Applying Lean to Your Service Business

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Applying Lean to Your Service Business

Most service businesses haven’t explored Lean because they think it only applies to manufacturing. One common thread in both service and manufacturing businesses are transactional processes. Since service companies make up about 80% U.S. businesses, we need to adjust our lean thinking from one of manufacturing to one of service.

Typically, more than 60% of the cost of a product or service can be attributed to administrative or transactional processes like entering a customer order, generating an invoice, filing an insurance claim, ordering an item via the internet, and others are not much unlike manufacturing processes when it comes to managing costs. These transactions represent how we interact with customers to ensure products and services are provided at some acceptable level of profit. It is imperative that these processes are effective and efficient. This can be attained through the application of lean.

No business is immune to meeting customer requirements faster, flawlessly, and affordably. Industries as diverse as retailing, telecommunications, airlines, services, banking, and insurance have adopted Lean tools and concepts to achieve improvements in quality and efficiency of 40 to 70 percent. Healthcare, financial services, construction, armed services, local and federal government can apply the same Lean tools and concepts practiced by Toyota and achieve the same success—doing more with less. Getting started on your service Lean journey is comprised of four activities:

  • Encouraging a culture of teamwork
  • Developing a snapshot of the current state
  • Identifying and mapping the value stream
  • Analyzing and solving problems

Encouraging a Culture of Teamwork

Lean is a team sport and as with any team initiative, it is important that everyone involved in the change contribute their ideas. Assemble a process improvement team for managing the improvements. The team should follow basic teaming guidelines:

  • Identify team roles, such as leader, timekeeper, scribe, facilitator
  • Establish team norms
  • Prepare a team charter

Make sure the team members understand the overall objectives of the project. Teach the team some of the lean tools and concepts. As they learn these skills have them creatively adapt and apply them to your transactional processes.

Developing a Snapshot of the Current State

Developing a picture of your current state consists of collecting information and data to analyze, re-define or modify your current processes. This will help you identify the critical (value-adding) processes—those that directly impact the customer or have a direct financial impact on your organization. Some examples of critical value-added processes might be:

  • Entering a customer order
  • Invoicing
  • Treating a patient
  • Providing information to a customer

In developing this picture of your current state, you will also identify some of the non-critical processes—those that are necessary but do not add value to the customer. Examples of necessary transactional processes include:

  • Preparing a budget
  • Generating a quote
  • Preparing a month-end report
  • Conducting marketing research

Once we are clear on what our current state looks like we are ready to select a value stream to map and improve.

Identifying and Mapping a Value Stream

A value stream is defined as everything including non-value-added activities that are required to deliver a product or service to a customer. A value stream can include a single process or a connected series of processes. It is a visual representation of the work flows and the information flows necessary to meet customer demand.

We define value as something the customer is willing to pay for. Non-value-added is what the customer isn’t willing to pay for. Both types of activities are identified on the value stream map. Our goal is to eliminate all the non-value-added activities. We can accomplish this goal using Lean tools. How do we choose a value stream for improvement?

There are a variety of methods for selecting a value stream for improvement. Some of the most commons are:

  • Identify any immediate customer concerns
  • Perform a workflow analysis
  • Prioritize target value streams
  • Business conditions

Customer concerns

Many times, a customer will mandate improvements to a product or service. This type of request takes precedence over all other methods of selecting a value stream. We would look for improvement opportunities in the processes that make up the value stream in question.

Work-flow analysis

If the customer does not immediately identify a target value stream for you, you can use work-flow analysis. This is accomplished by creating a simple matrix of the work units sharing common processes to identify a value stream. To perform a work-flow analysis, follow these steps:

  1. List the customers on the left
  2. Next to the customers, list volume, total sales, number of patients, number of loan applications, number of insurance claims, etc. over a given period of time. At a minimum at least three months of data should be analyzed.
  3. At the top of the chart list the processes in sequence that involve all the customers listed above.
  4. Indicate which processes or activities apply to each customer by marking an X in the grid
  5. Group together the customers or families that have the same process routes and rank them by volume.

Prioritize target value streams

You may want to target a value stream from a list of prioritized processes you have identified that the organization needs to improve going forward. When working from a prioritize list of value streams it is important to have the value stream “touch” or relate to the ultimate customer.

