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Lean Thinking

Applying the Lean Principles of Improving Performance at less Cost to the Office and Service Industry
Professor Peter Hines Lean Enterprise Research Centre Cardiff Business School

Agenda
Professor Peter Hines The Lean Principles How do they apply in the Office Environment Examples and cases from Europe Andrew Stewart Examples and cases from Australia Where do we go from here?
Lean in the Office & Service Sector

Lean Enterprise Research Centre


Formed in 1994 by Prof Dan Jones & Prof Peter Hines
c. 30 staff now Mission

Researching, applying, Researching, applying, & communicating & communicating lean thinking lean thinking

Lean in the Office & Service Sector

S A Partners
En Lea ter n pr ise

Strategic Management

Inspiring success through pioneering, process-based solutions


Working in Australia with:

Supply Chain Development

x Si a gm Si

Lean in the Office & Service Sector

The Lean Principles

Lean Principles
1 Specify what does & does not create value from the customers perspective
not individual firms, functions

or departments

Lean in the Office & Service Sector

Lean Principles
2 Identify all the steps necessary to design, order, & produce the product/service across the whole value stream
to highlight non-adding value waste
Overproduction Overproduction Waiting Waiting Defective Defective products products Material Material movement movement Unnecessary Unnecessary processing processing Operator Operator movement movement

Inventory Inventory

Lean Enterprise Research Centre

Lean Principles
3 Make those actions that create value flow
without interruption, detours, waiting

Lean in the Office & Service Sector

Lean Principles
4 Only make/produce what is pulled by the customer just-in-time

Lean in the Office & Service Sector

Lean Principles
5 Strive for perfection
continually remove successive layers of waste as they are uncovered

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Value Stream Management Framework


Shared Vision
l na tio nc Fu ms s- ea os T Cr
De Po pl lic oy y m en t

Common Goals

Value Stream Management

Pr Lea To oc n ol ess -K it

Extended Enterprise

in ha C on ly a t i pp gr Su Inte

Tools aligned to need

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Lean in an Office Environment

Lean in the Office & Service


UK is Predominantly service based economy
Service sector provides 71% of Gross Value Added 79% of all jobs (National Statistics)

Significant growth of application of lean in services Much initially concerned back office manufacturing
i.e. that support manufacturing

Now spreading to pure service industries


Retail, health, repair & overhaul, financial services, insurances

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Tangibility Spectrum
Salt Soft Drinks Detergents Cars Fast food Cosmetics outlets

Intangible Dominant

Tangible Dominant

Fast food outlets

Advertising agencies Airlines Consulting Teaching

Source: Shoestack (1977) in Services Marketing, Zeithaml & Bitner

Your Organisations
In groups Thinking about lean principles & the nature of service based organisations, consider:
What might be the challenges for applying lean thinking principles in an office or service organisation?

Score these challenges in terms of importance (1 - not very, 5, Very)

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Symptoms of Information Waste


Bottleneck Departments No Standard Work Practices Errors and Rework Long Unpredictable Lead Times Many Validation Checks Official/Unofficial Fast-Tracks Ineffective Workload Scheduling No Root-Cause Analysis
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STORAGE - When the item is stored

DELAY - When the item is waiting

Store documents and records or data in a computer file

Waiting for the computer system to process the application

TRANSPORT - Movement of an item


Customer

INSPECTION - Insuring that everything is correct by overseeing


Please could you sign this

The distance an application travels within the organisation

Obtaining a signature to permit the next step

Services Challenges
Understanding customer needs and expectations for services Tangibilising the service offering Dealing with a myriad of people & delivery issues Keeping promises made to customers Variation & capacity

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Nature of Demand
Value demand: the demand you want Failure demand:
demand caused by a failure to do something or do something right for the customer Mistake in treating all demand as units of production Planning tools developed some time ago. Now variety of demand v different cannot see demand

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Failure Demand - Examples


Sorry, I pressed 2 and I thought it would get me to the claims department Youve sent me the wrong one The goods you sent me are damaged

The water is too cold Its broken down again I dont understand the letter you send me Waiter, wheres my soup? Ive been waiting in all morning, you said youd be here where are you You said youd repaired the fault in my car but it still does not work

The consequence of excess failure demand?

