How the U.S. Private Service Sector Can Eliminate $2 Trillion in Costs

Lean Process Improvement Offers a Means for Service Companies to Increase Productivity and Responsiveness
August 18, 2019

How the U.S. Private Service Sector Can Eliminate $2 Trillion in Costs

The private service sector in the U.S. contributes $10 trillion to GDP approximately 20% of this figure is non-value-added costs…

Why apply lean to the service sector? Simply because of the potential cost reduction lean can bring to bear in trade, transportation and utilities, information services, financial services, professional and business services, education and health services, leisure and hospitality services, marketing services, etc. The private service sector in America contributes 80% of the Gross Domestic Product or approximately $10 trillion annually. In most service organizations it is conservatively estimated that at least 50% of their costs are a result of non-valued added work. For the sake of argument, let’s say that the average operating expenses for the service sector is 40% or $4 trillion. If 50% of these costs are non-value-added that is $2 trillion wasted every year.

Isn’t it amazing that potentially twenty percent of service sector GDP is non-value-added cost? Isn’t this enough justification for applying Lean in the service industry? Aside from the cost reduction power of lean other benefits the service industry could reap include error reduction, improved productivity, faster service delivery, and increased customer satisfaction.

Lean is no longer a manufacturing “thing”—it is a strategy for improving all business processes. It represents significant potential for achieving speed, quality, cost improvements and positioning an organization well above its competition.

By analyzing and improving its processes the service industry can reduce work in progress delays, unanswered phone calls, and incomplete reports. All of which result in lower customer satisfaction rates.

To enhance their competitiveness, service firms need to embrace systems such as Lean, Six Sigma and practical problem solving, within their organizations to ensure continuous process improvement. These systems can provide individual providers with the opportunity to meet and then surpass the challenge of competitors. A philosophy of continuous process improvement enables a service firm to cultivate a process-oriented way of thinking and developing strategies that assure continuous improvement involving people at all levels of the organizational hierarchy. Such a system requires a new organizational culture that considers change, rather than complacency, the norm.

A widespread dissatisfaction with the current way in which the organization

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functions can be the impetus for implementing lean in a service business. In the case of profit-making service organizations, dissatisfaction is heightened by red ink or lost market share. However, with respect to non-profit service organizations such as government, and public education, these kinds of competitive pressures are largely absent. Therefore, organizational dissatisfaction must be created from within by the leadership team.

The service sector of the U.S. economy can longer rely on the traditional methods like restructuring and reorganizing to make them more cost competitive. A more focused approach for improving quality and productivity must be found. One such alternative for increasing competitiveness is to introduce lean process improvement into service organizations. If you have a company in the service sector and think that you could benefit from a more effective strategy, then why not consider adopting lean thinking? Not only will you establish a more productive approach, but it will also help you to reduce your non- value-added costs, motivate your employees, increase customer value, and improve the efficiency of your business.

 

Willie Carter, a Certified Lean Sensei, is president of Quantum Associates, Inc., an independent process improvement consulting firm. The firm provides process improvement expertise that optimize client’s processes, minimizing their costs and accelerating their cycle time enabling them to do more with less. Quantum Associates also offers a Lean Office Simulation designed to introduce service organizations to lean process improvement.

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