CIPFA Performance Improvement Network

Introduction to Lean Thinking

Brendan McCarron Performance Advisor CIPFA Performance Improvement Network

1.

Introduction

This briefing has been written to provide an overview of lean thinking and its application in the Public Services. The briefing will cover the following points:

history of lean thinking underlying ideas and principles systems thinking 5 main principles public services and lean waste improvement teams approaches to implementation lean accounting further references

2.

History

Lean is a term popularised in the 1980's and 1990's to encompass a number of approaches to managing manufacturing companies that included an emphasis on systems producing exactly what the customer wants at the lowest cost and with no waste. Many of the ideas were developed after the Second World War by Toyota. Their imperative was and remains, increasing profitability in low or no-growth markets. The focus was on producing cars of the best quality, at the lowest cost and with the shortest lead time through the systematic elimination of waste. Because Toyota developed so many of the ideas associated with lean, the term Toyota Production System of TPS is used synonymously. How Toyota and their suppliers work was studied and popularised in the West by the book The Machine that Changed the World, a study of Japanese car makers by Professors Womack and Jones of Massachusetts Institute of Technology (MIT) (Professor Jones is based in the UK and founded a centre studying lean-type approaches at Cardiff University). Their original book was published in 1990 but, many of the ideas had already been current in the manufacturing and service sectors in different forms (see appendix). What Womack and Jones did was package these ideas for a European and American market.

3.

Underlying ideas and principles

Since lean had been codified, the approach has been adapted widely to service and public sector organisations in the UK and abroad. The most successful of these adaptations seem to occur when service organisations seek to manage the series of steps that produce value as a whole, rather than in bits or silos. This systems approach has implications across the organisation, not least the measurement of
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productivity at the system level rather than by unit, which focuses management effort on global rather than local efficiencies. For lean to work requires a culture that supports continuous improvement and the consequent reduction of cost and headcount from systems.

3.1

Systems thinking

Central to understanding lean is an understanding of systems. This is often labelled systems thinking. However, it is not well defined in the lean lexicon. In classical systems theory a system is a series of interrelated steps through which work (mainly information in our case). Systems bump up against other systems which may feed it with inputs, receive its outputs, influence it in some other way or have no effect upon it. The usefulness of this concept is that it helps us to understand that changing one aspect of the system (e.g. procurement) affects other aspects (e.g. delivery). These interrelationships are often obscure and therefore we approach improving systems carefully to make sure that changing one aspect (e.g. procurement) does indeed have the desired effect on (e.g.) delivery. Lean helps to add detail to a systems view of the world by encouraging managerial interest in the way work and information flows through the system, particularly where it flows freely and where there may be bottlenecks. This allows us to focus improvement efforts on those areas that will improve the whole system and avoid sub-optimal changes.

3.2

Womack and Jones' 5 principles of lean

The basic idea of lean is attractively simple, it is that the organisation should be obsessively focussed on the most effective means of producing value for their customers. An organisation using lean will approach this challenge by: applying 5 basic lean principles; focusing on understanding waste and value in its work and; training staff who do and manage the work to act as improvement teams to bring about change. The 5 principles are:

Specify what customers Value Value is what the customer wants and only what the customer wants. This requires a precise understanding of the specific needs of the customer. It is said (but I have never traced the source) that up to 95% of process activities are non - value adding. This is probably true, depending on your definition of value adding vs supporting and waste in a system Understand the Value Stream The value stream are those activities that, when done correctly and in the right order, produce the product or service that the customer values. A lean organisation traces and manages all the activities in the organisation that deliver value wherever they are and whichever department they are in. Activities can be: in whole or part unnecessary and wasteful (and therefore, should be eliminated); supporting the value-adding activities (which should be reduced as far as possible); and customer valueadding (which should be continuously improved) Improve the Flow In a lean organisation work should flow steadily and without interruption from one value adding or supporting activity to the next. This is contrasted with the batching of work where, for instance a week's expenses claims are collected for a manager to authorise in one go. Where it is suitable, flow significantly speeds the processing and every effort should be
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made to eliminate obstacles and bottlenecks that prevent flow

Pull The system should react to customer demand, in other words, customers pull the work through the system. In non-lean organisations work is pushed though the system at the convenience of the operators and so you produce outputs that are not required. Most services react to customer demand and so pull the work through the system Perfection As the first four principles are implemented you should get to understand the system ever better and from this understanding you should generate ideas for more improvement. A lean system becomes yet more leaner and faster and waste is ever easier to identify and eliminate. A perfect process delivers just the right amount of value to the customer. In a perfect process, every step is valuable-adding, capable (produces a good result every time), available (produces the desired output, not just the desired quality, every time), adequate (does not cause delay), flexible, and linked by continuous flow. If one of these factors fails some waste is produced (see below).

