Applicability Of Lean Concepts In Service Environment Management Essay

Lean concepts are very popular among academics and industries due to their proven ability to derive competitive advantage and increase customer base by providing added value at the lowest cost. Although the early focus of lean development was manufacturing operations, but in past two decades many authors have applied the same concepts in different type of organisations including services. Many service companies have implemented lean concepts and have benefitted from them. This report aims to highlight the way lean concepts tools and techniques can be implemented in service operations. It also highlights the challenges in such implementations and the ways to deal with those challenges.

Introduction:

In today’s fast paced information technology era, services have become an integral part of everyday lives. Starting from banking, healthcare, entertainment, travel, tourism, insurance to public service, services are gaining more and more momentum in markets which are driven and shaped by customer experience. The service sector is an important and growing component of economies of most countries around the world. For example, output of services exceeded 50 per cent of GDP in India, Pakistan, Sri Lanka, Bangladesh and the Maldives in 2006, and it is a rapidly growing share in every country (World Bank 2009). In view of this it becomes increasingly important to find out ways to improve the efficiency and reduce the waiting times and cost to improve the customer experience and thus increasing revenues. In addition to this there are some services which are essential such as health care, where waiting times and inefficiencies can prove fatal.

In last two decades many researchers have suggested different ways to improve the services and one of the widely accepted ideas is lean implementation. Lean thinking or leanness primarily focuses on elimination of all type of waste by continuous improvement and by localising quality with greater involvement of workforce at each level (Sanchez and Perez 2004). Wood (2004) defines Lean as “a way of giving people at all levels of an organisation the skills and a shared means of thinking to systematically drive out waste by designing better ways of working, improving connections and easing flows within supply chains”. Lean concept was first introduced by Krafcik (1988) but received widespread attention by a book titled “The machine that changed the world” authored by Womack, Jones and Roos (1990). However most of the literature on lean focussed only on manufacturing and little on service until Bowen and Youngdehl (1998) applied lean production principles to services. Many authors have since published many articles to transform lean production principles into lean service principles.

The objective of this report is to analyse how lean can be implemented in services, what are the challenges in such implementations and how they can be overcome. These objectives are achieved by critical review of the existing literature on the subject.

Lean manufacturing and lean service: What is the difference?

Origin of lean concept from Ford and Toyota and the evidence from early literature on lean suggest that lean approach primarily focussed on manufacturing process in its initial stage of development (Krafcik 1988; Womack, Jones and Roos, 1990). Therefore, it is important to understand how lean is applied in manufacturing prior to lean implementation in service. Lean thinking is based on five fundamental principles as mentioned in appendix 1. All manufacturing processes deal with the transformation of raw materials into finished goods and therefore hold inventories including, raw material, work in process and finished goods inventory. The input and output are clearly measureable due to tangibility of goods. This tangibility makes it easy to identify the waste and redesign the process to remove the waste, for example, any excess inventory or any unwanted motion. On the other hand the intangibility of services makes it very difficult to adopt the lean tools and techniques used in manufacturing operations (Song, Tan and Baranek, 2009). There are many other distinct properties of service operations which differentiate it from manufacturing operations. For example the services cannot be stored and any service generated is lost, if not used immediately. All services are generated and consumed simultaneously preventing the use of buffer as in manufacturing to compensate any fluctuation in demand (Apte and Goh, 2004). In addition to this the services operations are labour intensive making the services dependent on the quality and training of workers unlike in manufacturing where highly automated machines can offer better and error free products. On the other hand, most services also use goods to facilitate the service, for example, in health service medicines and other medical equipments are used and the success of health services is only possible with optimum availability of such inventory. However there are some service industries which are highly information intensive and use little or no tangible goods, for example, an insurance company or a law firm.

Due to the above mentioned differences between the nature of service and manufacturing operations, it is not possible to apply all the lean manufacturing concepts directly into service. It remains a challenge to find out the effective ways which can identify the waste in services and identify the right tools to remove those wastes. A wide variety of lean tools and techniques has been developed and are used successfully in manufacturing operations but one common theme emerges among all lean tools, which is the pull based production with ideally zero inventories by following JIT and reduction of cycle time of all the activities through SMED and Kaizen while the tools such as QFD, SPC and TPM ensure an ever increasing quality with minimal or zero need for inspection.