Examples from Europe

Simple Case
Welsh Legal Services Commission Mapping the Correspondence Process

Part of the Mapping Team


not sure about this lean stuff, dont think it will work here

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and the rest of the Lean Team


Its good to involve everyone and it seems to be making sense

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Customer Service Team


Monicas Table

Finance

Charge C/W Non Charge C/W

Filing

Reception

Senior Time Finance C/W

Resource

Standards & Comments

2 - 7.5 2 hrs hrs


No Finance Yes

Variance depends on Case Worker, variable location of sort

Legal/Means Phase 2

Finance Phase 2A

No Charge Yes Charge Non Charge

Finance Phase 2A: LSC Current State

2 hrs 1 wk 34 wks 1 hr
Backlog calculated using oldest date (worst case scenario) Not FIFO

Tag

1 hr

Reception Tag & Filing All file requests dealt with at the same time

Pull Need Yes File No No Skills Yes Process Post Post Bucket Skills Yes Process Post Post Bucket Post Bucket No 4 Senior Case Work Get File

0.25 hr 39 hrs 0.1 2 hrs

Assume 1 person processing post

Unable to quantify referral time

1 wk

0.5 hr

13 to 248 days

3:20 to 5:15 hrs

Total
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Lean in the Office & Service Sector

Charge

Non Charge

Filing

Senior Case Worker

Time

Resource

Standards & Comments

Charge with files

Non Charge With files

Training needed / cultural issues to be addressed

Read Letter

Read Letter

Finance Phase 2A: LSC Future State


No Referral

Charge post is sent to C/W with 10 15 10 15 File (no need to pull file at later stage)

mins

mins

Finance Phase 2A

No Skills Yes Skills Yes

Need No File Yes Get File

Need File Yes Get File

No

Referral process: Matter would always be passed back to C/W after the Senior C/W has considered it, either with a work solution or guidance notes. This box to be emptied once daily 5 mins 5 mins (allocation rota)

Pull File

Non Charge post, where file 2 hrs if 5 mins needed, files to be supplied by rqrd filing 4 times daily (2 am, 2 pm) 10 mins10 mins from a tray in each pod. This activity is a priority

Process

Process

Process

2 hrs

2 hrs

Post Bucket

Post Bucket

Post Bucket

5 mins 5 mins
Calculated per piece of post Post split into 1st, 2nd, Dx

30 mins 30 mins to 4 hrs to 2 hrs 25 mins 30 mins

Total
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After the Lean Thinking Event Reduced by 197 and age clear

Complex cases Mixed cases

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Cases Awaiting Attention


700 800 500 400 600 900 300 200 100 0

Non Charge Correspondence Weekly Carried Forward Figures (by week)

Week 1 Week 2 Week 3

Date 2004 - 2005


Week 4 Week 5 Week 6 6+

2n d A 16 pr th A 30 pr th A 14 p r th M 28 ay th M a 11 th y Ju n 25 th e Ju ne 9t h J 23 uly rd Ju 6t ly h A 20 ug th Au 3r g d S 17 ep th Se p 1O 1 5 ct th O 29 ct th O c 12 th t N 26 ov th N 10 ov th D 24 ec th D e 7t c h Ja 21 n st Ja n 4t h F 18 eb th Fe 4t b h M ar 18 th M ar

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Summary of key benefits


Turnaround time from 7 months to max time of 5 days (3 day for simple) Remove Waiting, Unnecessary backlog and Inappropriate processing Improved staff morale Improved customer relations and satisfaction Lack of waste/efficient processes

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Detailed Case European Insurance


Company

Setting the Context


Major Insurance player in Global market with Offices in over 20 countries Total turnover of approx 1.2 billion worldwide UK & Ireland accounted for 145m approx. Looking to grow the business to 200m by 3 years and profit from 0% to 15% ROS

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Value Criteria

Rank

Insurance Company Performance Vs


Your Expectations Our Competitors Your best Other Supplier
Better than Same as Worse than Better than Same as Worse than Better than Same as Worse than

Quality Decision

1
Quick Decision

4
Price

2
Cover

3
Support

5
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Competitive Environment
Factor
Products

Issue?
Products are not differentiated for our customers Little Innovation

Significance Short Term?


