Extending Lean Labor to the Back Office

If you're like many other manufacturing organizations, you have already reaped the benefits of Lean production practices in your manufacturing operations. Wouldn't it make sense to apply the same Lean techniques to your back office, too? Download this whitepaper to learn the challenges of extending Lean to the back office - and how to overcome them.

White Paper Extending Lean Labor to the Back Office How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes Executive Summary If you’re like many manufacturers, you’ve already implemented Lean principles in your manufacturing operations. Now that you’ve seen the benefits of Lean within your manufacturing operations, you may be looking to implement Lean techniques in your “back office.” These processes include administrative tasks, sales and marketing, information technology, engineering, product development, and other “white collar” operations. By expanding proven Lean methods from your manufacturing operations to your back-office processes, your organization can continue to extend the benefits of Lean across the entire organization. A Lean workforce is essential when applying Lean principles to your manufacturing operations. After all, labor comprises more than 50 percent of a typical operating budget, and an idle or underutilized worker creates labor expense without adding value.1 Lean labor is even more important for back-office operations because labor is the single most important input in back-office processes. This white paper explores how workforce management technology enables your organization to apply Lean principles to your back office by automating manual activities to reduce waste and by giving you visibility into labor productivity so you can remove inefficiencies from your labor utilization. As a result, your organization can improve productivity and control labor costs throughout your back-office operations. Lean Beyond the Shop Floor In a competitive market, you must continually find ways to improve your opera- tions to heighten productivity, increase quality, enhance responsiveness, and reduce costs. Many organizations have long achieved this goal by applying Lean principles to their manufacturing operations. Yet 60 to 80 percent of all costs related to meeting customer demand are administrative or office-related functions.2 As a result, many organizations are looking to significantly improve their bottom line by extending Lean initiatives beyond the plant floor3 by applying Lean concepts to back-office processes long ignored in process improvement efforts. Implementing Lean Principles in the Back Office Lean is based on two principles: eliminating “waste” — any step in a process that adds no value as defined by customers — and smoothing workflow. Seventy- five to ninety percent of the steps in service and administrative processes, such Manufacturer Extends Lean to Its IT Organization One aerospace component supplier with a long history of following Lean principles in manufacturing found that information technology projects were late and over budget. As a result, the line- of-business units were hiring their own IT resources. After new IT leadership came in and applied Lean principles to IT processes, projects were delivered on time and on budget and business sponsors aban- doned their IT efforts. When new demand for IT services started to strain resources, Lean approaches enabled the organization to match IT resources to demand.4 1 “Salaries as a Percentage of Operating Expense,” Society for Human Resource Management, November 1, 2008, http://www.shrm.org/Research/Articles/Articles/Pages/MetricoftheMonthSalariesasPercentageofOperatingExpense.aspx. 2 Willie L. Carter, “Lean Office Eliminates Waste and Saves Time,” Quality Digest, June 23, 2010, http://www.qualitydigest.com/inside/twitter-ed/lean-office-eliminates-waste-and-saves-time.html. 3 “Rethinking Lean: Beyond the Shop Floor,” Boston Consulting Group and Wharton, 2, http://knowledge.wharton.upenn.edu/papers/download/101109_SS_Rethinking_Lean.pdf. 4 Robert Parker, “Lean Techniques Pervade the Organization,” IDC Manufacturing Insights, October 2011. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes as order entry, quoting, and purchasing, add no value.5 Lean analysis identifies wasted processing and manpower. It is also designed to smooth out the volume of work so that it can be performed continuously regardless of variations in demand, eliminating rush periods and fire drills that drive excess staffing and negatively impact quality. Implementing a Lean initiative involves defining important business processes from beginning to end and then identifying bottlenecks, defects, and mistakes in these processes. Organizations then look for ways to eliminate waste and unnecessary steps that do not add value. The goal is to reduce processing times, improve flexibility and responsiveness, and ensure continuous flow through each process. Organizations also typically define performance metrics for staff and processes to create a closed-loop methodology that helps improve the effectiveness of people and processes. Tools and concepts that Lean methodologies provide to eliminate waste include: •  Prioritization — In the back office, it’s easy for staff to concentrate on the projects they enjoy rather than on