Business conditions

The challenges an organization faces in today’s business climate demands continual improvement to remain competitive. Constant attention must be given to your competitors. If competition creates a new product or service that decreases your market share, then you need to identify a new value stream in which to compete.

After selecting the value stream and attaining a good understanding of Lean, the next step is to map the current state to obtain a high level, visual representation of the specific transactional processes under review.

Mapping the value stream

To improve a value stream, you must first observe and understand it. Mapping the process gives you a clear picture of the value-added and non-value-added (waste) activities. Eliminating the waste makes it possible to reduce transactional processing time, which will help the organization consistently meet customer demand. When creating your map focus on gathering accurate, real-time data related to the product or customer families you develop during your initial analysis. Use this information to identify all the specific activities occurring along each value stream.

Value stream mapping begins with creating the current state map. After you have gathered the data, you are ready to map the current state. Always begin with a clean sheet of paper and use a pencil (“the best thing about a pencil is the eraser.”) A generic current state mapping procedure is as follows:

  1. Draw the external (or internal) customer and supplier (if the supplier is different from the customer) and list their requirements. Many times, in transactional or administrative processes the customer and supplier are one in the same.
  2. Draw the entry and exit processes to the value stream
  3. Draw all processes between the entry and exit processes beginning farthest downstream or closest to the customer
  4. List all process attributes
  5. Draw queue times between processes
  6. Draw all communications that occur within the value stream
  7. Draw push or pull icons to identify the type of workflow
  8. Complete the map with any other data

After you complete the current state map review it for waste or non-value-added activities and brainstorm how to eliminate these activities using Lean tools and concepts. Following the brainstorming session, it is now time to start developing the future state map.

The future state map is current state map with all the non-value-added steps or activities removed. Mapping the future state takes into consideration three conditions:

  • Understanding customer demand for your services and work units, including quality characteristics and lead time.
  • Implementing continuous flow so that internal and external customers receive the right work unit, at the right time, in the right quality.
  • Leveling or distributing work evenly by volume, variety to reduce waiting times and allow smaller work units to move through the process if practical.

Once you have completed the value stream maps there will be many issues and problems needing resolution. This means that your value stream team must be capable of analyzing and solving problems.

Analyzing and Solving Problems

When using Lean tools within a problem-solving methodology, greater improvements can be achieved. There are many systematic problem-solving methodologies that work well but all focus on determining the root cause. Many times, we instruct teams to use the “5 Whys” to dig down to the root cause of a problem. Most problem-solving methodologies are composed of the following steps:

  1. Define the problem
  2. Implement temporary countermeasures to contain the problem
  3. Analyze the problem and generate potential solutions
  4. Determine the root causes and select solutions
  5. Implement the solutions
  6. Verify the effectiveness of the solutions
  7. Take action to resolve the difference in actual results and expected results

This seven-step methodology has several advantages:

  • Simplicity
  • It can be used by individuals or teams
  • It can be used at all levels of the organization
  • It provides a common language and approach

Getting started with Lean in transactional processes takes time—four to six months in functional or departmental units and two to three years on an organizational level. I know what you are thinking, “I don’t have four to six months to improve my processes.” I advocate a faster approach to get you started – the agile lean approach.  This approach requires mapping your key value streams and identifying the unnecessary delays and movement in the process and start working on eliminating these non-value-added steps to design your future state. Some of the non-valued added activities will be low hanging fruit and can be dealt with immediately, the others can be assigned to “quick hit” teams focusing on one improvement at a time with resolution in a one-to-two-hour period.

Ultimately, leaner transactional processes will reduce costs, increase quality, and better align corporate responsibilities within and between functions and create a wholesome cycle of waste reduction.

Willie L. Carter is the President/CEO of Quantum Associates, Inc, an independent process improvement consultancy focused on enriching and providing value by removing waste from work processes. He has over four decades of experience helping organizations create value and is a Certified Lean Sensei, Certified Quality Improvement Facilitator, Certified ISO 9000 Lead Assessor, Certified Quality Professional and author of “Process Improvement for Administrative Departments – The Key to Internal Customer Satisfaction” available on Amazon.com.

 

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