Lean Transformation in Office, Service,
and Knowledge Work Environments July 13, 2010 Company LOGO

Your Instructor  Early career
as a scientist; migrated to quality & operations design in the mid-80’s.  Launched Karen Martin & Associates in 1993; applied Total Quality Management.  Introduced to Lean in 2000.  Specialize in Lean transformations in nonmanufacturing environments.  Co-author of The Kaizen Event Planner; co-developer of Metrics-Based Process Mapping: An Excel-Based Solution.  Instructor in University of California, San Diego’s Lean Enterprise program. © 2010 Karen Martin & Associates Karen Martin, Principal Karen Martin & Associates 2

Learning Objectives Participants will learn:
     Organizational benefits of Lean and timeframes for achieving them. Lean as an overall business management philosophy vs. “Lean Lite” for process improvement. Core Lean principles and tools. How Lean shifts culture. Key success factors in the transformation process. © 2010 Karen Martin & Associates 3

What Lean Is…. A proven
business management approach that results in fiscal strength, customer and employee loyalty, and organizational agility. © 2010 Karen Martin & Associates 4

Typical Benefits Realized 0% 25%
50% 75% 100% Lead Time Reduction Productivity Increase WIP Reduction Quality Improvement Space Utilization WIP = Work in process © 2010 Karen Martin & Associates 5 5

Lean Financial Benefits 5 Year
Net Income - Toyota vs. GM   Toyota: + $48.7 billion GM: – $ 81.3 billion DJO – medical brace manufacturer  Increased inventory turns from 7 to 22 in 4 years  $7 million cash conversion   Grew market share from 20% to 40% in 3 years Tripled revenues with doubled costs in 4-year period Bank of America – $2 billion in benefits* directly tied to Lean Six Sigma efforts over 3 years.  * Includes cost avoidance © 2010 Karen Martin & Associates 6

Lean Financial Benefits (continued) Park
Nicollet Healthcare – Saved $7.5 million in expenses, which they reinvested in patient care. Global investment management firm – $3M labor expense reduction over 18 month period  Attritted workforce/freed capacity Medical Device Manufacturer   Pre-lean – 3.00 per share Purchased – $78 per share (12 yrs later) © 2010 Karen Martin & Associates 7

The Lean Enterprise Based on
the Toyota Production System   Spawned by weaving process Modeled after U.S. grocery stores Popularized by Jim Womack in Lean Thinking (1996) Key tenets    Minimum effort and expense necessary to achieve maximum results. Reduce waste to create flow. Primary metric - time © 2010 Karen Martin & Associates 8

Performance Measures Quality Morale Cost
Optimal Performance Safety © 2010 Karen Martin & Associates Delivery 9

The Toyota Way – Key
Principles  Think long term  Have respect for people  Standardize work  Error-proof work  Make problems visible  Fix problems immediately  Develop exceptional people  Gain consensus  Go and see (gemba)  Continuously improve (kaizen)  50% effort working in the business; 50% on the business  Reflect relentlessly (hansei) © 2010 Karen Martin & Associates 10

Problem-Solving Steps { Plan 50-80%
of the total time Do Check Act © 2010 Karen Martin & Associates 1. Identify the problem 2. Explore the problem  What’s the true root cause? 3. Consider potential solutions  Hypothesize 4. Test solutions  Confirm hypothesis 5. Implement solution(s) 6. Measure results  Did the hypothesis prove out? 7. Adjust as needed 11

Most People… Underestimate the power
of Lean. Underestimate what it takes to “become” Lean. © 2010 Karen Martin & Associates 12

Transforming Takes Time Lean is
a long-term business strategy. © 2010 Karen Martin & Associates 13

