the preventive maintenance protocol to make it consistent with the manufacturer’s guidelines.

Based on this analysis, team members revised and adopted new preventive maintenance practices, and con- tinued to evolve them over time.

• Kaizen Day 4 Day 4 was devoted to try-storming—proposing and testing possible remedies to root causes of problems identified the prior day. For example, the team investigating the waste of motion in polishing clean silver- ware agreed to commit to better pre-wash procedures, and to institute routine preventive maintenance to clear obstructions in the dishwasher tubing before they could affect the rinse water temperature. Preventive maintenance design and scheduling were among the lean solutions frequently called upon to remove waste from processes during kaizen events.

In another example, the team examining kitchen processes try-stormed options for arranging kitchen equipment and supplies to reduce the time and motion involved in preparing sandwiches. Exhibit 4 shows the spaghetti diagram of sandwich production in the revised kitchen layout (as contrasted with Exhibit 2). Locating together the items needed for sandwich production (an example of work-cell creation) vastly streamlined the time and motion required.

Another LEAN tool used by almost every team in the try-storming phase was 5S, a term referring to principles for creating a visual work environment that is easy to understand, execute, and maintain. The concept was originally drawn from five Japanese words: seiri, seiton, seiso, seiketsu, and shitsuke. These have been translated into numerous S-words in languages around the world. In English, the 5S are typically expressed as sort, set in order, shine, standard- ize, and sustain.

1. Sort: “If in doubt, throw it out” is the phrase that best describes this first S. Sift through everything that has accumulated in the workplace and identify what is needed. Eliminate unnecessary or out-of-date items.

2. Set in Order: “A place for everything and everything in its place” describes the set-in-order concept. As- sign essential items to specific locations and clearly mark these locations. The objective is for anyone to be able to find anything at any time quickly, and for it to be obvious when things are not in their proper place.

3. Shine: Clean and inspect the workplace. After sorting and setting in order, houseclean thoroughly to ensure that everything is clean, neat, and functioning properly.

4. Standardize: Standardize means to create and enforce policies and procedures that make 5S a daily practice, not a one-time activity. This typically entails assigning responsibilities and putting in place policies such as a daily five-minute shine—a brief period each day devoted to cleaning and ordering the workplace.

5. Sustain: Sustain means to institutionalize the above 4S’s throughout the entire organization so that 5S develops deep roots.4 Training, communication, ongoing measurement, and promotion of 5S are essential building blocks of sustain.

4 P. Dennis, Lean Production Simplified (New York: Productivity Press, 2007, p. 35).

Exhibit 4. Spaghetti Diagram of Sandwich Production after Try-Storming

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In applying 5S at Tunica, teams began by removing everything from the area under study and placing each item into one of three piles: (1) items that were definitely needed and used, (2) items about which the team was not sure of the need, and (3) items that were definitely not needed. Items in the not-needed pile were discarded or repurposed. Items in the definitely needed pile were set in order—placed in a designated area. Next, the team turned to the not-sure-of-the-need pile. Having just set in order the definitely needed items, teams were able to take a fresh look at items in the not-sure-of-the-need pile. Teams often concluded that much of the not-sure pile could be discarded or repurposed.

A kaizen event in the buffet kitchen applied 5S to the dry-goods storage area, where inventory was not sys- tematically organized (see Exhibit 5, left side). Retrieving a specific item might require a lengthy search, and items, once located, could potentially have passed their expiration dates. Further, duplicate items might be ordered if the on-hand item could not be located quickly.

The kaizen team studying the dry-goods storage area discarded $8,000 worth of unused inventory, established dedicated storage locations for the items that remained, marked the maximum inventory levels with tape on the wall, and used eye-level labels with pictures to show what went where (see Exhibit 5, right side). The effort simplified ordering and increased the speed with which items could be retrieved for use in serving customers. To address the inventory challenge of slot paper described earlier, the kaizen team dedicated a lined-off space in the warehouse for the boxes of slot paper and created a visual two-bin system. Two stacks of slot paper, each of which represented a two-week supply, were located side-by-side. Team members placed a strip of tape on the wall indicating the maximum height of the stacked boxes of paper. They added clear signage that reminded warehouse personnel to withdraw boxes from only one stack at a time until it was depleted. Depletion of the first stack triggered an order timed to arrive before the second stack ran out (see Exhibit 6). This system eliminated unnecessary orders and reduced the annual inventory investment by $60,000. And, because warehouse workers had been part of the kaizen team that developed this solution, they readily embraced the new work procedures.

