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Lean process improvement basics for any business


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Growing your business through lean process improvement is an introduction to how any organization can use lean tools and techniques to improve profits.

Published in: Business, Technology

Lean process improvement basics for any business

  1. 1. Growing Your Business Through Lean Process Improvement Applying Lean to any Type of Business
  2. 2. The Cost Reduction Principle  Traditional thinking dictates that you set your selling price by calculating your cost and adding on a margin for profit  In today’s competitive market the customer sets the price and you don’t have the luxury of adding a profit margin  The only way to remain profitable and grow your business is to eliminate waste from your value stream, thereby reducing costs—cost reduction principle2 Quantum Associates, Inc
  3. 3. The Cost Reduction Principle Traditional Thinking Lean Thinking Cost + profit = price Price – cost = profit Price Price Price Price Profit Profit Cost Cost3 Quantum Associates, Inc
  4. 4. The Cost Reduction Principle  Determine the price customers are willing to pay, and subtract your cost to determine what your profit will be  Eliminating waste is important because customers not only set the price, but they also demand price reductions4 Quantum Associates, Inc
  5. 5. What is Lean Process Improvement? Is it skinny? Is it less people? Is it working harder? Is it making less? What is Lean?5 Quantum Associates, Inc
  6. 6. What is Lean Process Improvement?  Lean is a continuous improvement methodology focused on managing processes, and improving them by compressing time, rather than sweating assets  Every business is a collection of processes—primary processes that create value and secondary processes that support them (office and administrative functions)  Processes are sequences of steps that must be carried out to create value for customers and managed as a whole, not separately6 Quantum Associates, Inc
  7. 7. Lean and Profitability7 Quantum Associates, Inc
  8. 8. Total Costs Growth Through Lean Sales/Product Family Lean reduces total costs enabling you to maintain or lower your prices and increase market share, thereby growing your business.8 Quantum Associates, Inc
  9. 9. What is Lean Process Improvement?  Lean emphasizes the prevention of waste: any extra time, labor or material spent producing a product or service that doesn’t add value to it.  Lean’s unique tools, techniques, and methods can help you reduce costs, achieve faster delivery and shorten lead times  Lean fosters a culture in which all employees continually improve their skill levels and processes thereby increasing morale Quantum Associates, Inc9
  10. 10. What is Lean Process Improvement?  Because lean systems are customer driven, products and services are created and delivered in the right amounts, to the right location, at the right time, and in the right condition  Products and services are produced only for a specific customer order rather than being added to inventory10 Quantum Associates, Inc
  11. 11. Goals of Lean Process Improvement  Improve Quality  Eliminate Waste  Reduce Lead Time  Reduce Total Costs11 Quantum Associates, Inc
  12. 12. Goals of Lean Process Improvement  Improve Quality  Quality is the ability of your product or services to meet or exceed your customers’ requirements  Eliminate Waste  Waste is the activities that take up time, resources and space but does not add value to a product or service—customers do not want to pay for non-value-added activities12 Quantum Associates, Inc
  13. 13. Goals of Lean Process Improvement  Reduce Lead Time  Lead time is the total time it takes to complete a series of tasks within a process. Some examples:  Period between the receipt of a sales order and the time payment is received  The time it takes to transform raw materials into finished goods  The time it takes to introduce new products after the design phase is completed  The time it takes to complete a quote or submit a proposal Long lead times undermines your business. Reducing lead times can help you dominate your market.13 Quantum Associates, Inc