those most important to customers. Or staff may be unaware of the tasks that add value for customers, because workflows span multiple departments. Lean initiatives establish clear priorities and instill the discipline to drop one work process to immediately process another of greater importance. For example, priorities might include due date, value of order, or customer type. •  Performance measurement with KPIs — Key performance indicators (KPIs) enable organizations to “close the loop” on process improvements. They are used to determine how well current performance measures up to company or industry standards so management can evaluate the progress of Lean and process improvement efforts toward organizational goals. Two KPIs often applied to Lean manufacturing efforts include “pitch” and “takt time.” Pitch measures how much work can be completed during a given amount of time; Lean efforts look for ways to do more work in the same amount of time. Takt time is the rate of customer demand, and Lean manufacturers aim to turn out products at the appropriate rate to meet customer demand. In back-office processes, the KPIs you choose to employ depend on the questions you want to answer about your value stream and how you define the product or service produced by these processes. For example, if your goal is to reduce the number of engineering change orders (ECOs), you can define ECOs as the product and identify the total number of ECOs issued, cycle time, and queue time for processing. This information can help you pinpoint bottlenecks and eliminate waste in your process. Lean Methodology Eliminates Waste By applying Lean principles, organizations aim to remove a number of types of waste from their back-office processes. These wastes include:6 OvErPrOducTIOn — the unnecessary production of more service than is demanded. Examples include using “reply all” or sending multiple copies of reports, forms, or other information to several people for review and comments, which in turn must be consolidated. WaITIng — the time that workers are idle due to bottle- necks or processing delays, which increases labor costs. In the back office, staff often wait while other people or processes finish work before they can do their work. (continued on next page) 5 Carter, “A Lean Office.” 6 Alan Nicol, “Lean in the Digital Office,” Manufacturing.net, January 19, 2012, http://www.manufacturing.net/articles/2012/01/lean-in-the-digital-office. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes •  Eliminate non-value-added activities — Lean initiatives strive to include activities and processes that add value for the customer and eliminate non-value-added steps that lengthen process cycles/times or result in any type of waiting. •  address unpredictable and highly variable workloads — One of the key reasons for waste in work processes is unpredictable workloads, which can be caused by unbalanced workloads and fluctuations in customer demand. Uneven workloads lead to bottlenecks and often mean that considerable work must be done at once, followed by periods without enough work. •  avoid overburdening people — During peak workflows, manufacturers need to avoid pushing people beyond their natural limits. Overburdening people results in low engagement, fatigue, turnover, and quality problems. •  Leveling volume — While Lean manufacturers practice “pull” demand where they produce products based on customer demand, they also want to ensure continuous flow. By studying the amount of time each task takes, you can ensure that each step has a similar cycle time to level the operation. The same concept can be applied to the back office, where Lean practitioners try to level the tasks workers perform, to avoid rush periods and fire drills. •  capacity flexing — Capacity flexing enables organizations to find the right number of workers with the right skill sets to meet expected seasonal surges in demand, such as when accountants must prepare tax returns in March and April. •  change management — In changing from a traditional to a Lean environ- ment, your organization must change its corporate culture. Without employee support for Lean efforts, no organization can make major changes. Change management will need to encompass updating management skills, training workers, and revising reward systems. For example, the Lean principle of engaging employees in problem-solving means that instead of dictating new workflows from above, management must ask workers involved in a process how that process can be simplified or improved. Managing change and people’s behaviors is a continuous process that must be addressed from day one. challenges of Bringing Lean to the Back Office In the past, organizations have hesitated to apply Lean techniques to the back office because of significant differences between back-office processes and standard manufacturing. While manufacturing operations typically follow set processes, the back office has highly unorganized workflows. Rather than following standard operating procedures, staff may employ different ways to POOr LOgISTIcS — includes any movement of materials that does not add value to the product. Examples include back-and-forth transfers of information, such as getting approvals and sending them back to the original person or the need to obtain too many approvals. InvEnTOry — in a back-office context, inventory is work wait- ing to be processed, such as tasks in inboxes and on to-do lists. rEWOrK — is necessary when something isn’t done right the first time. For example, when workers input erroneous information into a report, it will be caught later and will have to be re-entered. MOvEMEnT — is the exertion of effort without producing meaningful output. Examples include meetings that do not result in a decision or produce information through collaborative discussion through the work of a team. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes accomplish the same task, depending on personal relationships and experience. Back-office work also typically flows across multiple departments and functions; for example, the order-to-cash process encompasses order entry, distribution, invoicing, and collections processes. These diverse and multi-departmental workflows make it challenging to map out, measure, and improve processes. Because projects are often small and ad hoc, output is not always standardized, and individuals may have multiple responsibilities, it can be difficult to determine who is responsible for what and to measure productivity and quality. To further complicate matters, priorities for projects are constantly changing. Finally, back-office employees are typically salaried. Organizations feel they can do little to control labor costs when wages are fixed. Even if organizations can control employee activities, salaried employees resist being measured, as they feel it is demeaning or unfair because their priorities are constantly changing. Even when organizations have applied Lean techniques to the back office, these attempts have seen limited success. For example, many organizations successfully improve specific functional areas, such as accounting, but see limited improvement overall because they fail to target workflows that extend across departments. Many organizations also fail to apply Lean initiatives consistently. When organizations have instituted quality and process improvement initiatives, they have been “flavor of the week.” Employees have gotten used to change for change’s sake and learn to appear to address this week’s management priorities knowing that next week they will be asked to focus on another “hot issue.” The role of Workforce Management Technology in Leaning Out the Back Office While efforts to apply Lean methodologies to a manufacturing organization concentrate on a combination of labor and other resources, labor is the most important input in back-office processes. Thus, any attempt to bring Lean to the back office must start with improving the efficiency of labor utilization. Workforce management technology plays a critical role in recalibrating processes and ensuring that Lean efforts are applied consistently. Workforce management technology is a key enabler for Lean because it delivers automation and visibility. Workforce management technology is a key enabler for Lean because it delivers automation and visibility. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes automation Eliminates Waste Workforce management solutions automate wasteful manual processes to improve productivity and accuracy and eliminate waste. For example, absence management capabilities automate the application of your attendance and leave policies. This eliminates manual processes for your human resources staff while making it easier for your organization to enforce your absence and leave rules consistently as well as improve compliance with FMLA and other federal, state, and local leave laws. Establish consistent Workforce visibility Visibility allows organizations to see where labor is, what labor is doing, and how it relates to productivity goals. Thus workforce management makes it easy to allocate the right labor to the right place at the right time to further streamline back-office processes. Key capabilities that workforce management technology delivers include the ability to: •  Track workforce activity — Workforce management solutions provide detailed, up-to-the-minute activity tracking data. Activity tracking capabilities allow you to collect and analyze data about labor according to a wide range of criteria — by employee, task, department, project, or customer. You also gain complete visibility into the status of work in progress. The resulting insight helps you find hidden productivity drains so you can take steps to eliminate wasteful activities. •  Identify potential shortfalls — On-demand dashboards make it easy to see if you’re approaching trouble in critical areas like cost or impending due dates so you can take proactive steps to avoid bottlenecks. •  Match the right person with the right skills to the right task — Workforce management helps keep workflows balanced by allowing managers to make sure people with the right skills and certifications perform the right tasks. Scheduling capabilities allow managers to view worker profiles (skills, availability, etc.) as they set up schedules — for example, to ensure they have the right workers with the right skills to meet seasonal peaks in demand. Time- off management and vacation planning tools enable you to reduce unplanned leave and make sure the right people are covering for absent workers to avoid work spikes that can lead to burnout or delays in work. •  Measure performance — KPIs enable you to see how the entire workforce is performing, with the ability to drill down to an individual or project to diagnose the problem. By identifying trends and distinguishing one-time occurrences from recurring events, you can better schedule and plan for situations such as increased volume or sporadic holiday attendance. With KPIs and analytics capabilities, your managers can make quick adjustments and continuous improvements. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes Benefits of using Workforce Management to Bring Lean to the Back Office Workforce management software uses these capabilities to enable organizations to reduce costs and improve productivity. Reduce Costs Organizations using workforce management gain visibility into real-time information about labor that is accurate and actionable. They use this visibility to match labor capacity and skill sets to demand, reallocating labor resources as necessary to meet deadlines and maintain customer satisfaction. They can even pinpoint problem areas and take appropriate action before service levels are compromised. As a result, they can have the right person at the right place at the right time to meet customer expectations — often using less labor than they would have needed otherwise. For example, as one company reviewed its order entry processes for a Lean initiative, it found that it was using a significant amount of time to acknowledge orders. Whenever the company entered an order, it automatically printed an acknowledgment and manually sorted and mailed it to each customer. However, it turned out that few customers wanted an acknowledgment — and those who did were willing to accept an email response — which meant that this process added little customer value. By coding orders to acknowledge via email only customers who wanted such notifications, the company was able to free over- worked staff to spend more time on value-added activities.7 Improve Productivity Your organization can use automated workforce management to improve productivity by eliminating manual processes. In addition, workforce management provides detailed labor activity and performance information that organizations can use to improve processes. For example, one large multinational company was able to improve cash flow by reducing the amount of time from when work was performed in the field to when it was able to send invoices. Rather than using paper documentation, the organization was able to enter data about the activities performed into the workforce management solution. Not only did the workforce management solution allow the organization to measure performance, it also interfaced directly to the ERP invoicing system, eliminating the need to rekey information in multiple systems. 7 Carter, “A Lean Office.” As one company reviewed its order entry processes for a Lean initiative, it found it was able to free overworked staff to spend more time on value-added activities. How Workforce Management Technology Applies Lean Principles to Improve the Productivity of Back-Office Processes Bringing Lean to the Back Office: How to get Started While workforce management technology is a critical enabler, you also need to learn new Lean methodologies. The following are steps your organization should take to bring Lean practices to your back office: •  Define “value” by identifying your internal and external customers and defining what these customers want •  Identify and document your current workflows •  Look at workflows from an enterprisewide, system, or business process perspective •  Determine value-added/non-value-added elements of workflows •  Eliminate waste by weeding out any activities that don’t meet real demand •  Use metrics and rapid performance feedback to improve real-time decision making •  Implement a rapid plan>do>check>act improvement framework to achieve results quickly and build momentum •  Pursue perfection by involving employees in efforts to continually identify and eliminate non-value-added activity from all processes •  Emphasize learning at an organizational level through sharing of best practices from one project to another conclusion Lean provides the foundation for more efficient and profitable operations — not only in manufacturing, distribution, and supply chain operations, but throughout the back office. Bringing Lean to both the shop floor and the back office requires a holistic effort that encompasses new methodologies and new technology to ensure that labor embraces new concepts that can seem foreign to back-office operations. With labor as the critical input for most business processes — particularly those in the back office — workforce management solutions are clearly a key enabler for Lean initiatives throughout the organization. Workforce management solutions automate critical manual processes to improve productivity and drive out errors and waste. These solutions also furnish visibility into labor productivity that allows you to assign the right workers to the right tasks at the right time to streamline processes and smooth workflows. As a result, workforce management helps deliver on important Lean promises of improving productivity and reducing labor costs. ©2012, Kronos Incorporated. 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