Lean Service Design:

Two aspects remain central to lean thinking, first, integration of strategy formation with operational improvement and second, the focus on a range of other contingent processes (Hines, Francis and Found 2005). Within the first of these areas, the focus has been developing a seamless transition between corporate strategy and the activities undertaken to achieve this strategic intent (See figure 1). It is important to understand an organisation’s critical success factors and aligning the business to these factors by the deployment of dependent performance measures and targets by business process (Hines and Taylor, 2000).

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Figure 1: Strategic thinking as applied to the lean organisation. Source (Hines, Francis and Found, 2005)

The main focus of lean principles is the identification and removal of all waste. It is important to recognise that only a small fraction of the total time and effort in any organisation actually adds value for the end customer. Hines and Taylor (2000) suggested that only 1% activities are actually value adding in a service environment, 49% are non-value adding activities and rest 50 % are non-value adding activities, which are necessary to facilitate service. These figures suggest that there is huge scope for improvement in most companies.

Identifying the waste and defining value for a specific product or service from the end customer’s perspective and a gradual step by step removal of non-value adding activities is the key to successful lean implementation (Alstrom, 1998). A lean project without proper planning and sequencing can make a mess, especially in case of service operations where stopping the service for correction is unacceptable in most cases unlike in manufacturing where every worker is authorised to stop the production line if any irregularity is found (Taylor and Tofts 2009) and the production is assumed only after corrective action is taken. Hines and Taylor (2000) suggested that prior to lean implementation the senior project managers should:

develop critical success factors

review or define appropriate business measures

target improvement requirements over time for each business measure

define key business processes

decide which process needs to deliver against each target area

understand which process needs detailed mapping.

A five phase approach was developed by Allway and Corbett (2002) for lean service design:

Assessment of current state: It includes the analysis of current state of the processes and activities of an organisation. An appropriate analysis identifies the strengths and weaknesses of the process and the wastes associated with each activity. For example, in a health care process, mapping the process flow from booking a surgery appointment to the patient discharge will identify the potential bottlenecks and the most efficient activity and cycle time of each activity, suggesting the opportunities for improvement. Lean tools such as Value Steam Mapping, Training Course and Complexity analysis can be used in this phase.

Determining the target state: Target state is the defining of future state of an organisation which is linked to its business strategy defined by specific targets. This requires through understanding of the organisation’s business strategy and requirements coupled with the development of appropriate Key performance indicators (KPIs) from the CEO level to the worker level of an organisation. This helps in creating accountability and develops a lean culture throughout the organisation. Lean tools such as VSM and Key Performance Indicator (KPIs) Development can be used in this phase.

Stabilising the operations: Structured problem solving to identify the root causes of wastes and inefficiencies and continuous evaluation of progress for taking the corrective actions to resolve any identified problem. It may include changing the existing definition of performance standards, for example, in an telecom call centre the measure of performance is number of calls processed. While this may not be the true measure of success as it results in fast call processing resulting in deteriorated quality and unhappy customer along with secondary clarification calls. While the first time call resolution with minimal or no secondary call can be a revised performance standard. Lean tools such as Standardising operations, 5S and Load Balancing can be used in this phase.

Optimising the opportunities: This phase includes further fact-based analysis to identify more opportunities and begins to push the organisation towards stretched targets, and moves the organisation towards excellence not just eliminating the waste. This phase includes a number of initiatives focused on improving physical design and flow. It specifically synchronises the demand pace with the actual flow of activities and information. Lean tools such as Supply Chain Reengineering, Order Tracking and Quality at Source can be used in this phase.

Instutionalising the lean approach: This phase includes assessing capability gaps, collecting and synthesizing relevant learnings, conducting on-going tracking, building on and modelling successes by looping back to the next-highest-priority area, and fostering pervasive communications about performance-or performance dialogue-all the way down to the front line. Lean tools such as IT Solution, for example, ERP, fast and real time information systems and Employee Involvement can be used in this phase.

Another lean implementation approach published by Chakravorty (2010) consists of six steps divided across two levels of decision making namely strategic and tactical as shown in figure 2 below. This is also a step by step method to gradually impalement lean concepts into service.