  14. 14. Goals of Lean Process Improvement  Reduce Total Costs  Total costs are the direct and indirect costs associated with the production of a product or service  You must continually balance your products’ and services’ prices and your operating costs to succeed.  If your prices and operating costs are too high you will lose market share and profits  To reduce total cost a Lean process must eliminate waste and reduce lead times.14 Quantum Associates, Inc
  15. 15. Benefits  Implementing lean tools and techniques will enable your company to meet customer demand for a quality product or service at the time they need it and for a price they are willing to pay.  Lean management methods create flexible and efficient business and manufacturing processes.  Lean practices will help your company manage its total costs and provide a fair ROI to its stakeholders.15 Quantum Associates, Inc
  16. 16. Waste  Waste is anything—time, cost or work that adds no value in the eyes of the customer  Waste exists at all levels and in all activities  Lean shows us how to recognize and eliminate waste and not simply accept it as the ―way work is done around here‖16 Quantum Associates, Inc
  17. 17. The Seven Deadly Wastes The ultimate lean target is the total elimination of waste. Waste, or muda, is anything that adds cost or time without adding value. Seven deadly waste have been identified over the years. Recently an eighth waste has been identified—underutilization of people.17 Quantum Associates, Inc
  18. 18. The Seven Deadly Wastes  Inventory  Excess inventory that is not directly required for current customer orders  Manufacturing—excess raw materials, WIP and finished goods  Office/Service—unneeded files, extra supplies, unnecessary copies, excessive unread emails, etc.18 Quantum Associates, Inc
  19. 19. The Seven Deadly Wastes  Overproduction  Excessive use of resources—producing too much of something, faster than needed, or before it is needed  Manufacturing—units made for stock or inventory  Office/Service—Producing reports before they are needed, performing more analysis than required19 Quantum Associates, Inc
  20. 20. The Seven Deadly Wastes  Over-processing  Extra operations, such as rework, reprocessing, handling and storage that occurs because of defects, overproduction, and too much or too little inventory, includes redundant activities, such as checking someone else’s work. Obtaining multiple signatures, or excessive reviews  The time spent producing product/service features which are irrelevant to the customer  Manufacturing—reworking defective product  Office/service—multiple approval signatures, entering data in multiple systems and or ―stand alone‖ spreadsheets for reporting purposes20 Quantum Associates, Inc
  21. 21. The Seven Deadly Wastes  Transportation  Unnecessary movement of materials such as WIP, materials being transported from one operation to another. Transporting something further than necessary, or temporarily locating, filing, stocking, stacking, or moving materials, people, information or paper.  Manufacturing—moving sub components from one work process to another  Office/service—Filing/saving documents that will never be used again, updating customer records in different systems21 Quantum Associates, Inc
  22. 22. The Seven Deadly Wastes  Motion  Extra steps taken by employees and equipment to accommodate inefficient process layout, defects, reprocessing, overproduction. More walking, reaching or bending than necessary  Any movement of people which does not contribute added value to the product or service  Manufacturing—operators having to walk back and forth to retrieve tools or materials not stored in the immediate work area  Office/service—selecting additional keystrokes and fields to retrieve previous information, searching for misplaced files22 Quantum Associates, Inc