Journey to a Lean Enterprise
“Life is Good” Stage Years 5 & Beyond Company-wide engagement – everywhere, all the time Support needed only for audits, bandwidth gaps, continued learning • Daily kaizen is the norm • “Action now” dominates • Most processes are stabilized with minimal waste and output variation “Settling In” Stage Years 3 & 4 Greater staff engagement – reduced need for formal Kaizen Events Light support from seasoned improvement professionals • Demonstrating learned competencies • Process owners manage performance • Becoming more proactive “Disruption” Stage Years 1 & 2 Small percentage of staff engaged – project-based Heavy support from seasoned improvement professionals • Sensei-dominated • Much mentoring & learning • Heavy use of Kaizen Events • Many issues to be resolved 14

Competencies That Must Be Developed
Lean Leadership     Problem-solving Setting clear strategies Developing and entrusting the frontlines with tactics Modeling Lean behaviors Improvement Professionals    Problem-solving Technical skills – Lean tools Change management / psychology Workforce  Problem-solving © 2010 Karen Martin & Associates 15

Where to Begin? Systematic Approach
    Define product families Select one for improvement Create Value Stream Maps Begin implementing improvement The “Fire” Approach  Select a problem to be solved  Tied to business goals  Use A3 Problem-Solving to solve it © 2010 Karen Martin & Associates 16

Building a Lean Enterprise

Customer-Defined Value Value-Adding (VA) -
any operation or activity your external customers value and are (or would be) willing to pay for. Non-Value-Adding (NVA) - any operation or activity that consumes time and/or resources but does not add value to the product (good or service) the customer receives.   Necessary – support processes, regulatory requirements, etc. Unnecessary – everything else - WASTE 18

Work Effort as Defined by
the External Customer Unnecessary Non-value adding Necessary Non-valueadding Value-adding

Eight Wastes (Muda) Overproduction Inventory
Waiting Over-Processing Errors © 2010 Karen Martin & Associates Motion (people) Transportation (material/data) Underutilized people 20

Value Stream Defined Value Stream:
All of the activities, required to fulfill a customer request from order to delivery (and beyond to cash received). Value Stream Process Process Process Custom er Customer Request © 2010 Karen Martin & Associates Customer Receipt 21

Why Value Stream Mapping? To
set strategy before diving into tactics. Enables us to SEE the process. Promotes systems thinking / seeing the whole  Helps us avoid sub-optimizing © 2010 Karen Martin & Associates 22

VSM Goal: System Efficiency Value
Stream Management Creates System Efficiency Traditional Improvement Creates Point Efficiency (Sub-optimization) © 2010 Karen Martin & Associates 23

Current State Value Stream Map
Outpatient Imaging Services Pre-register Patient Customer Demand: 15 patients perDay (Takt Time 1920seconds) 8 hours per day Schedule Appointment Referring Physician Hospital 4 3 5 Lead Time = 24 days 2 6 Lead Time = 990 mins. Cycle Time = 30 mins. Lead Time = 990 mins. % C&A = 100 % Demand = 15 CTs per day 1 Lead Time = 12 mins. Cycle Time = 11 mins. Lead Time = 12 mins. % C&A = 98 % % C&A = 65 % CT=Cycle Time LT=Lead Time %C&A=% Complete & Accurate Symposium E Pay Excel ADS Internet Meditech Fax Order Solutions Waiting Room Management System PACS Auto Fax 50% Us Mail 25% MD Mailbox 25% Rework Loop via Fax 25% of the time Check-in Patient (Admitting) Prep Patient (Tech) Check-in Patient (Imaging) Complete Exam (Tech) Transmit Images (Tech) Read/Dictate Exam (Radiologist) Transcribe Report (MDI) Review Draft/Sign (Radiologist) Print Reports (Imaging) Send Reports (Imaging) 5 mins. 5 5 5 mins. Cycle Time = 2 mins. % C&A = 90 % 0.0833 hrs. 3 Cycle Time = 1 mins. % C&A = 98 % 0.0833 hrs. 2 mins. 6 45 mins. 2 0.75 hrs. 1 mins. 7 30 mins. Cycle Time = 10 mins. % C&A = 100 % 2 0.5 hrs. 10 mins. 8 5 mins. Cycle Time = 15 mins. % C&A = 90 % 2 0.0833 hrs. 15 mins. 9 248 mins. Cycle Time = 3 mins. % C&A = 100 % 2 10 4.13 hrs. 3 mins. 365 mins. Cycle Time = 15 mins. % C&A = 95 % 6 11 6.08 hrs. 15 mins. 960 mins. Cycle Time = 5 mins. % C&A = 75 % 2 12 16 hrs. 5 mins. 110 mins. Cycle Time = 1 mins. % C&A = 95 % 2 1.83 hrs. 1 mins. 13 120 mins. Cycle Time = 1 mins. % C&A = 99 % 6 2 hrs. 1 mins. 14 Cycle Time = 3 mins. % C&A = 90 % LT = 32.5 hrs. 3 mins. CT = 56 mins. CT/LT Ratio = 2.87% Rolled First Pass yield = 29%