Through the application of simple tools, such as 5S, a kaizen event typically eliminated anywhere between 25%-90% of the waste observations. This was a powerfully motivating and rewarding exercise for employees who were able to see that they could immediately remove obstacles and improve frustrating aspects of their work through the kaizen process.

Exhibit 5. Before and After 5S in Main Kitchen Dry-Goods Storage

Exhibit 6. 5S Two-Bin System

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• Kaizen Day 5 On the morning of the last day of a kaizen week, the team presented its work to the property executive team and managers. Team members shared their value stream maps, waste analysis and try-stormed solutions, and described the follow-on improvements they planned to make, but could not complete, in the five-day kaizen event window. These action items identified, but not yet implemented, were captured in the area’s Kaizen Newspaper, which was posted in the work area and became part of the daily-management metrics board (see Exhibit 9). The presentation on the last day was informative for senior leaders, and it also allowed them to recognize kaizen team members for their hard work and reinforce the cultural shift taking place.

Post-Kaizen Pillars

The week-long kaizen events pro- vided the foundation for creating a LEAN culture. Solidifying the gains and maintaining momentum to truly transform the organization required more than these week-long events, however. Caesars Tunica’s House of LEAN (see Exhibit 7) relied on three post-kaizen pillars: standard work, key performance indicators, and a focus on daily problem solving reinforced through gemba walks.

• Standard Work Every kaizen event resulted in

new ways of performing routine work activities, and each new work process was documented with easy- to-follow instructions that included pictures and listed the tools required (see Exhibit 8). This standard work became the prescribed and repeatable way of performing the task.

• Key Performance Indicators: The Daily-Management Metrics Board Measurement played an essential role in keeping areas accountable for maintaining and extending the

improvements made during the kaizen event. “You get what you measure,” as the management adage holds. After each kaizen event, employees in the work area developed a set of key performance indicators (KPIs) that were consistent with the company’s overall operating objectives of safety, workplace organization (5S), quality, delivery, inventory, and productivity-cost. These indicators (one or two per objective) were tracked on a KPI Board posted in each area and updated on a daily basis. Performance was coded as red (below expected performance) or green (at or exceeding expected performance). In addition to the key metrics, the visual board also displayed the name of the individual responsible for maintaining the board, the list of ongoing improvement efforts generated during the most recent kaizen week, and the area’s standard work SOPs (standard operating procedures). The board documented barriers to service the team had identified and described countermeasures the team had developed for removing or overcoming these barriers. For example, a barrier to service quality for one team was insufficient training on the new standard work, which had been developed during the kaizen event. To address this, the team planned additional training. Exhibit 9 shows the standard board format adopted throughout the organization.

• Daily Problem Solving, Gemba Walks, and Executive Engagement The KPI Board became the focus of daily problem solving. At a designated time each day, area team members

gathered around the board to discuss performance, report barriers, share improvement ideas, and decide on next steps.

Once a week, representatives from Tunica’s executive team conducted gemba walks to observe processes and

hear from process teams about their ongoing improvement efforts. In each process area, the team and executives

Exhibit 7. Tunica’s House of LEAN

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gathered around the area’s KPI Board to discuss red metrics and the status of countermeasures. The team also shared the progress it was making in addressing the to-do items identified during the most recent kaizen event and requested support, where needed, from managers and executives.

This ongoing engagement of top-level leaders was essential to sustaining momentum. The company CEO, who had encouraged Tunica to develop a LEAN culture, followed the efforts of the program closely, participated in gemba walks while on site, and personally called employees to thank them for their improvement efforts.