  23. 23. The Seven Deadly Wastes  Waiting  The period of inactivity in a downstream process that occurs because an upstream activity does not deliver on time.  Manufacturing—waiting for parts or subcomponents to complete a job  Office/service—delays in getting feedback/approvals/decisions from peers or top management23 Quantum Associates, Inc
  24. 24. The Seven Deadly Wastes  Defects (Rework)  Refers to all processing required creating a defect or mistake and the additional work required to correct it  Manufacturing—defective units of product  Office/service—incorrect/missing information on a form, handling a report numerous times Do it again!24 Quantum Associates, Inc
  25. 25. Eighth Waste  Underutilization of People - is a result of not placing people where they can (and will) use their knowledge, skills, and abilities to the fullest • Assigning an employee to two jobs due to understaffing • Having employees perform a task that is politically motivated • Not cross training employees25 Quantum Associates, Inc
  26. 26. Three Types of Process Activities Value-added activities Business value-added activities Non-value added activities26 Quantum Associates, Inc
  27. 27. Value-added Activities  Those steps the customer is willing to pay for  To qualify as value-added an activity must meet the following criteria:  It changes the form, feature, or function that the customer desires  It must be ―done right the first time‖  The customer is willing to pay for it ―It is the customer who determines what a business is. What the customer thinks he is buying, what he considers ‗value,‘ is decisive— it determines what a business is, what it produces and whether it will prosper.‖ –Peter Drucker27 Quantum Associates, Inc
  28. 28. Business Value-added Activities  Activities the customer isn’t willing to pay for but must be done to comply with regulations, organizational policies, and so on  You must periodically examine these activities to make sure they are necessary, if not eliminate them28 Quantum Associates, Inc
  29. 29. Non-value-added Activities  Those activities the customer is not willing to pay for and can be avoided  Your goal should be to eliminate these activities because they are WASTE29 Quantum Associates, Inc
  30. 30. Understanding Waste What would you be willing to pay for when ordering a hamburger? ___ Meat ___ Cost of radio, TV, web ___ Dough ads ___ Ketchup ___ Cost of delivery truck signs ___ Electricity to run ovens ___ Cost of store manager ___ Electricity to run outdoor lights left on accidentally ___ Cost of cleaning ___ Person paid to inspect take- ___ Cost of menus out orders ___ Employee training ___ Cost of hamburgers not ___ Profit sold30 ___ Distribution Center Quantum Associates, Inc
  31. 31. What Are Value Streams? A Value Stream is all the actions, both value-added and non-value-added required to bring a product or service from concept to launch and from order to delivery.31 Quantum Associates, Inc
  32. 32. Types of Value Streams “Whenever there is a product (or service) for a customer, there is a value stream. The challenge lies in seeing it.” There are three value streams for each product family that overlap and flow together: • Concept to Launch (engineering/design) • Raw Materials to Customer (manufacturing) • Order to Cash (administrative functions )32 Quantum Associates, Inc
  33. 33. Value Stream Mapping Value Stream Mapping – the process of identifying and charting the flows of information, processes, and goods or services across the entire supply chain from the supplier to customer possession  Includes both value-added and non value-added activities  Allows for ―seeing‖ areas of waste in current state  Future state is roadmap and apt to change  Create icons specific to your business or industry  Maps should be the plan for 6 months – 2 years  Maps – many types33 Quantum Associates, Inc
  34. 34. Value Stream Mapping Customer Data Box Queue/Wait Information Processe Flow s Attributes Step34 Quantum Associates, Inc Graph