Key Metrics: Time Process time
(PT)    The time it takes to actually perform the work, if one is able to work on it uninterrupted Includes task-specific doing, talking, and thinking aka “touch time,” work time, cycle time Lead time (LT)    The elapsed time from the time work is made available until it’s completed and passed on to the next person or department in the chain aka throughput time, turnaround time, elapsed time Includes Process Time, not merely waiting time. © 2010 Karen Martin & Associates 25

Lead Time vs. Process Time
Lead Time Process Time Work passed to next step Work Received LT = PT + Waiting / Delays Activity Ratio = (LT ÷ PT) x 100 © 2010 Karen Martin & Associates 26

Key Metrics: Quality %Complete and
Accurate (%C&A)   The percentage of input that’s deemed “usable as is” by the person doing the work % of incoming work where the downstream customer can perform task without having to “CAC”:  Correct information or material that was supplied  Add information that should have been supplied  Clarify information that should have or could have been clearer   Measured by the immediate downstream customer and all subsequent downstream customers. Similar to first pass yield in manufacturing. © 2010 Karen Martin & Associates 27

Summary Metrics: Quality Rolled First
Pass Yield (RFPY)     The percent of value stream output that passes through the process “clean,” with no “hiccups,” no rework required. RFPY = %C&A x %C&A x %C&A… Common finding = 0-15% Multiply ALL %C&A’s, even if parallel processes © 2010 Karen Martin & Associates 28

Outpatient Imaging Projected Results Metric
Current State Lead Time % Improvement 32.5 hrs Process Time Projected Future State 56 mins Percent Activity 2.9% Rolled First Pass Yield 29% Labor requirements # Handoffs Tech Turnover © 2010 Karen Martin & Associates 1.9 FTEs 14 100% (6 mos) 29

Future State Value Stream Map
Outpatient Imaging Services Standard Work Work Balance Demand = 15 CTs per day Customer Demand: 15 patients perDay (Takt Time1920 seconds) 8 hours per day Co-locate Schedule appt Pre-register Referring Physician Hospital 3 Lead Time = 15 days 2 6 1 Lead Time = 45 mins. Cycle Time = 11 mins. Lead Time = 45 mins. % C&A = 98 % % C&A = 85 % Risk Reduction (Joint Commision) Symposium E Pay Excel Internet Waiting Room Management System Work Balancing Standard Work 3 35 mins. 4 Cycle Time = 1 mins. % C&A = 98 % 0.0833 hrs. 2 Complete Exam (Tech) 5 20 mins. Cycle Time = 10 mins. % C&A = 100 % 0.583 hrs. 1 mins. 2 Transmit Images (Tech) 6 5 mins. Cycle Time = 10 mins. % C&A = 90 % 0.333 hrs. 10 mins. Visual Workplace Set-up Reduction Prep Patient (Tech) Check-in Patient (Imaging) Fax Order Solutions PACS Auto Fax 80% Us Mail 15% MD Mailbox 5% 5S Value Stream Alignment Pull System (Supplies Kanban) Remove Check in and Reduce System Access 5 mins. Meditech CT=Cycle Time LT=Lead Time %C&A=% Complete & Accurate 2 7 120 mins. 2 Review Draft/Sign (Radiologist) 420 mins. Cycle Time = 15 mins. % C&A = 95 % 2 hrs. 2 mins. 8 Batch Reductions Voice Recognition Read/Dictate Exam (Radiologist) Cycle Time = 2 mins. % C&A = 100 % 0.0833 hrs. 10 mins. Continuous Flow 2 Print Reports (Imaging) 9 2 mins. Cycle Time = 1 mins. % C&A = 95 % 7 hrs. 15 mins. Rework Loop via Fax 10% of the time 2 30 mins. Cycle Time = 1 mins. % C&A = 99 % 0.0333 hrs. 1 mins. 10 Send Reports (Imaging) 6 0.5 hrs. 1 mins. 11 Cycle Time = 3 mins. % C&A = 90 % LT = 11.3 hrs. 3 mins. CT = 43 mins. CT/LT Ratio = 6.32% Rolled First Pass yield = 40%