Compete on price

Significance Long Term?


Constrains growth

Competitors

New Players Changing main competitors

Stops ability to increase price Consuming new business

Competition hits critical mass/market share Opportunity to lead

Brokers

Dominated by two players who do not add value Brokers become competitors Self Insurance dont buy it Credit Information

Quoting Nett transparency Lost business and devalue our product Lost business and inability to increase price walk away

Redefine distribution channels Reduced distribution costs

Substitutes

Shrinking market and potentially invalidates the market Need for repositioning as a broader offer

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Internal Environment
Strengths Knowledge and expertise of people systems, process, country risk, Geographical coverage Pay and conditions. Integrated IT systems Multi national proposition Centres of expertise. Insolvency and recovery expertise Depth and breadth of product range Good relationship with existing customers Opportunities Market is looking for an efficient producer. Weak competitors New owners? Weak Brokers. Direct distribution Quoting Net Trade sector activities. Cross unit alignment Group leverage on sales. Weaknesses Skill sets around buyer underwriting Operating Model Too many people in the comfort zone Flexi time Pay structure inflexible. Systems are inflexible Centres of expertise. Lack of one culture Group shackles? Play by the rules too often Lack Threatsof team working of this team Re-insurance pull out of market. Re-insurance New competitors More sophisticated customers. Self imposed constraints. Global economic situation.

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Ansoff Matrix Where will we grow?


Existing Products /New Consumers Trade sector alignment efficiencies New Products /New Consumers SME product

Specialist capacity issues

20m in Years 1- 4
Existing Consumers /Existing Products.

6m in Year 2-4
Existing Consumers / New Products

New business replaces lost business


MRA income Price increases Additionality.

SME product trade finance Integrated recovery fee. Specialist capacity issues

0m in Year 1- 4
5m replace lost business

9m in Year 2-4
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The Implications of these choices!


Existing Products /New Markets New Products /New Markets

Sales Acquisition Process

H ig h

r is k

Existing Markets /Existing Products


Order Fulfillment Supply Chain NPI

Existing Markets / New Products

NPD Process

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Strategic Direction Statement


We will: Grow the Credit Insurance business to 200m by 2006, delivering 15% return on sales. Delivering outstanding service at reasonable prices and delivering greater retention Delivering significant growth from new sales Developing integrated and aligned new offerings and then taking them to new markets. Achieving greater trade sector alignment Creating a culture of innovation and performance within our business. Turn the UK business into a leading performer within the Group, securing its future and the future of our people

by:

in order to:

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Our Critical Success Factors


The ability to.

manage the relationship with the wider group successfully understand, achieve and proactively manage customers expectations operate joined up, cost effective processes agree a common goal, through supportive culture and trust in our people. spot and convert growth opportunities in sales in current and new markets innovate in new offerings. identify and respond to changes in market conditions deliver the right number of appropriately skilled, motivated people.
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The Appropriate Measures


Critical Success Factor
manage the relationship with the wider business successfully understand, achieve and proactively manage customers expectations operate joined up, cost effective processes agree a common goal, through supportive culture and trust in our people. spot and convert growth opportunities in sales in current and new markets

Measure
STRATEGIC ISSUE Customer Perception index. Speed Quality Profit Claims ratio. Cost ratio Culture index

Got one?

N Y N Y Y Y N

Customer retention % sales from new markets % sales from current markets Portfolio value % sales from new offerings Speed to Market STRATEGIC ISSUE People satisfaction index Skills index

Y N Y Y N N

innovate in new offerings identify and respond to changes in market conditions deliver the right # of appropriately skilled, motivated people.

