From the Archives: Transactional Lean

With ILSHRM11 in the rearview mirror and HR Florida quickly approaching, I thought this a great opportunity to share this primer again.  If you were in the session in Chicago, this is some extra information for you.  If you are joining the session in Orlando, this will get you in the right frame of mind.  Enjoy!

If you haven’t worked in operations or quality, Lean Six Sigma can be a daunting prospect. How does a manufacturing style apply to HR? What’s it all about? What does it mean for you and your job?

The good news is that LSS can be applied in the transactional world with great results. As part of a new effort to focus on education and tool sharing, I’d like to open with an overview of value and waste, the two primary components of any process.

What is Value?

We start with looking to separate “valuable” activities from waste. How do we define value? We don’t. The customer does. But an easy way to think about it is to imagine your customer’s reaction if your activity appeared on an invoice. For example, your customer, a hiring manager, says “find me a great mechanical engineer!” Let’s break down some of the activities in that process…

Value Added Activities:

  • define the right parameters for the job search
  • reviewing resumes
  • presenting well qualified candidates

These are important things that the manager wants to have take place. The two days that passed prior to starting the search while waiting for an approval by my manager on a form that outlines HR’s responsibility in this task is not. And no customer would willingly pay for that time.

Seeking Waste

When we start looking for improvement opportunities, we start with the classical definitions of waste. You can find these in all workplaces, all work types, and all parts of the organization. There are traditionally seven wastes:

Overprocessing – Working on a task or product beyond the customer’s specifications

Waiting – idle hands

Motion – having to turn, twist, lean or stand in order to complete your task

Inventory – as Taiichi Ohno famously said, inventory is death. Any time you have inventory, your money is tied up sitting on a shelf.

Transportation – walking from place to place or, more common, moving work-in-progress from place to place so it can be completed

Defects – mistakes, rework, or unusable final products

Overproduction – making more units than needed to satisfy customer needs

And, a special bonus eighth waste:

Underused people – whether it be idle time, lack of work or just not realizing the potential of your team members

Once you understand your process and have identified the waste, the next step is to understand which activities are truly not “value added” and work to streamline the activity, integrate or automate the process, or eliminate the waste wherever possible. As an example, here is a typical transactional event from everyday life, fast food pickup. This is, of course, an example of a process gone wrong.

  1. Arrive at restaurant (Elapsed time – 0:00)
  2. Wait 5 minutes in drive-through line (Elapsed time – 5:00)
  3. Wait on cashier to be ready for order while cashier accepts payment from another customer (Elapsed time – 5:30)
  4. Place order (Elapsed time – 6:00)
  5. Cashier reads order back (Elapsed time – 6:30)
  6. Wait in line to reach drive through window (Elapsed time – 8:00)
  7. Pay for order (Elapsed time – 8:30)
  8. Receive change (Elapsed time – 9:00)
  9. Wait for food (Elapsed time – 11:00)
  10. Receive food (Elapsed time – 11:30)
  11. Check order; If mistake found, park, return order, wait for correction (Elapsed time – 12:00, more if mistake is found)

Now, here’s an example of a revised process with a few minor changes and the impact:

  1. Arrive at restaurant (Elapsed time – 0:00)
  2. Wait 3 minutes in drive-through line (Elapsed time – 3:00)
  3. Place order (Elapsed time – 3:30)
  4. Wait in line to reach drive through window (Elapsed time – 4:30)
  5. Pay for order (Elapsed time – 5:00)
  6. Receive change (Elapsed time – 5:15)
  7. Move to second window (Elapsed time – 6:00)
  8. Receive food (Elapsed time – 6:30)
  9. Check order; If mistake found, park, return order, wait for correction (Elapsed time – 7:00, with fewer mistakes overall )

Notice the overall time has been reduced from twelve minutes to seven, an improvement of more than 40%.

What is that improvement worth to the business?

Intuitively we know that the improvement is significant, but the changes we suggest will have a cost to implement, so how do we quantify the value of the improvement? Here are where good metrics and valuations come into play. How much is a 40% improvement worth? Assuming a twelve minute cycle, you will be finishing five transactions per hour. If each transaction has an average sale total of $10, we are producing $50 of revenue per hour. Assuming twelve hour days for a full year, that equates to $18,250 in revenue per year.

If we reduce the cycle time to seven minutes, our hourly transactions jumps to just over eight. (We will round down for simplicity.) This brings our yearly revenue to $28,800, an improvement of nearly 60%. Simple answers, powerful results. The times in this example are clearly a “worst case” scenario for a restaurant, and are intended to show how you can apply Lean thinking in the transactional world.

What’s coming up in 2011?

This overview should set the stage for this year’s focus on on tools and learning. Moving forward, expect to see more about how to use and when to apply the very simple but powerful tools that LSS can provide.

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