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How to optimize processes in practice during consulting projects

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Optimizing processes is not an easy task. It requires a structured approach to it and good understanding of helpful methods such as lean manufacturing, theory of constraints, queuing models, Overall Labor Efficiency and others. In this presentation I will show you how you can approach process optimization. I will show you not only the general approach to this subject but also we will go briefly through methods. I will also show you one example of process optimization in retail. You will have also a lot of links to additional resources that will help you learn the methods required to do process optimization during consulting project or internally in the firm on your own. There will be also a link to the course where you can learn more on that. The presentation is devoted to 3 parts
1. General framework / approach to process optimization
2. Examples of methods and tools used during process optimization
3. Cases study – process optimization in retail

Published in: Business
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How to optimize processes in practice during consulting projects

  1. 1. 1 How to optimize processes Practical guide how to lower costs and improve quality
  2. 2. 2 In this presentation I will discuss 3 things General approach to optimizing processes Useful Techniques & Tools Case Study – Optimizing processes at Retailer
  3. 3. 3 Let’s start with the first aspect General approach to optimizing processes Useful Techniques & Tools Case Study – Optimizing processes at Retailer
  4. 4. 4 Observation and initial analyses Data gathering Process optimization in selected unit Modification of the process for other units Implementation in the whole organization  Observation of process in real life  Analyses of the formal description of the process  Analyses of available data  Proposal of KPIs needed to set goal for each and every process  Preparation of list of data and format for data entry  Workshop  Data gathering  Data preparation according to provided formats  Usually you select one of the units where you measure and optimize the processes i.e. in a specific store / region / factory / site  Analyses of the process as is especially its efficiency and costs  Redesign of the process  Creation of tools supporting the execution of the new process  Test of new processes in chosen locations  Modification of processes  Creation of manuals supporting the new process  Implementation of new redesigned processes in the whole organization  Consulting Firm  The Customer  The Customer  Consulting Firm  The Customer  Consulting Firm  The Customer  Usually the Customer with some support from the Consulting Firm Process optimization is usually divided in the following phases Who does it? Description
  5. 5. 5 During the processes many problems will occur Processes may not be described or even named Every unit is doing things differently There is no defined customer experience Specific processes have no goals / KPIs The Customer does not have the knowledge and resources to optimize Not-invented here attitude Lack of resources or will to implement the new processes Inertia in the organization
  6. 6. 6 Let’s have a look at some tools and techniques that are useful General approach to optimizing processes Useful Techniques & Tools Case Study – Optimizing processes at Retailer
  7. 7. 7 Tools overview
  8. 8. 8 There are 4 groups of tools that are very useful during processes optimization. I will briefly discuss them Lean Manufacturing Theory of Constraints Queuing theory Overall Labor Efficiency (OLE)
  9. 9. 9 Elements of lean manufacturing
  10. 10. 10 5 60 35 Adds value Does not add value and not obligatory Obligator but does not add value Lean Manufacturing starts with an interesting observation. Due to different of waste we only use 5% to create value Source: Report Going Lean, P. Hines, D. Taylor; Lean enterprise research centre; Cardiff Business School; 2000 In lean manufacturing We have different types of waste: • Overproduction • Defects • Inventory • Over-Processing • Transport • Motion • Waiting Share in total %
  11. 11. 11 Overproduction  Overproduction is making too much or too early. This is usually because of working with oversize batches, long lead times, poor supplier relations and a host of other reasons. Defects  You produce faulty things or not up to agreed standard. This may be due to errors done by production people, quality issues or faulty materials Transport  Transport is the movement of materials, people, machines from one location to another. This is a waste as it adds zero value to the product. Waiting  Long periods of no action due to lack of materials , resources, people Motion  Unnecessary motions of workers due to the way working space is organized Inventory  Too high inventory that cos t you money, space and causes operational problems Over-Processing  When you use the wrong tools, procedures or methods you are creating waste as well You have not used the employee’s creativity  If you waste peoples’ efforts and creativity you will stop developing Definition Lean Manufacturing defines 8 types of waste that we want to eliminate