N N
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Lean in the Office & Service Sector

Lean Order Fulfilment Process

Strategic Direction Statement


We will:

by:

Grow the Credit Insurance business to 200m by 2006, delivering 15% return on sales. Delivering outstanding service at reasonable prices and delivering greater retention. Delivering significant growth from new sales developing integrated and aligned new offerings and then taking them to new markets. achieving greater trade sector alignment Creating a culture of innovation and performance within our business.

in order to:

Turn the UK business into a leading performer within GERLING NCM, securing its future and the future of our Lean in the Office & Service Sector people

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The Current State

See the wall charts


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Current State Summary


Time Line (days) Resource (man-days)

Min Typical (BUS) Typical (JUMP) Worst case (BUS) Worst case (JUMP) 1 7.25 33 40

Max 18 65 199 281

Min 0.1 0.2 3.6 3.6

Max 0.4 17.7 27.2 27.4


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Lean in the Office & Service Sector

Features of the current state


Customers information comes in to many possible locations. Lots of delays Lots of reworking information key information not available when required. Dont talk to each other across departments Authorisation based on value, not on risk causing significant delays We have 77,500 applications for 5k or less (26%)
64% are for SME customers

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Features of the current state


Customer doesnt follow rules and neither do we!. Risk averse at the moment automatic underwriting not being applied. Using the wrong measures and targets driving departmental behaviour. Cross-country targets and standards / criteria are different. Currently employing 1 FTE person just to input applications

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Analysing the map


Major Wastes / Issues Root causes Process
Multiple points of entry. Some get delayed and some may get lost causing delays and lost applications (10% of applications
dont use the on-line system) * No overall single point of entry for customers.

Opportunities Process
Enforce a single point of entry for customers that do not use the on-line system. Ensure that all possible customers use the system on all possible occasions.

Cultural
People dont like saying NO to customers.

Cultural
Educate internal staff and customers to help to build relationships.

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Future State Summary


Time Line (days) Resource (man-days)

Min Typical (BUS) Typical (JUMP) Worst case (BUS) Worst case (JUMP) 1 2 18.67 19.67

Max 2 2 99.25 100.25

Min 0.0 0.1 1.7 1.7

Max 0.1 0.2 6.5 6.5


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Lean in the Office & Service Sector

The Benefits
Time Line Current Future 1.5
Resource

Current 0.3

Future 0.1

Bus

Typical Worst Case

9.5

Average of 116.0 72% reduction59.0


36.1 160.5 2.0 60.0

Average of 15.4 5.0 69% reduction


9.0 15.5 0.2 5.0

Jump

Typical Worst Case

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Lean Sales Acquisition Process

Strategic Direction Statement


We will:

by:

Grow the Credit Insurance business to 200m by 2006, delivering 15% return on sales. Delivering outstanding service at reasonable prices and delivering greater retention. Delivering significant growth from new sales developing integrated and aligned new offerings and then taking them to new markets. achieving greater trade sector alignment Creating a culture of innovation and performance within our business.

in order to:

Turn the UK business into a leading performer within GERLING NCM, securing its future and the future of our Lean in the Office & Service Sector people

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The plan
We had already completed mapping work within the UK division and had identified major savings within their Order Fulfilment process Having improved the speed & quality of their existing offering to existing customers, they then needed to turn their attention to growing new business The plan was to map their current Sales Acquisition Process and look at designing an improved process at no additional cost to the business

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REFCLA Goes Into Working Tray Receiving Information

Phases
RS
REFCLA into W/F Tray

Participants/Stakeholders
CST AM * IF
Policy Breach

Time Line CUST BUYER Min Max

Resources ALLRS All info available

Standards/Criteria

Pol Decision

1 10 days
+2-3 days Meeting + 1-2 days Meeting +1day Meeting

1 min

Before it is looked at query 10 day print?! All info either + or Info available online, in system Within Authorities Within TPE levels sub

+2-3 days Take Decision Y

+2-3 days Meeting

Meeting

15-25 mins

Ring Customer

21-26

Decision Taken

Y
Ring Customer for further info Meeting for further Info Ring Buyer? Y

70% of cases we have enough info to underwrite on

Current state Four Fields map

Meeting with Buyer Info can be provided

Info to CST Info to U/W Analyse Info Decision Taken Y Decision Taken

Info to CST

Info to CST

Y Info to CST

5-10 mins 2-3 days Issue: Cancellation of CLA why would U/W? 3-13 days 26-36 mins

Confirmation of Decision

Phases
Risk Services
RECLA into Tray

Future State REFCLA goes into Workflow Tray & Receiving Information Time Resources Participants/Stakeholders Line Account Mngr Customer Buyer 0
Policy Breach

Standards
Automatic allocation (to Invo. U/W) Within Authorities Within TPE levels Mandate to enable U/Ws to divulge customer name (our insured) when contacting buyer for information Customer & Buyer details are correct on the system Buyer/UW contact encouraged to help build relationships for portfolio control (Feasibility of someone else sourcing info for UW work already completed not practical in this context) Process in place to capture up to date info for active buyers AU Principles & practicalities agreed

Look at Case & Analyse

6-16 mins

Take Decision?

