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7 Deadly Wastes in Transactional Operations.

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  • #47614

    equinox
    Participant

    Dear Community,
    Having developed my 6 Sigma experience in a manufacturing arena I have now been requested to move to a transactional function within my organisation. The main purpose being implementation of ‘lean’ (5S, waste reduction etc .. This is where I have the problem … please help.
    Q) Are the 7(9) Deadly wastes the same for both types of business ?
    Any advise or guidance on subtle / major differences would be greatly appreciated. I would like to avoid becoming part of the problem and a clear understanding at the outset would help me no end.
    Many Thanks,
     

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    #158870

    Chris Seider
    Participant

    Of course the 7 original wastes are applicable.  They are applicable for any business although the frequency of occurrences of the waste may change.  Keep the concepts in mind of waste. 
    The only challenge often found is the definition of value-added.  Many internal transactional processes are not customer valued so by definition are not value-added but whole organizations like purchasing or accounting typically get very upset so the “business necessary” category is used by some.  My approach is to temper my standard and consider the internal customer as demanding the value. 
    The fact you are aware of the issue means you will be more able to handle the transition.  Good luck.

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    #158871

    Storage of service?
    Member

    C., where exactly do you store the inventory (not WIP) of your services?

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    #158875

    Ron
    Member

    The 7 deadly wastes are the same however, the inerpretation ofthem in a transactional setting are different:
    i.e. DOTWIMP –
    Defects – office defects are redoing reports, making changes over and over to documents etc
    Overproduction – ordering forms etc. that go out of date and must be thrown away
    Transporation – the distance that paper has to travel to get approvals , signatures, this can include emails
    Waiting – approvals, inboxes etc.
    Motion-  the required routings that items take to get to the final customer, required forms that enter data repeatedly
    Processing – reports and other communications (emails) that are sent to multiple receivers that never read or have anything to do with the intent of the document

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    #158878

    Chris Seider
    Participant

    Inventory includes WIP but I’ll address the intent of your question. 
    Outboxes of people’s e-mail or outboxes on people’s desk or the delivery system (mail vs. e-mail vs. expedited delivery).  How many processes must await internal approval of the final service before put before the customer?  ….just a few examples

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    #158879

    howe
    Participant

    What does the “i” in dotwimp stand for?

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    #158883

    Lebowski
    Participant

    Ron,
    That unfortunately was probably helpful to a lot of people. There is not this quantum leap that has to be made from the original version to the transaction version. The real issue is that people are intent on trying to make the point that they are different that they have lost the ability to interpret simple things.
    Lebowski

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    #158886

    Storage of service?
    Member

    C, services cannot be inventoried because they cannot be stored. If they could be stored we’d draw the blood of a patient and run the test results before the patient actually hits the emergency room. The very difference between services and manufacturing is that in manufacturing the production is separated from the consumption, and the product can be stored as inventory (in the sense of managerial accounting). This end-product inventory is waste because it causes storage costs etc. This type of waste is the one type of waste that is not applicable to services.

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    #158894

    Savage
    Participant

    I = Inventory

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    #158895

    Service SS
    Member

    In general, the concepts are applicable in the context of services and manufacturing (Lebowski made that abundantly clear in his lovely worded response). However, you have a few subtle differences:
    In manufacturing the product design process is separated from the production and selling process of the product. This implies that specifications are set for the production process based on customer segments. In addition, the production process can produce finished goods inventory that can be stored and shipped or delivered. This is ‘waste’ from a production point of view but creates a buffer for the company’s marketing and distribution system. While one-piece flow is a goal, the reality is that this is not fully achievable. As a matter of fact, if you had a perfect one-piece flow production without any waste in the design, production and selling processes, you would basically end up with a service (that in my opinion is the true goal of the lean production system).
    Services, on the other hand, have two main challenges: (1) the service cannot be stored. The expectations of the customer, the input of the customer and the output of the service occur at the same time. As a result, services cannot be stored as “finished goods inventory”. You need to produce exactly when the demand occurs. (2) The input of invidiual customers is more critical because they are the one’s who provide the input at the point of demand. The old lady who forgets her test requisition at a patient service center to draw blood will see a dealy in the service (output = test resulted and sent to physician) because of the “defect” in the input. Thus, customers in many cases are both the supplier and the customer, which complicates the input/output structure. (3) Furthermore, clients/customers are individual customers and more difficult to segment into expectation CTQs for groups of customers. Therefore, setting specifications are more difficult than in the manufacturing environment. (4) Your service delivery, is fully transparent to the customer. As a matter of fact, service delivery includes the input of clients, their expectations, the performance of the service provider and the output in a totally transparent fashion.
    The difference is one of quantity rather than quality. The principles are equally applicable, but you will run into some obstacles where you wish you had the option to clearly segment your customers, develop specifications based on clearly targeted groups, store the service and don’t deal with the fact that the “production system” of the service delivery is fully transparent to the client when the client receives the service. Good luck!