In their recent article for the Harvard Business Review on Lean Consumption (see references for downloadable copy), Womack and Jones have set out six additional principles of what they call lean consumption that that correspond closely with those of lean production. 1. Solve the customers problem completely by ensuring that all the goods and services work, and work together 2. Dont waste the customers time 3. Provide exactly what the customer wants 4. Provide whats wanted exactly where its wanted 5. Provide whats wanted where its wanted exactly when its wanted 6. Continually aggregate solutions to reduce the customers time and hassle. These principles recast traditional lean thinking principles to make us take a customer eyed-view of our services. It is similar to the efforts marketers have made in recent years to move away from the 4P's of Product, Price, Promotion and Place to Concept (i.e. the benefit to the customer of the service), Cost (to the customer including hassle and lost opportunities to be elsewhere doing something else), Communication and Channel accessibility. Rewriting lean principles in this way makes them easier to understand and apply to services.

3.3

Public services and Lean

However, in public service organisations these principles need some additional explanation because of the nature of the services. Some examples of the additional issues are set out below. 3.3.1 What flows in the public service? Public sector service organisations provide direct services to the public or other bodies and some of these services are mainly the provision of information. Like all organisations, public organisations have a supporting infrastructure that feeds the front-line direct service or information service providers. There is a temptation, reading the lean principles, to apply them to the most factory-like processes that exist
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in the public services, such as benefits administration where documents can be understood to flow through an understandable system. This is, in fact, where most lean efforts in the UK public sector have concentrated. However, the greatest gains are likely to be made by focussing on how to ensure that information flows actually convey the necessary information in an unambiguous and complete format that is easily understood by all staff and customers. This opens the door to applying the lean principles at the heart of organisations. 3.3.2 What is value in the public sector? Value is sometimes difficult to specify in some areas. Many public services deliver important intangible benefits alongside the tangible benefits. For instance the perceived value of a piece of legal advice, and the action taken as a result of it, often depends on the trust with which the customer views the provider. Trust is difficult to quantify, but the speed of response to a request for advice and its intelligibility may be measurable. The danger, in these circumstances, is that improvement efforts focus on the short-term, easily measured aspects of the service and neglect the intangible outcomes. It is necessary to balance short-term, proxy-markers of value with some estimation of the true value of the service, even if wholly qualitative, in order that the whole system (i.e. the value stream) can be identified and improved. 3.3.3 How does lean deal with high variability of customer demand and service provision? A defining characteristic of services is that the tasks that deliver them can vary in time and standards. In manufacturing, standardisation of tasks is used to overcome this, but much of the variability of services comes from the variability of input from customers (customers buying cars specify their demands within a limited set of alternatives; customers needing the help of social services tend to make complex and variable demands on local authorities). In lean services this variability is reduced by reducing the variability in performance between individual members of staff while relying on their flexibility, intelligence and judgement to work effectively. A common feature of public services is a relatively high variation in customer demand by volume and type of services. A significant proportion of this demand is likely to be generated by an earlier unsatisfactory experience (i.e. an earlier failure to deliver the service effectively). There is also likely to be a degree of missed demand where people give up trying to get through on busy telephones or modify their demands downwards because of low expectations of our capability to help them. This requires that service providers really understand who their customers are and the patterns in their demands. When the demand is really understood, patterns can be identified that help the organisation respond and improve. 3.3.4 Compartmentalisation Another huge source of variability and errors in services derives from the many units or compartments, inside and outside an organisation, that are involved in service provision. This leads to many handovers of work and therefore chances of error, delay, misunderstanding or variation. Because of the variety of organisations and people that are involved, and because these risks are well known, there are often many reviews and checks built into delivery systems. All these reviews and check are, in lean terms, represent unnecessary work caused by the poor design of the system. The complexity, the checks and reviews are what I call a Pollyanna opportunity because the situation is so bad, there is a big opportunity to improve it.
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3.3.5 Do we have process and system management in the public service? The answer must be yes, we do manage our processes and systems because we do deliver. However, it is not common to find that one individual has real responsibility for running a system from end to end. This can limit the ability of organisations to improve their services and strive for perfection. In other words, the complete answer is that we do have process and system management but it is implicit in lots of peoples' job descriptions rather than each significant system having one person in charge.