Meeting for Info

Meeting for info

10 mins

Future state map

Credit Limit Decision Issued

Info is provide

Info to Underwriter

Analyse Info

5-10 mins

Take Decision?

Y
Credit Limit Decision Issued Credit Limit Decision

Lean in the Office & Service Sector


Letter 1 21-36mins

Across group - What if examined to ensure max % (X) automatically underwritten Main speed of service target =no REFCLA in any tray older than X days Fully utilise credit check facility (review threshold of 10K? & price differential between credit check & credit limit) Group wide agreed priority progress in place Authority thresholds are value at risk & lay with nominated individuals rather than committee Interface system errors resolved within 24hrs Small limits thresholds reviewed Reduce amount of paper sent to imaging Quality measure to be defined

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Mapping the Sales Acquisition Process

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The maps

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What we found
The business operated almost 100 % via brokers to whom they were paying commission of 15% direct to the brokers - 15.5m The brokers were not giving good value for money and were not accurately interpreting the VOC The conversion rate for enquiries was very low On the very odd occasion where they dealt with the customer direct, the level of conversion was very high over 80% No cohesive marketing strategy to support the Sales Acquisition Process hence low enquiry level The company were effectively order takers as opposed to order getters
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The process current state


Phase 1
Setting Direction

Phase 2
Market Research

Phase 3
Making Contact

Phase 4
Selling In

Phase 5
Selling On

100 %

50%

t ra teg

0 %

g tin rke Ma No

Enquiry rate 25%

Conversion rate 8%

Retention rate 75%

No S

current

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What we did
We devised a new future state Sales Acquisition Process with the team which removed their sole reliance on brokers and enabled them to get a clear understanding of the Voice of the Customer We devised a new sales structure to help them achieve this We identified the skills required at each phase of the process We identified the need for measures & targets at each phase of the process The new process will enable major sales performance improvement at no additional cost to the business
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How the future state compared


Phase 1
Setting Direction

Phase 2
Market Research

Phase 3
Making Contact

Phase 4
Selling In

Phase 5
Selling On

100 % 50%

ot a

0 %

st ra te gy

G ot
Enquiry rate 25% 50% Conversion rate 8% 50% Retention rate 75% 95%

a pl an

G
Current Future

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The Process Benefits


Credit Insurance
Time Days Per TS 50 ( 700) 96 1.2 Reg & SME Key Acct Global Min Max Min Max 91.5

Current
Resource s Days 14 9 0.090.12 5.25

Future
Time Days See 2 217 See 4 35 84 84 33 47 59 30.40 47.8 Resourc es Days See 2 25.4 See 4

Change
Time Days See 2 0.72% See 4 Resources Days See 2 10.00% See 4 -88% -24% -24% 50%

Phases 1. Trade Sector Development (per TS) 2. Strategy - targeting customers/sectors 3. Enquiry Received (accepted/rejected) 4. Enquiry accepted to closure

5. Servicing

Average of 128 5.25 180 40% 7.9 reduction 44 1.15 Sales Closure 145 13.5 speed 13.5 145
91 121.5 0.5 1

0.65 -38% 4.00 -38% 4.00 -65% Average of 0.75 2.20 3 0.40 0.80

reduction in -25% man hours -35%


-68% -59% -84% -78% 0.67% 0.61% 0.46% -10% -20%

6.1 Renewal process (Reg & SME) 6.2 Renewal Process (key acct & global)

94

4.5

51

-0.33%

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Business Benefits Summary


Much improved levels of enquiry from 25% to 50% Substantial conversion rate improvements from 8% to 50% Much improved bottom line performance (15.5m Commission) Major reduction in Customer waiting time identified over 40% Dramatic reduction in man hours identified - over 50% Planned Sales growth being achieved - 145m to 200m by 2006