  12. 12. 12 Too much movement (people, resources, materials) Lower the need to move Move faster Change the timing of the movements Eliminate the movement Peak of activities Set priorities Assign specific people to perform the activity during peaks Decrease the difference between high and low periods Use different frequency for different activity For example in the case of Retailers we have 2 main sources
  13. 13. 13 For more on Lean Manufacturing check another presentation of mine Essential Lean Manufacturing for Management Consultants Practical guide how to cut costs presentation
  14. 14. 14 Elements of theory of constraints
  15. 15. 15 Example 1 7 5 7 Example 2 5 10 20 Example 3 5 5 3 x Stage capacity x Bottleneck Theory of constraints is about dealing with so called bottleneck that are limiting the capacity of the whole system. Have a look at 3 examples
  16. 16. 16 Due to bottlenecks the system the whole system is not efficient. Some people have nothing to do whereas others are stranded with too much work
  17. 17. 17 That is why theory of constraints are very useful to optimize processes not only in Production but also in Retail and Services  Throughput of the whole system  Inventory of materials, finished products, WIP  Operational costs of the production Production  Throughput measured in number of customers served  Inventory of goods  Operational costs of the store Retail  Throughput measured in number of customers served  Inventory of materials  Operational costs of the service point Services
  18. 18. 18 The aim of the theory of constraints is to increase the throughput in bottlenecks and in this way to improve the whole system. Below how to do it  Identify the bottleneck  See how you can use in better way the time of the bottleneck  Everything should be aligned with the bottleneck  Increase the capacity of the bottleneck to meet the full demand (add machines, people, resources, increase the time of work) 1 2 3 4
  19. 19. 19 OEE and OLE
  20. 20. 20 Open hours Maintenance Machine uptime Uptime utilizationIdle time 60% 60% OEE = 60 % 60 % x x 98% Proportion of good quality products 98% 35% It means that we used only 35% of machine paid time In the case of machines you can measure Overall Equipment Efficiency. Similar concept can be used to measure efficiency of people
  21. 21. 21 Similar to OEE that is designed for machines you can define the Overall Labour Efficiency (OLE) for people  Estimated for machines  Shows you what percentage of the machine is used to create value for which you are paid by the customer  It makes sense to analyze it especially for expensive machines and bottlenecks OEE  Estimated for people  Shows you what percentage of the people is used to create value for which you are paid by the customer  It makes sense to analyze it especially for people that are representative of a big group of your employees OLE
  22. 22. 22 Below an example of analysis of the time spend by store employees. As you can see OLE is pretty low 31% 29% 21% 18% 100% Sales advising Shelf replenishment Transport and movement Others Total  Only sales advising and shelf replenishment are added value activities for which customer is willing to pay  This means that the OLE for a sales reps is equal to 60% at most
  23. 23. 23 Queuing systems
  24. 24. 24 In many cases to optimize processes you have to identify queues in your systems to be able to serve your customers in the proper pace Customer appears Exit Number of service point (servers) Queue Delivery of service
  25. 25. 25 In queuing system there are 2 parameters you have to estimate to see how big the problem is We have to parameters that we should look at • λ – average number of people appearing in the system • μ – average number of people that the system can service We have 2 possible situations • λ> μ – we are not able to service all customers – they are leaving the store • λ< μ – We are able to service customers quite well yet occasionally we can have still queues. The customer in the queue may give up purchasing or can be less satisfied (not return for new purchase)
  26. 26. 26 Even small difference between the number of appearing customers and your capacity to service can cause fast big queues 0,0 20,0 40,0 60,0 80,0 100,0 120,0 1,0 1,4 1,8 2,2 2,6 3,0 3,4 3,8 4,2 4,6 5,0 5,4 5,8 6,2 6,6 7,0 7,4 7,8 8,2 8,6 9,0 9,4 9,8 λ – average number of people appearing in the system Size of the queue μ =10
  27. 27. 27 In complicated systems you can have 2 types of queues  Clear service points  People know where they are and how to queue  A good example is the queue to cash till in a retail store Visible  No clear service points or service points not visible  People cannot find the service points and don’t know how to queue to them  A good example is the invisible queues to sales reps for advices in the retail store Invisible
  28. 28. 28 Have a look how the service level (advice during the purchasing process of the customer) looks in an example of store DIY test store example • λ = 126 customers • μ = 6 sales rep x 9 customer serviced in during the hour 54 customers Conclusions: • A big part of customer cannot be served • Some of the customer will not buy at all (lower conversion) or will buy less (lower average transaction value – ATV) • μ can be increased by increasing the number of sales reps, increasing the time they devote to servicing customers or shortening the time of service
