What Manufacturers Can Learn from Transactional Companies

In the evolution of continuous improvement, the Six Sigma methodology began in the manufacturing sector and later spread to other transactional businesses. While many transactional companies, such as advertising agencies and other service-oriented organizations, still look to manufacturers to learn about the application of Lean Six Sigma, there are lessons that manufacturers can learn, as well, from the transactional sector about addressing hidden inefficiencies and reducing costs.

When producing a physical product, manufacturers have to deal with obvious costs, such as raw materials and labor. But there are also invisible costs, including invoicing, ordering and scheduling. For most manufacturers, the focus tends to be on the former when it comes to improving efficiency. However, by ignoring invisible – or transactional – costs, opportunities to improve a company’s bottom line significantly can be missed. With business transactions comprising 15 percent of the cost of producing a product, this is an area certainly worthy of attention.

When a manufacturing company requests guidance regarding Lean Six Sigma, it’s typically to work on one of any number of physical processes. This, after all, is where they make their product, which is where the value lies. These processes are very visual and can be seen by anyone who walks out on the plant floor. However, this is not the case for transactional businesses.

Transactional businesses manage invisible processes daily, including generating new business, ensuring that departments are working cohesively toward a common goal or implementing a new service offering. So, when these companies hold a Kaizen event, it becomes necessary to map the process being addressed in order to visualize it. For them, finding inefficiencies in the transactional process is key to increasing value both for themselves and for their clients. By expanding their view of process improvement so that it includes both the production and transactional sides of their organization, manufacturers can also find ways to improve their businesses.

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Finding Value on the Transactional Side

If you were to cut the manufacturing sector in half and move the physical process aside, what you would be left with is something that closely resembles a transactional business. While the manufacturing side makes what is valuable, it is within the transactional side where the value is actually created – where a determination of customer demand is made and where product design is executed. Yet, what we see time after time is that the manufacturing side of the business only sees the problems caused by the transactional portion, completely missing out on the value it brings to the table.

Practitioners can look at the physical processes of manufacturing all day long. But, if the transactional side of the business isn’t effectively evaluating consumer demand or if there are flaws in the design process, it doesn’t matter how effective the physical process is. Reconciling this split requires a shift in focus for manufacturing companies. It requires them to approach the Lean Six Sigma process in much the same way that a transactional company does, which means mapping the invisible processes of product design, market research, etc., so that they become tangible.

By applying Lean Six Sigma to the transactional side of the business, manufacturing companies can uncover inefficiencies that could be costing them untold profits. But, to do so successfully, it will require the transactional side to view the manufacturing side as a customer, asking for its input regarding unmet needs and possible improvements. The manufacturing side also needs to embrace that role of customer and realize how much there is to gain by taking an active role in determining ways the transactional side can improve. When both of these changes occur simultaneously, waste in the transactional side can be addressed, which, in turn, enhances the productivity of the manufacturing side. The end result? A more valuable product and a more successful company.

Comments 2

  1. Sukumar Roy

    To this leader, it will be incorrect to say that there are “manufacturing companies” and “transactional companies”. Why am I asserting this statement?

    A process is defined as a “transactional” or “manufacturing” based on what it creates or produces. A transactional process produces a service whereas a manufacturing produces a product by using “manufacturing” equipment such as machineries. One or “physical” or “chemical” processes impact as the “product” is being produced. In some cases the product such as electrical power is not a physical entity – however, it still needs equipment.

    Although the above distinction is not absolutely foolproof, by and large it holds.

    Because of such a difference, the application of Lean Six Sigma to a manufacturing process is slightly different when compared to a transactional process. For example a tool such as Design of Experiments is highly unlikely to be applied in transactional processes, if at all possible.

    Furthermore, the majority of business processes even in a “manufacturing” company are “transactional”. Processes that are related to finance, procurement, plant maintenance, logistics-distribution-warehousing, Human Resources, sales and marketing, etc. are ALL transactional processes.

    So, the differentiation in this case should be based on types of business processes – and NOT based on types of industries.

  2. Sukumar Roy

    Sorry, I meant “To this reader….” and not

    “To this leader….”

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