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Australian Case

Type One Orders Current State Level 2 Summary


Australian Wine Producer
Number TRIGGER 1 2 3 4 Total Step RECEIVE ORDER (PHONE) WRITE ORDER TO STARTRACK CREATE DESPATCH LABEL ENTER ORDER PROCESS PAYMENT & TO DESPATCH Area ADMINISTRATION ADMINISTRATION ADMINISTRATION CELLAR DOOR CELLAR DOOR Distance (Metres) 6 8 49 51 114 Ave Time (Minutes) 2.4 1.6 16.8 13.3 21.8 56 People O 7 11 10 3 10 41

Examples of the Underlying Cost

1.6

FLOW (MINUTES) T I 2.2 0.2 1.0 0.2 1.7 0.1 1.2 2.4 8.5 0.5

D 0.4 15.0 10.5 19.4 45.3

1.6

Average process time 56 minutes Delays 45.3 minutes (81%) Transport 8.5 minutes (15%) 41 people actions

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Type One Orders Current State Identified Areas of Opportunity

Examples of the Underlying Cost

Geographic location of functions (Admin, Cellar Door, Despatch) Separation of order taking and order entry Delays due to the manual transportation of information Frequent small transportation steps of information

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Type One Orders Future State Level 2 Summary


Number Step Area ADMINISTRATION ADMINISTRATION ADMINISTRATION Distance (Metres) 6 8 14 Ave Time (Minutes) 1.9 0.6 36.2 39 People 6 5 10 21 O 1.1

Examples of the Underlying Cost

TRIGGER ENTER ORDER & PROCESS PAYMENT 1 WRITE TO STARTRACK 2 CREATE DESPATCH LABEL & TO DESPATCH Total

FLOW (MINUTES) T I 0.7 0.1 0.6 1.7 0.1 3.0 0.2

34.4 34.4

1.1

Lead time reduced by 17 minutes (30%) from 56 minutes to 38.7 minutes Delay reduced by 10.9 minutes (24%) Transport reduced by 5.5 minutes (64%) People interactions reduced by 20 (48%) Due to removal of one geographical location the movement of people is reduced

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Type One Orders Future State Summary

Examples of the Underlying Cost

Average Process time (mins) Current State Future State Reduced by 56 39 30%

Delay Time (mins)

Transport Time (mins)

Delay Frequency (steps) 4 2 50%

Transport Frequency (steps) 38 20 47%

Geographic Locations

45.3 34.4 24%

8.5 3.0 64%

3 2

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Type Two Orders Current State Level 2 Summary

Examples of the Underlying Cost

Average process time 4418 minutes Delays 4318 minutes (98%) Inspection 14 minutes (0.003%) Picking transport 62 minutes (1.5%) Manual transport 22.8 minutes (0.5%) 36 people interactions

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Type Two Orders Current State Identified Areas of Opportunity


Order visibility. Stock visibility to allocation sheet. Manual transportation of information. Visibility of up to date stock on hand and location. Manual creation of picking slip. Stock accuracy. Warehouse space.

Examples of the Underlying Cost

Aged and obsolete goods (150 pallet positions identified) Broken pallets at fronts of rows (due to Cellar Door).
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Type Two Orders Future State - Estimated Level 2 Summary

Examples of the Underlying Cost

Lead time reduced by 1,576 minutes (36%) from 4418 minutes to 2842.1 minutes Delay reduced by 1558 minutes (36%) Transport reduced by 4.8 minutes (5%) Inspection reduced by 13.3 minutes (92%) People interaction reduced by 21 (58%) Distance travelled reduced by 241 metres (80%) All wasteful activity has been minimised
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Type Two Orders Future State Summary

Examples of the Underlying Cost

Average Process time (mins) Current State Future State Reduced by 4418.2 2842.1 36%

Delay Time (mins)

Transport Time Inspection Time Delay (mins) (mins) Frequency (steps) 84.8 80.0 5% 14.4 1.1 92% 8 3 62%

Transport Frequency (steps) 25 11 56%

Inspection Frequency (steps) 7 1 85%

Geographic Locations

4318.0 2760.0 36%

2 1

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Where do we go from here?

Any Questions?

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