3.4

Waste

Public services account for over 40% of the UK's GNP. It is a common approach to split this total cost down into, at least, 5 types: 1. costs of work, done right first time, that actually delivers services people want and governments demand 2. costs in supporting the work that delivers services people want and governments demand, such as managing staff, reporting results, accounting for costs, etc 3. costs of correcting work of type (1) or (2) until it is right 4. cost of doing work that is not necessary to actually delivering services people want and governments demand 5. costs in supporting work of type (4) Only type (1) work is worthwhile. All other costs are consequential of poor design or execution of type (1) work. If we could eliminate this hidden town hall, hidden hospital, hidden department, we would very significantly reduce the bill. Lean is a way of thinking about work that is designed to improve the ratio of type (1) work over all other work. So, the aim of applying lean principles is to improve the quality of outcome for the customer while reducing cost and headcount through waste reduction. At the strategic level there is a kind of vicious circle of waste:

In this model, excess capacity to produce means that you do produce even if it is not needed. This overproduction is seen in delivering of services that are not wanted at all or delivering services at the wrong time (and where a tangible output is produced in excessive stocks). You may also over-produce if you are simply in a position to deliver services that are not required, an example is having too many staff available so that
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some are not working. Overproduction is the result of you pushing the flow of work thorough your system, rather than allowing the customer to pull work through the system by their demand. Excess stock lead to capital being tied up and the final problem of unnecessary capital investment which leads to asset costs in interest, depreciation, maintenance and other overheads. In lean, waste is broken down into 7 specific types:

Over-delivering - volume Waiting for the work to be ready for the next process Conveyance or transportation Over processing because of poor design (i.e. not producing just what the customer values) Inventory levels that are too high Human motion Correction of defects.

The elimination of waste has been a management imperative for years. Lean offers new ways to think about waste and this can lead to people becoming obsessed with waste reduction or industrial house keeping. Poor (and quite common types) of lean improvements often start by tackling these wastes in isolation, for instance, trying to reduce stock levels alone. This can lead to an imbalance, disruption of flow and a worse situation. Hence the need to consider carefully how to implement lean in service organisations so that the system improves and not just some if its parts.

3.5

Improvement teams

One of the characteristics of lean implementations is that staff are trained to apply their knowledge about the processes they operate to improve their value added and eliminate waste. This requires a high level of trust between staff and managers because of the significant amounts of non-value adding support and waste that will be uncovered. It is not unlikely that 20 30% of their time will be spent on doing tasks that can be designed away or dropped altogether. Improvement teams are normally drawn from, and led by, the people doing the work but, may include some additional expertise. These improvement teams are normally trained in the principles of lean and specific approaches such as: collecting and analysing customer needs and demand data, value mapping, problem solving and process redesign to eliminate error techniques. The trained teams are then used to help improve their own system from the initial investigations, through to the implementation and continuous improvement of the new ways of working. These teams can be used to tackle a specific area of waste, to improve the flow of a specific value stream or across the system as a whole. Such system-wide activities need system-wide teams and leadership.

4.

Approaches to Implementation

There are many ways of applying lean principles to public sector organisations. There are a number of consultancy firms actively selling their (well-protected) proprietary solutions in this area. These are often focussed on waste reduction (see above) and offer quick, sometimes spectacular, wins. But, these improvements are difficult to
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sustain if the organisation as a whole does not apply lean thinking. In essence, all approaches to lean follow a similar path and can be explained in terms of the Plan, Do, Check, Act cycle that most of us are familiar with.

