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How to develop lean transactional processes

Lean is about meeting customer requirements efficiently and effectively. Managers have come to the realisation that they need to reduce costs in all areas of their business.

Typically more than 60% of the cost of a product or service can be attributed to administrative or transactional processes like entering a customer order, generating an invoice, filing an insurance claim, ordering an item via the internet, and others are not much unlike manufacturing processes when it comes to managing costs.

These transactions represent how we interact with customers to ensure products and services are provided at some acceptable level of profit. It is imperative that these processes are effective and efficient. This can be attained through the application of transactional lean.

No industry is immune to meeting customer requirements better, faster and at an acceptable price. Industries as diverse as retailing, telecommunications, airlines, services, banking, and insurance have adopted Lean tools and concepts to achieve improvements in quality and efficiency of 40 to 70 per cent. Healthcare, financial services, construction, armed services, and local and the federal government can apply the same Lean tools and concepts practised by Toyota and achieve the same success-doing more with less. Getting started on your transactional Lean journey is comprised of four activities:

  • Encouraging a culture of teamwork
  • Developing a snapshot of the current state
  • Identifying and mapping the value stream
  • Analyzing and solving problems

Encouraging a Culture of Teamwork

Lean is a team sport and as with any team initiative, it is important that everyone involved in the change contribute their ideas. Assemble a process improvement team for managing the improvements. The team should follow basic teaming guidelines:

  • Identify team roles, such as leader, timekeeper, scribe, facilitator
  • Establish team norms
  • Prepare a team charter

Make sure the team members understand the overall objectives of the project. Teach the team some of the lean tools and concepts. As they learn these skills have them creatively adapt and apply them to your transactional processes.

Developing a Snapshot of the Current State

Developing a picture of your current state consists of collecting information and data to analyze, re-define or modify your current processes. This will help you identify the critical (value-adding) processes-those that directly impact the customer or have a direct financial impact on your organization. Some examples of critical value-added processes might be:

  • Entering a customer order
  • Completing an invoice
  • Treating a patient
  • Providing information to a customer

In developing this picture of your current state you will also identify some of the non-critical processes-those that are necessary but do not add value to the customer. Examples of necessary transactional processes include:

  • Preparing a budget
  • Generating a quote
  • Preparing a month-end report
  • Conducting marketing research

Once we are clear on what our current state looks like we are ready to select a value stream to map and improve.

Identifying and Mapping a Value Stream

A value stream is defined as everything including non-value-added activities that are required to deliver a product or service to a customer. A value stream can include a single process or a connected series of processes. It is a visual representation of the workflows and the information flows necessary to meet customer demand.

We define value as something the customer is willing to pay for. Non-value-added is what the customer isn’t willing to pay for. Both types of activities are identified on the value stream map. Our goal is to eliminate all non-value-added activities. We can accomplish this goal using Lean tools. How do we choose a value stream for improvement?

There are a variety of methods for selecting a value stream for improvement. Some of the most common are:

  • Identify any immediate customer concerns
  • Perform a workflow analysis
  • Prioritize target value streams
  • Business conditions

Customer concerns

Many times a customer will mandate improvements to a product or service. This type of request takes precedence over all other methods of selecting a value stream. We would look for improvement opportunities in the processes that make up the value stream in question.

Work-flow analysis

If the customer does not immediately identify a target value stream for you, you can use workflow analysis. This is accomplished by creating a simple matrix of the work units sharing common processes to identify a value stream. To perform a work-flow analysis, follow these steps:

  1. List the customers on the left
  2. Next to the customers, list volume, total sales, number of patients, number of loan applications, number of insurance claims, etc. over a given period of time. At a minimum, at least three months of data should be analyzed.
  3. At the top of the chart list the processes in a sequence that involve all the customers listed above.
  4. Indicate which processes or activities apply to each customer by marking an X in the grid
  5. Group together the customers or families that have the same process routes, and rank them by volume.

Prioritise target value streams

You may want to target a value stream from a list of prioritised processes you have identified that the organization needs to improve going forward. When working from a prioritised list of value streams it is important to have the value stream “touch” or relate to the ultimate customer.

Business conditions

The challenges an organization faces in today’s business climate demand continual improvement to remain competitive. Constant attention must be given to your competitors. If competition creates a new product or service that decreases your market share, then you need to identify a new value stream in which to compete.

After selecting the value stream and attaining a good understanding of Lean, the next step is to map the current state to obtain a high-level, visual representation of the specific transactional processes under review.

Mapping the value stream

To improve a value stream you must first observe and understand it. Mapping the process gives you a clear picture of the value-added and non-value-added (waste) activities. Eliminating waste makes it possible to reduce transactional processing time, which will help the organization consistently meet customer demand. When creating your map focus on gathering accurate, real-time data related to the product or customer families you develop during your initial analysis. Use this information to identify all the specific activities occurring along each value stream.

Value stream mapping begins with creating the current state map. After you have gathered the data, you are ready to map the current state. Always begin with a clean sheet of paper and use a pencil (“the best thing about a pencil is the eraser.”) A generic current state mapping procedure is as follows:

  1. Draw the external (or internal) customer and supplier (if the supplier is different from the customer) and list their requirements. Many times in transactional or administrative processes the customer and supplier are one and the same.
  2. Draw the entry and exit processes to the value stream
  3. Draw all processes between the entry and exit processes beginning farthest downstream or closest to the customer
  4. List all process attributes
  5. Draw queue times between processes
  6. Draw all communications that occur within the value stream
  7. Draw push or pull icons to identify the type of workflow
  8. Complete the map with any other data

After you complete the current state map review it for waste or non-value-added activities and brainstorm how to eliminate these activities using Lean tools and concepts. Following the brainstorming session it is now time to start developing the future state map.

The future state map is the current state map with all the non-value-added steps or activities removed. Mapping the future state takes into consideration three conditions:

  • Understanding customer demand for your services and work units, including quality characteristics and lead time.
  • Implementing continuous flow so that internal and external customers receive the right work unit, at the right time, in the right quality.
  • Levelling or distributing work evenly by volume, and variety to reduce waiting times and allow smaller work units to move through the process if practical.

Once you have completed the value stream maps there will be many issues and problems needing resolution. This means that your value stream team must be capable of analyzing and solving problems.

Analysing and Solving Problems

When using Lean tools within a problem-solving methodology, greater improvements can be achieved. There are many systematic problem-solving methodologies that work well but all focus on determining the root cause. Many times we instruct teams to use the “5 Whys” to dig down to the root cause of a problem. Most problem-solving methodologies are composed of the following steps:

  1. Define the problem
  2. Implement temporary countermeasures to contain the problem
  3. Analyze the problem and generate potential solutions
  4. Determine the root causes and select solutions
  5. Implement the solutions
  6. Verify the effectiveness of the solutions
  7. Take action to resolve the difference between actual results and expected results

This seven-step methodology has several advantages:

  • Simplicity
  • It can be used by individuals or teams
  • It can be used at all levels of the organisation
  • It provides a common language and approach

Getting started with Lean in transactional processes takes time-four to six months in functional or departmental units and two to three years on an organizational level. A new mindset and new capabilities like teamwork, identifying and mapping value streams, and problem-solving are needed. The effort won’t be universally appreciated, at least in the beginning.

Ultimately, leaner transactional processes will reduce costs, increase quality and better align corporate responsibilities within and between functions and create a wholesome cycle of waste reduction.