Lean Administration

Background

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.

Challenges

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.

Focus Areas

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. 

Areas of waste often identified in an office environment:

  • Transportation & Handling: Movement of paperwork, multiple hand-offs of electronic data, approvals.
  • Inventory: Purchasing or making things before they are needed (e.g. office supplies, literature...). Things waiting in an in-box, documents to be signed, unread and unnecessary email and all forms of batch processing create inventory.
  • Movement: Walking to copier, printer, fax. Walking or driving between offices locations. Central filing. Keeping forms out of reach of employees, looking for items because they do not have a defined place, unfilled papers, saving files everywhere, employee working by experience instead of standard process, and making a draft before preparing formal document.
  • Waiting: Downtime (computer, fax, phone...). Waiting for approvals, waiting for customer information or waiting for clarification or correction of work received from upstream processes create much waste in office and business systems.
  • Overproduction: Printing paperwork or processing an order before it is needed. Any processing that is done on a routine schedule - regardless of current demand.  Too much information gathered, stored, and maintained.
  • Over-processing: Relying on inspections, rather than designing the process to eliminate errors, re-entering data into multiple information systems, making extra copies, generating unused reports, printing and mailing, faxing, overnight mailing, and e- mailing the same memo, lack of proper instruction for filling out forms, repetition of same information in different forms, use of different software in different departments when processing an order, and re-keying a purchase order.
  • Defects: Data entry errors or invoice errors. Engineering change orders, design flaws, employee turnover and miscommunication are all ‘defects’ in office processes.

Lean Solutions

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.

Tangible Improvements

Lead Time
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%)
Quality
Revision of data management processes reduced errors by 25%
Optimizing an insurances claims process decreased errors by 98% over the entire process
Costs
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.