Outpatient Imaging Projected Results Current
State Projected Future State % Improvement Lead Time 32.5 hrs 11.3 hrs 65% Process Time 56 mins 43 mins 23% Percent Activity 2.9% 6.3% 117% Rolled First Pass Yield 29% 40% 38% 1.9 FTEs 1.6 FTEs 16% 14 11 21% 100% 25% 75% Metric * Labor requirements # Handoffs Tech Turnover (6 mos) * Created the capacity to generate $500,000 in additional annual revenue with no increase in labor or equipment expense. © 2010 Karen Martin & Associates 31

Future State Implementation Plan Value
Stream Outpatient Imaging Implementation Plan Review Dates Executive Sponsor Allen Ward 11/1/2007 Value Stream Champion Sally McKinsey 11/21/2007 Value Stream Mapping Facilitator Dave Parks 12/13/2007 Date Created 10/18/2007 Block # 2 Goal / Objective Improve quality of referral Improvement Activity Type KE Implement standard work for referral process Owner Sean O'Ryan PROJ 1/10/2008 Implementation Schedule (weeks) 2 3 4 5 6 7 8 9 10 11 12 Dianne Prichard 3, 4 Reduce lead time beween schedulingand Cross-train and colocate work teams preregistration steps 5, 6 Eliminate the need for two patient checkins Collect copays in Imaging KE Michael O'Shea 6 Eliminate bottleneck in waiting area Balance work / level demand KE Dianne Prichard 9 Eliminate lead time associated with transcription step Implement voice recognition technology PROJ Sam Parks 10 Eliminate batched reading Reduce setup required KE Sam Parks 7 Reduce inventory costs, regulatory risk and storage needs 5S CT supplies area; implement kanban KE Michael O'Shea 12 Reduce delay in report delivery Implement additional fax ports PROJ Martha Allen 12 Reduce delay in report delivery Increase percentage of physicians receiving electronic delivery (rather than hard copy) KE 1 Martha Allen Approvals Executive Sponsor Value Stream Champion Value Stream Mapping Facilitator Signature: Signature: Signature: Date: Date: Date: Date Complete

Building a Lean Enterprise

Kaizen Defined KAIZEN Kai Zen
Break apart Study To change Make better Kaizen = Continuous Improvement Kaizen Event = Rapid Improvement © 2010 Karen Martin & Associates 34

Improvement Roles Strategic Who? Accountability
Tool Leadership “What has to happen” Value Stream Mapping “How it will happen” Kaizen Events, Just-do-its, and Projects Tactical Middle Management Workforce © 2010 Karen Martin & Associates 35

Kaizen Event – Definition A
two- to five-day focused improvement activity during which a sequestered, cross-functional team designs and fully implements improvements to a defined process or work area, generating rapid results and learned behavior. Karen Martin & Mike Osterling The Kaizen Event Planner, 2007 © 2010 Karen Martin & Associates 36

When do you need a
Kaizen Event? Rapid change is desired. Hands-on learning is desired. You want to “bake” the improvement process into the organizational DNA You want to shift culture by engaging the frontlines in problem solving.  Leadership stays out of tactical details. © 2010 Karen Martin & Associates