Figure 2. A lean implementation model, Source: (Chakravorty, 2010)

Identifying wastes in service operations:

One of the most important tasks in lean service implementation is the identification of waste. Once waste is recognised, next decision is to identify and prioritise improvement projects to reduce waste. This is an important decision because studies show that one reason many improvement programmes fail is because improvement projects are not correctly identified and prioritised (Zimmerman and Weiss, 2005).While lean manufacturing addresses the elimination of wastes on materials, manufacturing activities, production time and operations, lean service addresses eliminating wastage of time, service quality and information resources Womack and Jones (2003). Following are the type of wastes which generally occur in service:

Waiting time: Unnecessary waiting times may arise due to unbalanced work flow, long processing times, complex procedures, lack of staff training and lack of resources coupled with unlevelled scheduling (Bicheno, 2004). Long waiting times can be very irritating for customers and may result in reduced customer base.

Unnecessary repeated operations: It may result due to misunderstanding of customer requirements, communication gaps, and lack of standard operations (Swank 2003). For, example, in a telecom customer service call centre, misunderstanding of customer problems may result in handling the same complaint again and may go up in the management hierarchy thus wasting management time.

Underutilisation of work force: Poor organisation culture; poor employment policy; poor performance appraisal system and rewarding system; lack of training; low pay and high staff turnover may result in lack of motivation among staff which ultimately results in the underutilisation of work force.

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Incorrect Inventory: It may result due to poor forecast, unbalanced workloads, unreliable suppliers, poor scheduling or communication gaps. Inventory becomes increasingly important in the services which are facilitated by inventory, for example, health service, where lifesaving equipment shortages can be very serious. On the other hand any excess inventory is a waste.

Unnecessary motions and low service level: Poor office layout, poor staff training, lack of understanding of work flow and lack of standard operating procedures are some of the reasons for necessary motions and low service level. This leads to errors in transactions and the customer waiting time increases coupled with increased employee fatigue (Womack and Jones, 2003).

These are some of the wastes which may occur in any service operations. However, a deeper analysis of the specific service operations will be able to identify all the wastes and the tools to remove them.

Lean tools for service:

6.1 Value stream mapping (VSM):

VSM is the mapping of value stream which is consisting of all the value adding activities which make a product or service unlike traditional supply or value chain which also includes the non-value adding activities (Hines and Rich, 1997).

VSM helps to analyse problems virtually and identify all wastes in details throughout the entire service process (Song, Tan and Baranek, 2009). It involves collecting current state data, mapping the physical and information flow of the process associated with customer values. In the value stream map, it can be relatively easy to identify the bottlenecks, unnecessary deeds, delays, duplications and assist in eliminating non-value-added activities and processes. It is also a springboard for creating a ‘future state map’ that outlines a clear goal towards which the team applies their improvement efforts (Jimmerson et al., 2004). Hines and Rich (1997) classified seven types of VSM tools:

1. Process activity mapping

2. Supply chain response matrix

3. Production variety funnel

4. Quality filter mapping

5. Demand amplification mapping

6. Decision point analysis

7. Physical structure mapping

Different type of VSM tools can be applied in different service operations. It is important to select the right VSM tool as per the requirement of specific organisation.

6.2 Problem-solving A3 Report:

An A3 Report fits on one side of an 11″ Ã- 17″ sheet of paper (roughly equivalent to the A3 size paper in metric units). The report addresses the problem with the aim and objective, problem context and its importance, current working procedures, problem analysis, target state, implementation plans and follow-up plans (Jimmerson, Weber and Sobek, 2005). Figure 3 shows a template of A3 Report. The A3 report addresses a specific problem in a systematic fashion as follows:

The issue or problem is stated through the eyes of the customer. Sometimes direct customer involvement is sought.

The current work procedures are represented graphically as the “current condition,” based on direct observation of the problem.

6.3 Standardised operations:

Operations can be standardised to reduce waiting time, improve service quality and to keep continuous work flow even when absenteeism or staff turnover are present and unpredictable (Song, Tan and Baranek, 2009). It includes variety reduction and simplifying most of the processes with main focus on service operations such a transacting customer documents as in banks and insurance sector. However, rigid standards may sometimes encourage lack of creativity. This requires continuous revision of standards as per the requirements which may change due to changing technology or customer requirements.