Preparation

Plan

Act

Do Check

4.1

Preparation

First pick your system. The success of an improvement initiative depends to a large extent on the initial choice of what to improve and how to go about it. Often organisations start with factory type services that have a fairly easy to identify customer and where value can be more easily defined. However, to have maximum impact, the systems that have to be tackled are those that have the greatest impact on your organisation's goals. Plan the piloting of the new work that will inevitably result from this work in the Check stage and for the fuller implementation of the results in the Act stage now. The impact on staff and other stakeholders needs to be planned for early. Staff will be involved in the improvement teams and their work is more than likely to change. They will have to be enabled to operate in the new environment. Customers and other stakeholders may also need to be involved, or at least notified of the changes.

4.2

Plan

At this stage you must define and analyse the existing system from a customer and stakeholder perspective. This normally means going to where the work is done in order to understand its explicit and implicit purpose. You need to find out what the customers, stakeholders and the organisation itself expects of the service in terms of standards, costs, volumes, speed of delivery. Measures of expectations need to be identified that will tell you if the system is working properly. Customer, stakeholder and organisational expectations are then compared with what the service was designed to deliver and what it is actually capable of delivering to identify gaps between the value that is required and the value that is delivered. It is important that demand is understood in order to separate work done in response to customer demand from all other work (the hidden town-hall). A flow diagram of the value stream is made in this stage that gives an overview of the as is process, i.e. which bits add value and which are supportive or potentially wasteful. This is the value stream map and the information in it, together with the information on demand, is analysed to identify the reasons demand and flow varies
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and where improvements are possible.

4.3

Do

This stage is about moving the picture of the process from the as is to the should be by identifying courses open that could be used to speed the flow by eliminating, simplifying, re-designing and/or combining steps to reduce waste and chances of error or other blockages. The effect is to minimise the number of hand-offs in the system and maximising the clarity and availability of information available to the staff operating the system. From these ideas, the most promising courses open are identified that may be feasibly pursued in the organisation. The flow diagram is updated to predict the improvement and measure the likely improvement against the measured developed in the plan stage.

4.4

Check

This stage is designed to validate the effectiveness of the new system in delivering exactly what is required smoothly and with the minimum of non-value adding support and waste. Implement and update the outline plans for identifying opportunities for piloting created in the Preparation. Use the pilots themselves as show-cases to help persuade more areas to implement the new approaches. Check the measures of success developed in the Plan stage to ensure that the ideas are actually improving the customers' experiences and achieving the organisation's goals. Implement the improvements more widely and develop a monitoring system for long-term implementation.

4.5

Act

This stage is when the work moves from a pilot to business as usual. It is necessary to monitor the implementation, learn from the new system and build in reviews to collect customer, stakeholder and demand information. You should identify lessons learned and develop plans for spreading these lessons across the organisation. Remember that the aim is to get to a system that contains only work required to satisfy customer demand when the demand is made on the new system.

5.

Lean Accountancy

As we have seen, lean organisations only do what they need to do to meet customer and organisational requirements. They manage streams of work that add value systems, rather than discreet units. This challenges traditional unit-based cost allocation approaches such as standard costing. This throws up new challenges in identifying costs and allocating them to these value stream systems. Lean is also concerned with speeding the flow of work through the system and improving quality. This may impact on traditional cost control systems that may be simply too slow to keep up with the demands placed upon them. However, most of these issues have already been solved in industry and in the NHS so, although they may be new they are not insurmountable.

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6.

Further References

There is a wealth of information about lean in manufacturing and health in books, articles and websites, less about lean in services and government. I have listed a few useful recent articles and a couple of good websites that give a good introduction to the subject. Articles and Papers

Lean government (is not an oxymoron) Hasenjager, Jan Industrial Engineer July 2006

The demand for customer-driven waste reduction is as characteristic of public-sector government operations as it is of private-sector manufacturing. As in the private sector, government agencies are increasingly operating in a competitive environment. While in private-sector manufacturing the competitive threat often comes from overseas producers, government institutions must confront the ever present threat of privatisation. Responding to this threat and the expectations of governments ultimate customer, the taxpayer, the Connecticut Department of Labor (CTDOL) positioned itself in the forefront of the quest to eliminate waste in its processes and delivery of services.