  29. 29. 29 Let’s have move to a case study General approach to optimizing processes Useful Techniques & Tools Case Study – Optimizing processes at Retailer
  30. 30. 30 We will discuss examples of process optimization of a price change process for a retailer that is working in DIY / Home improvement industry DIY look Brands
  31. 31. 31 Price change process optimization
  32. 32. 32 Price change is the process of changing the price tags. It generated 7% of cost in the test store but generated 16% of all savings CC: Wikimedia
  33. 33. 33 Let’s have a look how the price change process looks like Printing and preparation of new price tags Price tag distribution Change of price tags  Done by an Office Specialist  Around 300-400 changes per day  Office Specialist calls 4- 7 Sales Reps to the Office and hands them over the price tags  Sales Reps change prices in their departments  A lot of problems were caused by lack of tools and infrastructure (scissors, ladder, pallet truck, dustbin etc.) CC: Wikimedia
  34. 34. 34 Click on the icon below to see the movie showing how we managed to optimize this process of price change and save a lot of money for the Retailer
  35. 35. 35 Management Consulting Project – Behind the Scenes $90 $10 Check my online course were you find a detailed overview of the whole optimization processes and examples of improvements done to all processes along with calculation of savings in Excel Click here to check my course
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  69. 69. 69 Processes optimization
  70. 70. 70 Introduction to processes optimization
  71. 71. 71 Process Optimization went much better than expected It lasted 4 instead of 5 days Most of the things were done in 2 days The team changed from skeptics to deep believers Leaders of each implementation team were the driving forces I was mainly coordinating, motivating and arguing We did more than the planned scope
  72. 72. 72 As a reminder the original timeline Tasks 20 21 22 23 24 Overview of process – definition of KPIs and measuring the current costs Designing of new solution, testing and modifying them Final touch, creation of tools and final modification to the processes February
  73. 73. 73 We managed to do much more as assumed in 4 days  Tried to apply techniques they have learnt during the workshop  Measured assigned process – how long it took what where the obstacles  Looked for ways to improve Day 1 Implementation teams Me  Explained techniques and showing them the waste  Gave them tips on how to improve  I was moving between groups and sometimes talking to the leaders separately  Continued activities from Day 1  For some of the process they have implemented the quick wins in improving themDay 2  Continued activities from Day 1  Monitoring changes  We made a trip to the competitors to try to see how the process are organized there  We tried to see the pros and cons of the whole process  We came back to improving the process at the DIY  We measured the results with t he new processes Day 3  We finished the changes to the process  The team that was doing the customer service went beyond the scope and worked on improving the basket (ATV) size as well conversion rateDay 4
  74. 74. 74 The store and the processes
  75. 75. 75 The test store was 4 000 sq. m big (43 000 sq. ft.) Warehouse Offices Warehouse /store racks (shelving) Cash Till Employee Customer
  76. 76. 76 • In-bound Logistics including replenishment of the shelves As you may remember there were over 20 process that we optimized in the test store Group Process • Special orders • Direct orders • Orders from Central Warehouse (CW) • Cyclical orders • Price change management • Price change • Price monitoring • Communication between stores and Head Office • ? • Promotion area management • Promotion area management • Change of assortment • Range Change • 1 to 1 • Customer support • Selling the product at the cash till • Return of goods • Complaint from a customer • Sales via telephone • Deposit and transportation management • To be confirmed • Direct deliveries • Deliveries from Central Warehouse (CW) • Direct returns • Returns via CW • Transfers between stores • Partial stocktaking • Control of empty spaces
  77. 77. 77 I will show you in details what we did in the case of the following 4 process Price change Shelf replenishment Advising customers Cash till and info point
  78. 78. 78 Price change
  79. 79. 79 Price change is the process of changing the price tags. It generated 7% of cost in the test store but generated 16% of all savings CC: Wikimedia
  80. 80. 80 Let’s have a look how the price change process looks Printing and preparation of new price tags Price tag distribution Change of price tags  Done by an Office Specialist  Around 300-400 changes per day  Office Specialist calls 4- 7 Sales Reps to the Office and hands them over the price tags  Sales Reps change prices in their departments  A lot of problems were caused by lack of tools and infrastructure (scissors, ladder, pallet truck, dustbin etc.) CC: Wikimedia

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