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    #158897

    Chris Seider
    Participant

    I fully respect your thought which is valid but not exclusively correct in all cases of service.  You might consider the case of a service like blood testing services.  Is it technically not inventory to have the test results from the batching that some lab services use and then ship off to the customer.  The results are an “inventory” sitting in the computer printout and even in the outbox between the technician and the mailing service (internal or external). 
    Why not also consider the patients sitting in hospital beds as inventory?  Would not the inventory be reduced if delivery of the test results could be made faster? 
    I guess you have never sat at closing and seen all the closing files that need to be filed in the courts within the US legal system.  That is definitely inventory AND the customer has already paid for that.
    By the way, Taiichi Ohno never said a process has no inventory so to make the statement that end-product inventory is waste would be tough for me to accept.  The difference is to understand what inventory is minimally met for process variability to keep value flowing and the inventory above that amount is waste.

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    #158901

    Storage of service?
    Member

    C. first of all thanks for a very professional response! Second, manufacturing inventory from an accounting point of view has three components: (1) Direct materials, (2) Work-in-process inventory, (3) Finished goods inventory. They show up on a balance sheet under current assets and are clearly labeled as total inventories.
    Ohno’s classification scheme separates the work-in-process inventory and finished goods inventory because they are associated with different types of costs (waste) as every accountant can tell you. My point is that services clearly show characteristics of Work in process (i.e. test not performed and physician waiting for results). This also holds for your government example. They are sitting to be processed! The test result as soon as it is released and delivered is finished. When the client reviews it is another question, which leads to a lot of confusion about the correct determination of turnaround time. If the test sits in batching waiting to be resulted it is work-in process.
    The resulted test will not show up on a balance sheet as inventory, but rather as revenue (if it has been paid for) and subsequently under  retained earnings under equity, or as an asset under accounts receivable (if it has not been billed and/or been paid for).
    My key point is: a “delivered service” cannot be handled as “finished goods inventory” either from an accounting or a processing point of view. (The equivalent of your government example is a prepaid goods or service). The implications for processing are different than they are for accounting. They pose different challenges for the two views, but it is important to note that there is a key difference between manufacturing and services as regards the classification of a “delivered service” as “Work-in-Process” and “Finished Good”. Maybe this will clarify my position a little better.   

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    #158904

    Chris Seider
    Participant

    I find professional often works best…..although as you probably know, drama often shows up in this forum!
    We are in agreement except for semantics but your point is irrefutable about inventory that I referred to in service industry wouldn’t show up in inventory on any balance sheet.
    The only danger for those who might read and not fully appreciate the nuances of what we are saying is some might not think it would be necessary to attack this “inventory” since it doesn’t show up on balance sheet.  I’m sure we would both agree it would be a valid project. 
    Before your last response, I was worried you were one of the “theoretical” posters who can’t understand my posting.  Thanks for your professional set of postings….too bad you don’t post with a handle that can be remembered by me in the future.
    Chris
     

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    #158905

    Storage of Services?
    Member

    Chris,
    I am working on the handle :-). Thanks for a mutually beneficial exchange of thoughts. I think we definitely agree on the importance of reducing WIP in any kind of process setting no matter where on the income statement or balance sheet it shows up. There are some good reasons why ROI and/or EBIT have become the key metrics for evaluating the financial impact of lean six sigma project. Have a great week-end!

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    #158907

    Go Veg
    Participant

    Hello -It helps me to change my perception of things from time to time. In my transactional environment, we do still manufacture things. Paperwork, new hires, orders, proposals, etc can all be considered manufacturing. Apply your observations under this model to divserify your perceptions.Scott

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    #158908

    new hires
    Participant

    i am sure that every business would be more than happy to “manufacture” its own new hires. good joke!