5-Day Kaizen: Sample Structure Day
1 & 2 (Plan) Day 3 & 4 (Do, Check) Day 5 (Check, Act) © 2010 Karen Martin & Associates Kick-off (executive presence) Analyze current state Perform root cause analysis Design future state Interim briefing Design & test improvements Obtain buy-in Interim briefing Finalize improvements Train process workers & stakeholders Present results CELEBRATE! 38

Building a Lean Enterprise Process
Stabilization Tools

Building a Lean Enterprise Flow
Enabling Tools

Kaizen Event Results Reduced medication
delivery interruptions by 75%. Secured an exclusive 2-year contract with key customer.  Freed 1.4 FTEs in streamlined discharge process. Reduced scrap by $6,876 per year. Produced twice as much “road mix” at half the cost. Reduced lead time for purchasing process from 10 to 2.5 days. © 2010 Karen Martin & Associates 41

A3 Problem-Solving
42

Lean Transformation vs. “Lean Lite”
Lean Transformation “Lean Lite” Full leadership engagement & development 1 or 2 leaders leading the way Improvement heavily strategic; closely tied to business goals “Random acts of kaizen” Full adoption of the Lean philosophy Selective use of the tools Dedicated internal resources Shared resources Significant investment in skill development Expected to “figure it out” Heavy use of external support for first 1-2 years Internal resources only Holistic approach to improvement Silo’d thinking & behaving Frontlines heavily engaged in the improvement process Improvement resources or leadership drive improvement 43

The Transformation Process: Key Success
Factors  Strong sense of urgency / burning platform  Leadership alignment around strategy  Improvement priorities are closely tied to organizational strategy and annual business goals.  Value-stream driven improvements.  To avoid change fatigue, improve one value stream at a time.  Heavy use of Kaizen Events in first 1-3 yrs.  4 Events per 100 employees per year  Dedicated improvement resources.  1 FTE: 100 employees  Entire workforce receives exposure to Lean and becomes skilled in problem-solving.  Concurrent leadership development. © 2010 Karen Martin & Associates 44

Lean Benefits - Financial Reduced
expenses    Reduced requirements for equipment and supplies Reduced space requirements Reduced head count for existing work Improved cash flow  Faster billing and collections Increased revenue    Recaptured lost revenue New revenue sources Greater market share – customers want the highest quality products, delivered the fastest, at lowest cost. © 2010 Karen Martin & Associates 45

Lean Benefits - People 
Improved productivity  Reduced sick time, workers’ comp, etc.  Better safety  Less stress / frustration  Reduced interpersonal and interdepartmental tension  Greater engagement / higher satisfaction  Improved ability to attract and retain talent  Greater innovation © 2010 Karen Martin & Associates 46

Lean Benefits – Risk Mitigation
Improved compliance (regulatory / accreditation) Reduced litigation Reduced risk of unionization or strikes Improved safety – customers, employees, and community © 2010 Karen Martin & Associates 47

Lean Benefits – Happier Customers
© 2010 Karen Martin & Associates 48

Learning Objectives Participants will learn:
     Organizational benefits of Lean and timeframes for achieving them. Lean as an overall business management philosophy vs. “Lean Lite” for process improvement. Core Lean principles and tools. How Lean shifts culture. Key success factors in the transformation process. © 2010 Karen Martin & Associates 49

Upcoming Webinars Topic Kanban Pull
Systems Work Standardization & MetricsBased Process Mapping Error-Proofing Kaizen Events – Part I Kaizen Events – Part II A3 Problem-Solving – Part I A3 Problem-Solving – Part II Date Tuesday, July 20 Tuesday, August 10 Thursday, August 12 Tuesday, August 31 Thursday, September 2 Tuesday, September 28 Thursday, September 30 Register at www.ksmartin.com/webinars 50

For Further Questions Karen Martin,
Principal 7770 Regents Road #635 San Diego, CA 92122 858.677.6799 ksm@ksmartin.com To register for our newsletter: www.ksmartin.com/subscribe © 2010 Karen Martin & Associates 51