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Lean manufacturing goes beyond the shop floor

March 24, 2008

Lean manufacturing has been around for awhile, and has been a boon to product development.

The basic principle is less is more.

That is, use less of everything to improve production and efficiency: less waste, human effort, factory space, and engineering time.¹

Nowhere are the principles more embodied than at Toyota, poised to become the world’s biggest carmaker.

The company has been using lean production for the last 50 years – bringing huge improvements in efficiencies and quality along the way.

More recently, the process has infiltrated a wider circle of departments and industries as more organizations look to cut costs and improve operations.

Lean techniques are being used by government, airlines, banks, insurance companies, and retailers to name a few.

According to The McKinsey Quarterly, the basic goal applies to all: “improve the organization’s performance on the operating metrics that make a competitive difference, by drawing employees into the hunt to eliminate unneeded activities and other forms of operational waste.”²

The challenge for non-manufacturing organizations is figuring out how to adapt the principles to their particular environments.

The public purse

Doing more with less is a common refrain for government departments.

Often enough, programs come up against flat-lined or diminishing budgets.

At the same time, taxpayers want to see improvements in education, health care, and other key services.

In response, many public-sector leaders are adopting efficiency lessons from the private sector.

From an operational perspective, the aim for government is to “smooth out the workflow,” says McKinsey.

“Organizations can apply lean principles in almost any environment where a process can be defined at a working level.

“The processes of many public services – military logistics, employment agencies, hospital tests, social-security benefits, airport security checks – lend themselves to efficiency and quality improvements.”³

Your next appointment is...

Lean principles aren’t beyond the purview of doctors either, suggests BusinessWeek.

At bottom, it’s about balancing supply (physician hours) and demand (number of patients).

The problem: patient visits are scheduled far in advance. But the longer the wait time, the more chance of cancellations and no-shows.

This in turn leaves gaps in doctors’ schedules and racks up administrative costs.

Instead, efficiency strategies such as open-access scheduling can help reduce inventory (appointment backlogs).

In this case, every patient is given a same-day appointment.

The idea is to “do today's work today.”

Doctors are encouraged to reduce follow-up visits by grouping more services into each appointment, and billing accordingly.

Follow the money

Though far from the production floor, finance departments can also benefit from applying lean principles to accounting processes.

Consider one company in the services industry. Its budgeting process was poorly defined, circuitous, and resulted in poor data quality.

“The root problem was that middle management and the controller’s office received little direction from top management and had to clarify the company’s direction for themselves.

The result was a muddled strategy with no connection to the budget numbers,” says McKinsey.⁴

Once top management took the lead by linking key performance indicators to the company’s strategic direction, budget assumptions could be set in less than a day.

The outcome: a much more streamlined, reliable process across the organization.

Why information matters

While lean approaches differ across industries, the common goal is finding greater efficiencies.

And the common ground is the need for information.

You can’t fix what you don’t know.

Business intelligence provides the insight organizations need.

For one, companies generate a lot of data, but they don’t always leverage it.

With dimensional analysis and reporting, they can combine information in different ways to uncover inefficiencies and drive improvement.

Retailers, for example, could increase cost savings by comparing and benchmarking performance across stores, channels, regions, and divisions.

Meanwhile, with visibility into the claims process, insurers could see where they are missing service targets and improve outcomes.

Plug in to operations

Dashboards allow managers to monitor operations such as inventory management and departmental activities.

Timely process information offers big potential for lean improvements.

Consider online reservation systems, supply chains, customer complaints, or fraud detection.

A simple example: express shippers move goods through a network of hubs.

If a truck arrives late at a hub, the package misses the connection to the next one because that carrier has already left.

An operational dashboard can catch the late arrival while transport is still underway.

So an alert can be passed to the next hub – in this case, staff might hold the truck until the delayed package arrives. The result: greater efficiency.

Integrated planning

In the case of budgets and strategic initiatives, enterprise planning can provide company-wide alignment – from executives to the field.

Management defines the goals, communicates strategy, and engages the organization. Everyone knows what has to be done.

Processes flow smoothly, and outcomes are consistent across the board.

Summary

Waste reduction and quality improvements have been top of mind for manufacturers for awhile now. But those outside the sector can benefit just as much from lean principles.

While strategies and approaches differ, organizations will see greater benefit if they leverage their data to drive the process.

Business intelligence and planning can provide the foundation to help them achieve success.

Find Out More Online demos: IBM Cognos Now! Operational Dashboards Reporting with IBM Cognos 8 BI IBM Cognos 8 Planning

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Sources

¹ Lean manufacturing, Wikipedia.

² Stephen Corbett, Beyond manufacturing: The evolution of lean production, The McKinsey Quarterly, 2007 Number 3.

³ Nina Bhatia and John Drew, Applying lean production to the public sector, The McKinsey Quarterly, 2007 Number 3.

⁴ Richard Dobbs, Herbert Pohl, and Florian Wolff, Toward a leaner finance department, The McKinsey Quarterly, 2007 Number 3.