  35. 35. Value Stream Map 30 Year Fixed Mortgage Application Value Stream—Current State Map Client Pre-application Application Approval/Title Closing Prep 8 hrs. 80 hrs. 80 hrs. 40 hrs. Verify emply & Oder appraisal Notify parties Financial data 15 min 60 min 20 min 120 min assets & title & confirm File paperwork Schedule Credit Report 15 min Underwriting 120 min 5 min 5 min pending location Determine 120 min Yield 70 % Yield 80 % Print docs 120 min prgm (1 day) (10 days) (10 days) (5 days) 8 hrs 80 hrs 80 hrs 40 hrs 150 min 180 min 25 min 245 min Queue time = 208 hrs Value-added time=10 hrs (600 minutes) Total lead time = 218 hrs (27.25 days) Gadget Data35 Quantum Associates, Inc PCE = 4.6%
  36. 36. Value Stream Map Orthopedic Patient Current State Value Stream Map Wait time = 200 minutes Value-added time = 104 minutes Total Lead time = 304 minutes (5.06 hours) Patient Shift = 12 hours Registration Triage Emergency Room Radiology Emergency Room ER Casting Discharge 15 mins 35 mins 20 mins 45 mins 45 mins 40 mins Verify Ins 3 min Vitals 3 min Recheck vitals 3 min Post pst 3 min Reassess 3 min Cast pt 30 min Return Appt 2 min Discharge Update Info 4 min Chief cmpl 2 min Mini assmt 3 min Obtain xray 5 min Obtain xray 3 min Pt educ 5 min 5 min recpt Process 3 min Mini evl 4 min Chief cmpl 2 min Process 15 min Ict hc 5 min Dispense 4 min Assess 5 min Diagnosis 5 min meds 15 mins 35 mins 20 mins 45 mins 45 mins 40 mins 10 mins 13 mins 13 mins 23 mins 16 mins 35 mins 7 mins PCE =34%36 Quantum Associates, Inc
  37. 37. Value Stream Map Weekly shipments: 700,000 lineal Current State: 6-day lead time as shown 50,000 pieces 5,350 finished pieces/day 5% 90 % From F/J: Staging 5% 10% 90% Lam #1 Resaw (4 saws) Molder #4 Prime I I I Crew size: 4 Crew size: 1 1/3 Crew size: 4 I Crew size: 3 Run speed 58 ft/min Run speed 184 ft/min. Run speed 300 ft/min Run speed: 3,15 l ft/min Output: 500 pieces/hr Output:1,584 pieces/hr Output:1,285 pieces/hr Output: ,350 pieces/hr 1 4,500 9000 268 9,000 C/T= 7.2 sec pieces C/T= 2.3 sec pcs C/T= 2.8 sec pieces C/T= 1.3 sec pieces C/O= 5 - 25 min C/O= 7 - 30 min C/O= 5 - 45 min C/O= 1 min - 1 hr % Crew:days= 100% % Crew Days =100% % Crew:days= 100% % Crew:days =100% swing = 0% Swing =0% swing = 0 % swing = % Reliability = 98% % Reliability = 95% % Reliability = 98% % Reliability =73% Waste = 1/2% Waste = Waste = 1/2% Waste = 3% Sec available 27,000 Sec available 108,000 Sec available27,000 VA Ratio 1:311 Sec available 27,000 Weekly hr = 5 Weekly hr = 31.6 Weekly hr = 38.9 Weekly hr = 18.5 Production lead time = 521,874 sec .5 hr 48 hr 48 hr 48 hr Value-added time 1,674 sec 1,034 sec 230 sec 280 sec 130 sec37 Quantum Associates, Inc
  38. 38. Value Stream Map Weekly shipments: 700,000 lineal Future State: 1-day lead time as shown 50,000 pieces  Free up $50,625 inventory  96% improvement in lead time  Instant quality feedback 5,350 finished pieces/day 95% From F/J: Staging 5% Lam #1 Primed lineal cell I I Crew size: 4 Crew size: 6 Run speed 58 ft/min Run speed 300 ft/min Output: 500 pieces/hr Output: 1,285 pieces/hr 4,500 268 pieces C/T= 7.2 sec pieces C/T= 2.8 sec C/O= 5 -25 min C/O= 10 - 20 mins % Crew:days= 100% % Crew days =100% swing = 0% % Reliability = 98% % Reliability = 95 % Waste = 1/2% Waste = 1.2% Sec available 27,000 Sec available 27,000 VA Ratio =1:12 Weekly hr = 5 Weekly hr = 38.9 Production lead .5 hr 3 hr .2 hr time = 3.7 hr Value-added time 1,034 sec 199 sec 1,233 sec38 Quantum Associates, Inc
  39. 39. Decisions—Decisions—Decisions  Is my company too small for Lean Process Improvement?  Isn’t Lean a manufacturing process? I am a service business.  Can I afford to implement Lean Process Improvement? All of these industries have successfully applied Lean to their processes39 Quantum Associates, Inc
  40. 40. Lean Success Stories Lean Dentist--A dentist in Jacksonville, FL used Lean Tools to achieve the following benefits… Year Hrs/Wk Patient Hygienist Assistants Dentists Cubicles available time for s to dentists complete treatment 2005 77 hours 99 days 3 5 3 10 2006 140 hours 38 days 2 3 3 6 Benefits +82% +81% +33% +40% No +40% Change40 Quantum Associates, Inc
  41. 41. Lean Success Stories  Lean Landscapers—an Atlanta landscaping company used Lean tools to achieve the following results:  Reduced the cycle time of financial statements from 22 days to 5 days and critical errors from 7 to zero  Boosted productivity of its maintenance crews 36% at a 60 residential home complex—reduced man hours from 56.2 hours/week to 35.9 hours/week41 Quantum Associates, Inc
