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When will Lean make it to the Back Office?

July 26, 2011

In the late 1800’s through the early 1900’s a customer who desired an automobile would seek out one of the literally hundreds of car manufacturers around the world. Similar to horse drawn carriage construction customers could specify the details on what they wanted in terms of features and finishes. Once the car had been specified, a small army of craftsmen from the manufacturer and its suppliers would then begin producing to that plan. While there might be a common platform, each car ended up being unique. Parts went through several iterations and would be “machine to fit” as multiple suppliers’ parts came together.

At the end the customer did receive a well appointed car. Without JD Powers surveys I can only guess that long term satisfaction dropped as owners experienced the cost and delays of repairs to their auto as each part was in reality, custom made.

It was Henry Ford who originated the idea of simplifying and standardizing the design and production by producing just one model. Toyota extended that idea to make several models using the similar production techniques and over time developed the Toyota Production System.

Attributes of the early auto industry such as customer driven requirements and craftsmen building custom parts sound very familiar to the challenges faced today by white collar workers. When they describe what they do, there seems to be so little repetition that Lean concepts can’t be applied as they were to the auto industry.

These people are missing the point of Lean. Lean isn’t about optimizing a repetitive process. That’s the end result of a successful Lean effort. Toyota is a great example. It took a simple single product production technique and used techniques to efficiently add complexity (in this case multiple models of cars).

The fact that Lean techniques are rarely applied in back office functions or service industries like IT providers make me wonder how much opportunity exists in the white collar world? Are these processes really that complex and unique because of the creativity and intellect required to accomplish them? Is the sales order processing and contract negotiation conducted during a quarter-end close destined to be recognized as the Picasso of its time? I’ll bet that most early participants of the automobile supply chain thought that their processes were too complex to ever be simplified. That is until Henry Ford came along and ate their lunch.

One of the common themes I’ve been hearing in the US, UK and most recently India is that the people on the production floor are looking for some equity in treatment. Their easily measured processes have been under deep scrutiny for some time. Yet the back office continues to flourish. In fact, I’m starting to hear that some manufacturing processes have pushed the bottleneck into managerial functions in the back office…waiting for documentation or engineering changes for example.

It’s time to take a walk past the production floor to start looking for ways to shorten lead times and increase agility. You won’t find products here; this is the production of paper and data. It’s challenging no doubt. Processes and time are often difficult to measure and rarely can a full time employee be automated, so justifying change is difficult. But it can be done.

One diesel engine manufacturer gave me an example of an engineering department that had administrative assistants coming around the desks twice a day and taking documents from the outboxes and distributing them to the appropriate inboxes. After analyzing the process, they decided to have the engineers hand off the documents as soon as they had completed their task. Many would immediately reject this idea throwing up the following roadblocks: In a world of specialization does it make sense to have an expensive resource do a job that someone making a third of their salary could do? Were the administrators let go and payroll reduced?

Not in this case, moving the documents were only a small part of the administrators job. At the surface this example seems like an idea that doesn’t make sense; precious engineering time is lost and no labor has been eliminated. This is the challenge Lean practitioners face when looking at white collar processes. The system is not simple and tying a change to a benefit can be difficult. For this engine manufacturer the change produced no labor savings or engineering efficiencies. But there was a large system efficiency gained by the change. It turns out this improved document flow through the engineering department reduced the then current 35 week lead-time by one week.

This company has been around for a bit and my guess is that it would have been extremely difficult to extract that same week of lead time from the production floor. By re-thinking the flow in the back office, a week was eliminated with very little disruption.

When looking at white collar processes, system thinking is critical. In the past production areas have received the lion’s share of focus because those processes are the easiest to measure and where the majority of costs were.

In the back office employees often manage many processes simultaneously and the processes often cross departments. Optimizing labor is difficult because these employees are often paid a salary and have a fixed 40 hour work week. As a result the availability of process details and resultant options for labor optimization are not as apparent.

For information driven back office processes, consider data the “work in process”. Identify where it piles up. Look to increase flow and eliminate re-work or over-processing. Rather than seeking to reduce labor hours, instead look at measuring improvements in outcomes; metrics such as lead-times, order-to-cash cycle, “response time to customer complaint” and requisition-to-onboard date are good starts.

So while back office processes are not the same as a modern automobile supply chain, looking at the automobile industry’s beginnings show that there is a path to the increased effectiveness of white collar employees.

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