Businesses implementing lean manufacturing often bypass the front office and target their manufacturing processes. After all, front offices have paperwork not inventory, right?
However, it is possible to implement lean strategies in the front office, and there are great reasons to do so. Order entry, quoting, scheduling, design, and engineering are front-office functions that can provide an opportunity to create improvement, eliminate waste and increase profits in your business.
The first step in implementing lean manufacturing in the front office is to identify areas of waste in the customer-fulfillment process. Just as Toyota’s Taaichi Ohno identified seven elements of back-office waste, I’ve identified five wastes in the front office.
Front-Office Waste #1: Information Defects
Information defects refer to any time an information item is either incorrect or missing. A general rule of thumb is that humans are only 80 percent effective in interpreting and processing information on a repetitive basis. Starting out with incorrect information only serves to have an exponential effect on the customer- fulfillment process.
The negative effects can be measured:
- Inaccurate depiction of customer needs
- Inaccurate application of products or services to meet customer needs
- Poor fitness of price to satisfy both customer and organizational needs
- Poor fitness of delivery conditions.
Three common sources for information defects in the customer-fulfillment process are obsolete product features, incorrect pricing and incorrect product features.
An obsolete product-feature defect occurs when a product-feature selection is made knowingly or unknowingly that has changed or is discontinued, and therefore no longer meets the needs of the customer. The most common reasons are:
- Product modifications are made, but the changes have not been effectively communicated out to the sales channels.
- Product modifications have been communicated to the sales channels, however, the sales systems have not been updated.
The second source of information defects is incorrect pricing. Pricing is a two-part activity. The first part of pricing involves creating a list price for the product. This is generally based on product cost (material, labor, burden), anticipated profit margin and prevailing market conditions (competition, local markets, product life cycle position).
Since the target profit margin for a product is the most stable factor in the list price, defects are typically a result of dynamics of cost and market. That is, with the increasing effects of a global economy, material costs of steel, petroleum, and other natural resources can change suddenly. List prices then fail to reflect the true cost structure of the product and could greatly reduce a product’s ability to perform in the market.
The second part of pricing is creating the appropriate selling price for an opportunity. Sales-channel profitability, customer-preferred incentives and rebates or pass-throughs are three factors that determine the selling price.
The selling-price defects can have a significant impact on sales-channel performance. Priced wrong, sales-channel profitability can be negatively affected. If a channel cannot recoup the cost of sales and meet its own profit targets, it may ignore or limit selling a particular product in favor of a competitive product that is more profitable to the channel.
Incorrect product features involve the selection of an otherwise valid choice by either the sales channel or the customer. It is important to recognize that incorrect selections are made for two reasons:
- The correct customer need was fitted with an incorrect product feature. This is the most typical in that, while the need was authentic, an understanding for how to serve the need was not.
- The correct product feature was fitted to an incorrect customer need. This defect can be rather elusive in that it is often not found until late in the customer-fulfillment process, sometime after the product has been produced.
Front-Office Waste #2: Information Over-Processing
Too much information is often viewed and processed way too many times. There are three main sources for information over-processing.
Too much information is often viewed and processed way too many times. There are three main sources for information over-processing.
1. Excessive Reviews
It is not uncommon for the customer-fulfillment process to have several review sessions prior to order entry. These review sessions typically precede a translation process:
- After the initial receipt from the sales-channel, a sales administrator will verify customer and sales-channel information prior to logging the opportunity.
- An application engineer will verify product-feature selections made by the sales channels.
- A pricing analyst will verify that the price is accurate.
- A material planner will verify that the deliver dates are supported by the production plan.
Excessive review sessions add unnecessary time delays to the customer-fulfillment process and don’t add any additional value from the customer’s perspective.
2. Obsolete Documents or Forms
Throughout the life cycle of the customer-fulfillment process, temporary process work-arounds, deviations, and customer-specific activities have produced process tasks that have become unnecessary. However, for one reason or another, the temporary process tasks and the supporting documentation were not removed from the official customer-fulfillment process. Many times the originator of the added process task is no longer with the organization or has assumed other responsibilities.
Throughout the life cycle of the customer-fulfillment process, temporary process work-arounds, deviations, and customer-specific activities have produced process tasks that have become unnecessary. However, for one reason or another, the temporary process tasks and the supporting documentation were not removed from the official customer-fulfillment process. Many times the originator of the added process task is no longer with the organization or has assumed other responsibilities.
3. Redundant Data Processing (“The Excel Effect”)
Another source of information over-processing is better known as the “Excel Effect.” Here is an example:
“Opportunities are entered into a tracking system. Because he cannot access the tracking system, or get the data out in a specific format, the sales manager creates a spreadsheet to track opportunities, pipeline planning, etc. The engineering manager needs to monitor the opportunities that he has assigned to his department. To do this, he uses the company’s PDM system to monitor the opportunities. Throughout the customer-fulfillment process, critical opportunity information is processed in several different systems …”
It quickly becomes evident from this example that changes to customer needs and product solutions must propagate through redundant processes that add considerable time and effort to the customer-fulfillment process.
Front-Office Waste #3: Information Idle Time (Wasted Time)
Because the customer-fulfillment process is usually a manually driven, asynchronous process, there is almost always a queue in front of each process task. These queues can stretch the customer-fulfillment process timeline as much as 600 percent.
Waiting for cost and price estimates, engineering approvals, commitments from manufacturing or procurement and waiting to generate a correct proposal are all processes where time delays are typical.
Front-Office Waste #4: Lost Scalability of the Sales Force
This is often a hidden waste. For each day that a sales channel is unaware of (or uncertified on) new products, product enhancements and customer applications, revenue is lost. Rapid development and deployment of value streams that support and educate the sales channels is essential to a new product rollout. Sales effectiveness is increased with the knowledge of related products and their fit with customer needs -- provided at the point of need. Traditional wastes measured in process delays, rework and information defects equate to millions of dollars in lost revenues, market-share erosion and customer retention.
This is often a hidden waste. For each day that a sales channel is unaware of (or uncertified on) new products, product enhancements and customer applications, revenue is lost. Rapid development and deployment of value streams that support and educate the sales channels is essential to a new product rollout. Sales effectiveness is increased with the knowledge of related products and their fit with customer needs -- provided at the point of need. Traditional wastes measured in process delays, rework and information defects equate to millions of dollars in lost revenues, market-share erosion and customer retention.
Front-Office Waste #5: Getting New Products to Market Sooner
In today’s competitive business environment, wastes in information defects, redundant data processing, and information idle time can dramatically affect how new products are developed and brought to market. Having a comprehensive value stream that coordinates information flow between sales and marketing, product development, and production for new product introduction (NPI) is central to achieving these objectives.
According to the 2004 AMR Research report “Benchmarking the Perfect Product Launch,” companies that do not effectively manage their NPI processes can be up to 56 percent later to market. Data compiled by consulting firm PRTM indicates that companies also experience up to 26 percent lower margins due to poor NPI processes.
Implementing lean manufacturing processes in the front office is possible. Once you’ve identified the waste in your process, you can begin to map the value stream of your front office. Then you not only have an efficient, revenue-producing back office, but a front office too.
This article is an edited excerpt from the white paper “Value Stream Mapping for a Lean Front Office." To download the complete white paper, go to www.cincom.com/waste
Ken Noll is a senior business consultant for Cincom Systems’ manufacturing business division (www.cincom.com/manufacturing) with over 15 years of experience managing large projects and helping companies realize substantial manufacturing throughput and production scheduling efficiencies. He can be reached at [email protected]