  42. 42. Lean Success Stories  Construction —Veridian Homes, Madison, WI  Veridian’s Lean efforts have accomplished the following:  Model-homes sold cycle time reduced from 32 to 15 days  Drafting time per model reduced by more than one hour  Estimating time per home reduced by 32%  Material variance reduced 20% for lumber, 24% for siding ,and 30% for trim  Paperwork processing decreased by 208 hours per year  Person hours reduced by 200 per year through escrow and warranty process improvements  Reduced inspection (and inspection costs) by 50% while reducing defects by more than 50% They achieved all this with a very small investment in kaizen events.42 Quantum Associates, Inc
  43. 43. Lean Success Stories  Lean Office  RB Royal, Fond-du-Lac, WI used Lean tools to improve their quote process from 15 – 30 days to an average of 3 days. Some quotes are completed in 24 hours.43 Quantum Associates, Inc
  44. 44. We Offer the Following Lean Implementation Options  Fast Track Lean – 2 days  For the tight budget- occasional help from a Lean facilitator who works with your designated process expert.  Train-the Trainer – 4 - 6 months  Lean expert teaches and mentors in-house ―Lean Agent‖ and improvement team  Rapid Improvement Events – 1 week  3-5 day commitment of your in-house team facilitated by a Lean expert and focused on improving a particular process/value stream. Quick results method.  Walking the Gemba – 3 weeks  Lean assessment of your organization by Lean experts and your in-house process expert to identify the improvement opportunities. This approach is useful when staffing is tight.  Lean Office Simulation  It is estimated that 90% of administrative activities are waste. This highly interactive, role playing simulation will teach your administrative/office staff how to use Lean in the office to improve their processes. Contact us for details: or 847.919.612744 Quantum Associates, Inc
  45. 45. Getting Started  Value Stream Maps  The roadmap to problem identification  Going from the current state to the future state is the driver for eliminating waste  Your ultimate goal is to achieve the ideal state-once you reach your future state let that become the new current state and create a new future state, and so on  Waste is the enemy. Always strive to eliminate waste from your value streams45 Quantum Associates, Inc
  46. 46. Getting Started  Value Stream Maps  For support and administrative processes  Determine what data to include by the question you are trying to answer about your value stream or process  Define the ―product‖ produced by the process  Example: If your goal is to reduce days in receivable, you would define ―invoices‖ as the product and identify the total number of invoices issued, cycle time and queue time for processing and collection, and total cycle time.  From this information you can determine where the bottlenecks most likely occur and eliminate areas of waste in your ―future state‖ map.46 Quantum Associates, Inc
  47. 47. Getting Started  Kaizen  Synonymous with continuous improvement  Associated with events that  Quickly implement Lean tools and techniques to eliminate waste  Improve work flow  Improve productivity  Train workers in lean tools and techniques  It is the Lean technique that will move your value stream from current state to future state47 Quantum Associates, Inc
  48. 48. Conclusion  Lean is a proven, company-wide systematic approach to eliminate/minimize waste resulting in the production of a ―good‖ or ―service‖ at the lowest possible cost  It is not just a manufacturing program confined to shop floor employees  Lean is every system, every process, and every employee within the organization If you are the low cost producer of a good or service you have a competitive advantage and will be able to grow your business. Lean is the tool to reduce your costs.48 Quantum Associates, Inc
  49. 49. DO NOT BE AFRAID, MY FRIEND49 Quantum Associates, Inc