Figure 3: A3 report template. Source: (Jimmerson, Weber and Sobek 2005)

6.4 5S:

5S is an effective tool to create a tidy and comfortable workplace (Hirano, 1996), for example, in health care; a proper management of equipment within easy reach of doctors can avoid unnecessary motion and avoid mixing of used equipment with fresh equipment, which is essential for hygiene and to avoid transfer of diseases. 5S can equally be applied to any office or store environment. 5S can virtually be applied in every activity, for example, managing the files in a computer. There are five steps involved in 5S implementation:

Sorting- to sort and classify, based on the needs and category of items deal with all items in a systematic way,

Simplifying- to simplify the layout in the ergonomic principles and provide staff with an easy and fast way to do a job

Standardising- To standardise and simplify the operating procedures and documents

Sweeping- to tidy up the physical environment and visually check whether anything is out of place

Sustaining- to involve everyone in the organisation and promote the culture of self-discipline.

6.5 Quality at source: Defining quality in terms of customer perspective systematically links the needs of the customer with various business functions and organizational processes, such as purchase, marketing, after sales and customer care, aligning the entire company toward achieving a common goal.

Externally, the service provider may build a customer feedback loop in the form

of a questionnaire, hotline, call centre or tracking service (Song, Tan and Baranek 2009). Quality function deployment QFD is one such tool which translates the true customer requirement into business strategy allowing the organisations to prioritise the aspects of the service that will get the greatest competitive advantage. As described by Kano et al. (1984) (see figure 4) there are there are three types of requirements to consider, namely revealed requirements which are compiled by directly asking the customers, expected requirements, which are so basic the customer may fail to mention and exciting requirements which surpass the customer expectations and thus delighting the customer.

Figure 4: The Kano Model. Source: (Kano et al., 1984)

Apart from this there are numerous other tools which can be used in lean service implementation. Load balancing, complexity analysis, throughput analysis, touch time analysis, line balancing and functional analysis are some of them (Allway and Corbett, 2002).

Why lean implementation fails and what are success factors?

Lean approach strives to make revolutionary changes in culture of an organisation and it is because lean is met with great resistance when it is introduced in any organisation (Padgett 2004). Most failures in Lean implementation happen because organisations fail to successfully change the culture; fail to implement a new culture, a culture of continuous improvement and culture that welcomes change. As suggested by Atkinson (2004), if lean implementations fail because organisations perceive lean as a toolbox of concepts and methodologies that are forced on an organisations, rather than tailored to the needs of an organisation. Another argument put forward by Atkinson is that lean does not create culture instead lean grows from the culture.

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Some organisations perceive lean as a cost reduction method and fail to implement a culture of continuous improvement, which is the foundation of lean implementation.

Some of the success factors as described by Bowen and Youngdehl (1998) are:

place equal or greater emphasis on investment in people relative to investment in equipment;

use technology as a means of front-line support rather than replacement;

make recruitment and hiring important for all employees, not just management; and

link compensation to performance for employees at all levels

Apart from this, it is important to change the culture of an organisation by top down approach, prior to application of lean tools by greater employee involvement and building cross functional teams which are driven by interest and motivation for a common goal rather than expecting lean tools to change the culture for successful lean implementation.

Impact of Lean on service operation:

Empirical evidence shows that services can be improved drastically with lean implementation. As highlighted by Allway and Corbett (2002), lean implementation in insurance business, operational improvements included a 50 percent reduction of incomplete applications, an 80 percent reduction in application variability, a 50 percent improvement in processing times, and a more than 10 percent reduction in labour costs for application processing.

The financial institutions realized 20 percent productivity improvements in its commercial and automotive loan-processing center, 50 percent reduction of processing throughput time in that same processing center and a 50 to 60 percent improvement in first-pass yield-that is, loans processed correctly the first time.

As report by Swank (2003), Companies like Jeffersson Pilot Financial reduce tack time by 70 percent with 40 percent reduction in errors and 26 percent reduction in labour cost. There are many other successful examples of service companies which implemented lean, including Teco Bell and Southwest Airlines (Abdi, Shavarini and Hoseini 2006)

Conclusion:

It is evident from the report that a gradual and systematic change of culture in an organisation coupled with implementation of lean principles with the application of intelligently selected lean tools and techniques and continuous improvement can contribute significant improvement not only in service sector but in any enterprise. Although there are many approaches to lean implementation put forward by many authors, but the central to all approaches is the greater involvement of all stakeholders

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