Administrative functions like finance, human resources, procurement, IT and other non-manufacturing support units (in accounting grouped under SG&A) make up a common set of processes necessary to meet the organization's goals. Depending on the industry, they also represent more than 50% of all costs related to meeting customer demand.
However, from a customer perspective, as much as 75% - 90% of all activities performed by these functions do not add value. In addition, the outputs of administrative functions often overlap each other and are not clear or easily quantifiable. For this reason, this group of expenses is often referred to as a “black box” and neglected for improvement initiatives.
The impact of administrative processes is significant in many ways, especially when directly related to the value a customer demands. For example, 50% - 80% of the total lead-time consumed, from receiving the request for the products to delivering the products to the customer, is tied up in order capture and processing alone.
Office processes are also often neglected for many reasons. Most companies focus on traditional shop floor processes, in part because of the success of scientific management methods. Manufacturing processes are more easily quantifiable and costing is based on machine utilization and direct labor allocation. In most cases, administrative lead-time measurements do not exist or there is a lack of appreciation for the impact and benefits of office lead-time reduction.
Balancing a company’s activities that are “necessary waste” with those that create value presents an ongoing struggle for companies of all sizes. The benefits of applying Lean Principles to administrative functions and activities can affect administrative processes at all levels of your organization.
Waste in administrative processes can be identified, classified and minimized in the same way as waste in manufacturing. They also have tremendous potential for savings. Lean principles, kaizen methods, and reengineering approaches can be applied in an office environment for improving documentation flow and reducing the total lead-time in processes, and in general, for achieving excellence in non-manufacturing areas.
A management system built around Lean processes enables companies to achieve operational excellence, while providing flexibility in the way processes are managed.
We implement Lean Solutions in administrative functions in a similar way to other functions. The solutions must fit the challenges.
|Lean internal reporting optimization reduced unneeded content by 65% and report generation lead time by 31%|
|Establishment of Lean Enterprise planning processes reduced annual planning process lead time by 20%|
|Reductions in data handling and the simplification of the system interface for sales report generation resulted in a lead time reduction of 20%|
|Optimizing an insurances claims process decreased average throughput time from 9 business days to just under 4 business days (-56%)|
|Revision of data management processes reduced errors by 25%|
|Optimizing an insurances claims process decreased errors by 98% over the entire process|
|Optimization of the document flow for sales report generation reduced the capacity need by 4 FTE (40%) by eliminating redundant work|
|Establishing Lean production planning processes reduced inventory costs in production by 15%|
|A result of an improved planning process, forecast accuracy increased resulting in ~ $200,000 USD working capital reduction and ~ 50,000 USD additional monthly sales through “out of stock” case reduction|
To learn more about Lean Administration solutions, contact Four Principles today.