Leaning healthcare Jones, Daniel T Management Services Summer 2006

Healthcare is the next great industry to begin the lean journey. The existing model in which the hospital doctor acting as a skilled crafts-person, effectively managing their own waiting list of patients, clinics and operations inside someone else's mass production general hospital, is reaching the end of the road.

Lean Consumption Womack, James P. and Jones Daniel T. Harvard Bsiness Review March 2005 (http://custom.hbsp.com/b01/en/implicit/custom.jhtml?pr=LEANER0503C2005 030462)

Lean production transformed manufacturing. Now its time to apply lean thinking to the processes of consumption. By minimizing customers time and effort, and delivering exactly what they want when and where they want it, companies can reap huge benefits.

Lean thinking for the NHS Daniel Jones and Alan Mitchell NHS Confederation 2006 (http://www.nhsconfed.org/docs/lean.pdf)

We asked the Lean Enterprise Academy to look at how Toyotas approach to production could be applied to healthcare. This is not as odd as it first appears. The Toyota system often known as Lean has been applied in many environments, including healthcare (and not just manufacturing) for some time now, with staggering improvements in quality and efficiency. The underpinning values of removing activities that dont add value and of respect for people and society lie at the heart of healthcare. And the principles on which Lean is based are generic. They can be applied anywhere: at home, in a bank, GP practice or hospital.

Bringing Lean To the Office by Len Tischler Quality Progress July 2006

Lean manufacturing principles can produce more immediate results than other quality techniques can. A team of college students used lean to streamline processes in their universitys admissions office. The students were able to reduce a process that took
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two to three weeks to about one day.

Lean Success in an Administrative Environment Mick Corrie Target (journal of Association for Manufacturing Excellence) Volume 20, Number 1 (http://www.ame.org/MagazineOnlinePDF.aspx?artid=1972)

Does lean translate to administrative areas? Our experiences at Waukesha Bearings Ltd. put this question to the test, specifically within our sales and engineering office headquartered in Northwood Hills on the outskirts of London. The company is a subsidiary of Dover Diversified Corporation and Dover Corporation (NYSE: DOV), a specialist engineering company that designs and manufactures bearings. Our products are tailored to meet customer needs in a variety of rotating machinery applications for power generation, oil/gas, chemical, and industrial use. Our lean journey began in November 2001 when George Koenigsaecker (chairman of the Shingo Prize), visited our executive team to discuss the potential of a "lean conversion."

Going Lean - A Guide to Implementation by Peter Hines and David Taylor, March 2000 Cardiff University (http://www.cf.ac.uk/carbs/lom/lerc/centre/publications/downloads/goinglean.p df)

This 52 page report was developed during the Lean Processing Programme - LEAP (1997-2000), a research programme run by LERC and sponsored by the Engineering and Physical Science Research Council and a network of UK automotive/steel supply chain firms. The LEAP programme was designed to extend lean thinking into this particular group of firms and their associated customer base, seeking to make radical and incremental change both within and between firms as well as at the network level. The report will help those individuals or companies understand the processes, framework and tools required to transform an organisation on lean lines.

NHS Lean Implementation handbook (draft) 2006 NHS Institute for Innovation and Improvement (http://www.networks.nhs.uk/uploads/06/01/lean_implementation_handbook.d oc)

A draft of a practical lean approach proposed by the NHS Institute for Innovation and Improvement

Lean Six Sigma: some basic concepts NHS Institute for Innovation and Improvement 2006 (http://www.institute.nhs.uk/NR/rdonlyres/73BB5F94-469A-4440-B31E90A57F921D48/0/LeanSixSigmafinalpdf.pdf)

This mission (to improve healthcare) requires multiple improvement strategies on multiple fronts. On one level, it requires nothing less than fundamental redesign of the healthcare system. At another level, it needs on-going incremental improvement of existing services. We have tested and utilised a wide range of improvement strategies in our quest to create faster, more effective change. This has included Lean and Six Sigma, both of which have delivered promising results, particularly when combined with other tools and techniques. Pioneers are undertaking early testing of the approach. Our latest endeavour involves the integration of the two into an approach we have labelled Lean
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Six Sigma for healthcare. This paper sets out some of the principles underpinning the approach.

Health Service Journal Quality and Value Supplement April 2006 (http://www.institute.nhs.uk/NR/rdonlyres/1390678B-0B9F-4304-8A99D7515C546BDE/0/HSJproductive_time_supp060406.pdf)

Quick wins, how the productive time programme is cutting costs and advancing care. A range of articles on practical approaches, including lean.

