Lean has brought about amazing changes on the factory floor. Many U.S. firms recognize that in today’s markets, the speed of response to customer demands is a key competitive advantage. These firms have worked continuously to reduce their manufacturing cycle times. By applying lean concepts, companies have transformed the factory and made considerable reductions in manufacturing throughput times; reductions in cycle time in excess of 50 percent are not uncommon.
Even after achieving these reductions in cycle times, many of these companies have discovered that their customers still perceive them as slow. Their competitors, frequently Japanese firms, exhibit quicker responses to customers. For example, a large industrial equipment manufacturer found that although it had sliced weeks out of its manufacturing cycle, its response time to customers was still slowed by an order entry and engineering process that took months to complete.
Speed on the factory floor is not enough. Customers care only about the total cycle time from start to finish–from need to satisfaction. They are unimpressed by short manufacturing cycles if the other parts of the value stream make response time slow. Time consumed anywhere in the “value-stream” from order entry and engineering on through to distribution and delivery is equally valuable. It follows; therefore, that time squeezed from any part of the chain has the same value to customers. To be a competitor in today’s marketplace, a firm must shrink the entire value chain by compressing time in activities that also lie outside the factory walls. These are the activities of the “administrative/service factory.”
Processes like order processing, talent management, staffing, hiring, quoting, planning, purchasing, product development and others are full of waste. As a matter of fact, 75-90% of the steps in service/administrative processes add no value—the lean definition of waste. These wasteful steps cause delays and customer dissatisfaction. Since one of the key principles of lean thinking is to minimize the time between the receipt of a customer order and fulfillment of that order (our broad definition of product includes a service offering as well as a widget). Once we identify the waste (non-value-added steps) in our office/service processes and what needs to be worked on, and then we can apply the traditional Lean tools such as pull systems, continuous flow, co-location, point of use storage, continuous flow, 5S, visual controls and mistake proofing.
Administrative Processes in Manufacturing: Order Entry and Specification
Our work with manufacturing firms has shown that basic process analysis principles can also be used to dramatically reduce the time required for “paperwork” processes such as order entry. For example, a large manufacturer of industrial equipment had been quite successful at implementing lean on the shop floor, taking weeks out of the cycle in the production of their prized product large conveying systems. Nevertheless, customer satisfaction surveys indicated that customers did not rate the firm highly in terms of response time. Further analysis indicated that much of the time lag was in the order entry and engineering cycle. It took twice as long to turn a customer’s order into a manufacturing work order as it took to actually manufacture the product. Management knew the order entry process was long and complex, but was not sure why.
Administrative Processes and Traditional Batch Manufacturing
Batching is a major cause of delays both in manufacturing and in administrative processes. In manufacturing, the tendency to produce in large batches is driven by several factors, principally, long changeover times and cost accounting systems that reward long production runs and high machine utilization rates. In the office, batching work and information often results from a tendency to avoid “mental” changeovers. Paperwork is batched to fit into administrative schedules (i.e. processing invoices only on Wednesdays). But instead of promoting efficiency, batching is a direct cause of long lead times and quality problems. As mentioned before, most office layouts are by function, a design that fosters sequential batch processing of information in traditional, functional organizations. These layouts are the analog of the job shop layout on the factory floor in which machines are grouped by function. In both cases, the work flow tends to be complex and jumbled with large WIP inventories and delays.
Traditional manufacturing offers few incentives for shop floor employee involvement in planning and control functions. Schedules come from “above,” and process control tends to be centralized. In most American companies, new-product management also tends to be centrally controlled and scheduled. Because functions are compartmentalized, the personnel assigned to the project team are dispersed and rarely engaged in face-to-face communication. This presents a tough barrier to teamwork and coordination.
With Lean, production scheduling is localized. Management encourages self-managed work groups to assume responsibility for short-term scheduling and product flow. With a team approach to administrative processes, employees are co-located and have a shared vision of the overall goal of faster customer service.
During most Lean implementations, quality, as measured by the proportion of defective parts produced and the amount of rework necessary, improves steadily as setup times and batch sizes are reduced. The actions taken to reduce batch sizes simultaneously attack the causes of defects. We have observed that in white-collar activities, high quality means minimal rework or reprocessing of information. As the information batch size is reduced, the time between occurrence of the problem and detection is immediate. The effects on quality and cycle time are no less dramatic than on the factory floor.
The proper role of automation in a Lean system can be summed up in the phrase “First simplify, and then automate.” Shigeo Shingo, who helped develop some of Japan’s first Lean systems, claims that automation should be used in setup time reduction only after the process has been studied and simplified to remove all extraneous steps (Shingo 1985). Most of our administrative processes would profit from Shingo’s warning.
The evidence strongly suggests that many leading world class competitors have developed and are applying this powerful tool, Lean, to their white-collar processes. Honda, Toyota, and a small number of U.S. firms have gained the powerful insight that Lean is not constrained to manufacturing or to products. The principles of Lean apply with perhaps even greater benefit to the processing of information, something that characterizes new product design and development and other important functions such as customer service and order entry–activities that affect the ability of the firm to respond quickly to customer needs. The net effect can be the same in the office as on the factory floor: faster cycle times and dramatic increases in quality.
Willie Carter began his career as a paint chemist at a Akzo Nobel subsidiary in suburban Chicago where his love for manufacturing began. Over the years his career has taken him to work with numerous SMEs to Fortune 500 companies in assisting them with optimizing their operations and administrative functions through continuous process improvement techniques. Carter is currently serving as president of Quantum Associates, Inc, which specializes in optimizing business processes to minimize costs, accelerate cycle times and improve efficiency. The company’s overarching goal is to help clients do more with less. Carter holds a BA in Chemistry as well as an MBA. He holds certifications as a Lean Sensei, Manager of Quality and Organizational Excellence and ISO 9000 Lead Assessor. He is also the author of Process Improvement for Administrative Departments: The Key to Internal Customer Satisfaction.