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    #158909

    GrayR
    Participant

    Just a few thoughts:
    1. In Brian Maskell’s model for service wastes, ‘inventory’ and ‘transactions’ are related. In this model, a transaction is any documented action.  One example, would be mulitple signoffs on a purchase order.  If you wanted to improve the flow of this process, you would reduce the number of signoffs = transactions (inventory . . .) in the system. There is some logic to this, since transactions and inventory in queueing theory (e.g., Little’s Law) have the same effect on the process — as inventory (transactions) increases, the cycle time increases.
    2. Patients in a hospital, blood waiting for testing, etc. seem to me, to be ‘demand’ for the service, rather than inventory.  Probably could be similar to ‘orders waiting to be filled’, for a manufacturing process. Open orders are not considered inventory, nor are they accounted for in the balance sheet as such.  In a manufacturing process, the goal would be to reduce the lead time for filling the orders; and in a transactional sense, the goal would be to reduce the lead time to fulfill the service.  If there is too much inventory (WIP) in the manufacturing process, the cycle time to fill the order is lengthened — likewise, as the number of transactions needed to complete the service increases, the service time increases.  Just a thought.
    3.  From a variability standpoint, both WIP and finished goods inventory is needed to buffer variability in the process or in demand. If you link two processes with identical capacity (e.g., two units per hour) and no variability (std dev = 0), you do not need any WIP to maintain maximum productivity on each unit. As soon as process one completes a unit, it is capable of being run in process two.  However, as soon as you add variability (e.g., the second process still averages two units per hour, but now varies between one and three units/hour), you need WIP inventory to maximize productivity on both processes.  In one case, when the second process produces 2 units/hour, it will finish it parts before the first process completes its parts. If there is no WIP sitting ahead of the second process, the second unit will be idle (lowering productivity).  In TPS (lean), the need for this WIP inventory is lowered since the system is mostly balanced (minimal inter-process variability) by the takt time.  Unfortunately, there are still imbalances in the TPS system (quality problems, raw material delays, some unplanned downtime), and so there is always some inventory (safety stock) needed to maintain productivity.
    4.  It is correct that a service process cannot use inventory to buffer against variability in the system.  However, there as at least one other buffer that is available to both manufacturing and service-type processes, and that is a capacity buffer.  In TPS, in addition to an inventory buffer, there is also a capacity buffer is added where each process is loaded to less than (approx. 80%) full capacity.  In some plants, they run two 8 shifts, with a two hour gap between the shifts.  The two hour gap is a capacity buffer used for overtime to meet the planned production for the day.  They don’t hardly ever use the two-hour buffer, but you will many times find that they will work 15 or 20 minutes (actually, it may be 13 or 22 minutes) of required overtime each day.  The capacity buffer allows a reduction in the needed inventory buffer. (The second shift also has a two hour buffer, leaving about 4 hours available for off-shift preventive maintenance).
    Since a service process is unable to utilize an inventory buffer, it needs a capacity buffer as well to meet demand variability.  The simplest one to think of is a fast food restaurant.  There is extra capacity (staff, machines, etc.) available, basically to meet demand peaks at noon and dinner time. Since daily demand cannot be forecasted exactly, the extra capacity is needed to maintain relatively short service times.  If your goal was to reduce wasted capacity (the buffer) in this process, you could address two areas of variability — the first would be to reduce demand variability, which is somewhat hard to do, but one way to do it is to reduce menu selections, or service types.  Wendy’s 1 a.m. drive-through allows them to reduce the capacity buffer in this way (limited menu, and one service location).  The other thing that could be done is reduce supply variability (e.g., making the burgers).  Excess supply variability acts the same way as demand variability and requires additional capacity buffers to meet demand.  Supply variability can be reduced by standardizing the service processes, work simplification, poka-yoke service errors, etc. — not much different than what is done in a manufacturing facility, except the goal is to reduce the capacity buffer rather than any inventory.
    Regards.

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    #158910

    GrayR
    Participant

    Good posting.  Actually a service can be ‘stored’.  Instead of storing a service as inventory, it is stored as excess capacity.  In a hospital, there are extra nurses, hospital beds, staff, etc. to handle the variability.  Since it is too costly to maintain excess capacity in doctors, they are placed on call.  But the effect is the same.  In a manufacturing process, demand variability is met with stored inventory; and in a service process, the capacity is stored.
    Regards.

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    #158914

    Wannabee
    Member

    If you’re saying doctors and nurses flow and not patients you’re already ahead of most other people working in the Lean sector. And there was I beginning to think you were just a paddle for mixing plaster :-)

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    #158920

    Storage of Services?
    Member

    I don’t think that anybody can refute your points. The only point made in the previous posts was to distinguish between WIP and finished goods inventory and the implication for buffering the process. Your points about capacity and queuing are definitely relevant for transactional/service applications. 
    Transactions/inventory in the queuing process are still WIP (we argue simply about semantics here). Patients are both demand and WIP. If the term transaction has any meaning it is an exchange between two parties. The exchange can be based on a tangible product (i.e. product was produced based on pervious work and is finished at the point of exchange) or based on an intangible service. It can be a one time exchange, or it can be series of exchanges, or it can be based on a relationship. Various views of transactons (economic, marketing, operations) will emphasize various apsects of a “transaction”. That’s why some say that “transaction” is not necessarily the same as “service”.
    As for your issue raised about capacity: I am in full agreement (#4). The challenge is to match demand and supply of services given optimum performance of the process. You can always throw bad money at good money. That is when takt time = cycle time. The value stream gives you a view of the flowing of value through the stream. This should be complemented with a review of demand patterns and often is because takt time may change by shift etc..
    Finally, there are some ways to buffer the system against variability in demand (in addition to the one’s that you pointed out): scheduling of services, price rebates for certain hours of service, not providing certain products and services at certain hours etc. Have a great week-end.

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