Evaluation Of The Lean Approach To Business Management And Its Use In The Public Sector (Scottish Executive) Published June 16th 2006 (http://www.scotland.gov.uk/Publications/2006/06/13162106/33)

This report provides an overview of work conducted by Warwick Business School, funded by the Scottish Executive, to investigate the use of the Lean management concept in the Scottish public sector. The objective of this report is to present the evidence of the evaluation of Lean in the public sector as a means to embed a continuous improvement culture. The report takes evidence from four sources: a literature review, a cross-case study analysis, a survey report and a pilot evaluation. The case studies, pilot studies and the survey focused on Scottish public sector organisations and were undertaken between June 2005 and March 2006. A systematic approach to service improvement in housing ODPM September 2005

(http://www.communities.gov.uk/embedded_object.asp?id=1150481)

This report provides a review of work undertaken to explore the use of systems thinking in a social housing setting. In particular, the research considered the effects on the delivery of housing management and maintenance services and assessed efficiency gains arising. In December 2006 the Northern Housing Consortium published a follow-up document that tracked what had happened to these pilots. This report is available here:

http://www.northernconsortium.org.uk/assets/northern%20futures/performanance/systems%20thin king%20sustainability.pdf Professor Daniel T. Jones is the Welsh co-author of Lean Thinking and one of the leaders in driving lean approaches in the UK. He is chairman of the Lean Enterprise Academy, based in Herefordshire: http://www.leanuk.org/ A Lean Blog with lots of links and information: http://www.gembapantarei.com/ Lean Institute of the Netherlands holds an extensive library of articles, presentations and videos that can be downloaded (mostly in English): http://www.leaninstituut.nl/publications/index.htm

Websites

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Annex: Extracts from Counting Down To Competition 1995

In 1995 I worked on an Audit Commission Management Handbook for preparing finance departments for CCT and in it I set out some ideas on value added, error prevention and simplification of processes that pre-date lean. Particularly for transaction-based services, the design and operation of processes are critical to efficiency and effectiveness. Inefficiency and ineffective processes feed through to higher coasts: the first directly through higher staffing levels, the second through higher error rates. Errors are a consequence of high levels of variations and adjustments, especially where manual input is involved: their elimination should be major priority for providers. The principal causes of errors can be addressed by a range if solutions (see the box below). Accuracy can be further promoted through certain minimum levels of control:

responsibility for accuracy, completeness and timeliness of processing is placed on individual employees employees check the accuracy of their own work as it is performed there is a set procedure for recording, analysing and rectifying all errors managers are responsible for taking appropriate corrective action flowing analysts of errors and for ensuing the effectiveness of this action.

Box Errors: causes and solutions Error Types Misinterpretation Remedies Task simplification Standardisation Procedural notes User training Check-lists Task redesign to reduce fatigue and monotony

Inadvertent

Fail-safe systems automation aptitude testing training task simplification In addition to reducing errors, providers should explore opportunities for changing processes to improve efficiency. This is an area where managers may find it useful to buy in specialist systems expertise. There are three principle routes to improving efficiency:

Lack of staff skills

aligning processes between different services to allow multi-tasking of employees rescheduling activities to minimise on-line processing at times of peak demand (when IT charges are at their highest) analysing value added at different stages of the process, given that not all stages add value (see exhibit overleaf). Authorities should identify low valueadding stages (for example transporting and storing information, and correcting errors) where the call on resources can be reduced or eliminated
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Exhibit Financial Services Processes Not all stages add value... (source Audit Commission) Further advantage can be gained from reviewing flows of work. In such a review, providers should explore three questions, again using specialist systems expertise: Can work be eliminated (for example the production of unwanted and unused management reports), merged (for example bringing together separate processes for mileage and expense claims), or simplified (for example by redesigning paperwork)? Can service uses do more for themselves for example, through on-line input? Can work be better scheduled, with an improved balance of work between different teams and individuals?

Please send any comments to: Brendan McCarron Performance Advisor CIPFA Performance Improvement Network E: Brendan.McCarron@ipf.co.uk M: 07810 547226
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