Flash back: I wrote this white paper about 9 years ago when I was working in a start-up that was building a business activity management software. The company was later purchased by webMethods which became SoftwareAG. I recently met with an old colleague who tells me the software is still in use. Outdated acronyms aside, it is still a good explanation of Lean Six Sigma and an interesting look back in my business life.
Today’s best competitive weapon is time. A loan company demonstrated that rapid turnaround of auto dealer loan applications, doubled win rate while reducing costs by 20%. Dealer sales representatives almost always referred the first approval to their customers. An insurance company found that the best way to grow their customer base was by ensuring their broker representatives were paid commission checks on time. These brokers referred more business to the company that paid them quickly and accurately.
What do these two examples have in common? Both started with measuring the performance of their business processes in real time. Whether your goals are to produce top line growth or bottom line revenue savings, smart business executives are starting with real-time measurement. Called Business Process Optimization (BPO) this approach uses a new class of application called Business Activity Monitoring (BAM) to gain the visibility and analysis to measure, understand and control the variables that affect your business performance. The result is sustainable improved competitiveness. BPO delivers value by:
- Showing in real time how consistently your process is performing, and whether it needs adjustments.
- Identifying where to take action to ensure you meet your customer’s requirements and providing an ongoing, accurate direction for improvement.
- Quickly evaluating results from improvement and creating historical data for on-going improvements.
An insurance company has promised payment terms on commissions to independent brokers within 14 days after they submit a policy. Through sampling, they find that their average payment time is 10 days. While this seems good on the surface, further analysis found that, due largely to exceptions and delays, a full 25% of the commissions were paid after the 14 day terms. In extreme cases, took more than 35 days for payment to be mailed. A graph makes the case understandable.
In order to fully meet the terms of payment, the company focused on understanding and removing the causes of variation. After applying improvements from a Business Process
Optimization Program, they were able to meet the goal of 14 days for all but the rarest policy submissions. This created multiple benefits: All brokers were paid in a timely manner encouraging them to source more policies to the company, the company had fewer errors and reduced costs and they created a larger float on the AP before paying policies. Again, a graph helps explain results.
Business Process Optimization Program
Fulfilling your customer’s requirements faster and more consistently leads to greater customer satisfaction. Reduced variation in your internal processes leads to improved quality and less time and money spent on rework and waste. Both directly yield greater profitability and growth for your business. Business Process Optimization (BPO) attacks both these needs head on by creating flow through Lean techniques and eliminating variation in the process through Six Sigma tools. Both start with understanding and directly measuring and tracking the processes. BPO attacks costs by eliminating waste, speeding up processes, and delivering what customers want and need.
These concepts have been in place in the manufacturing world since the early seventies. In service organizations, they are far more powerful. Not only is the average impact greater, but also savings or earnings are often replicable across a large volume of users (millions of banking customers, insurance subscribers, fund brokers, etc). We will focus on each concept separately before combining them.
In a manufacturing environment, backlog and inventory build up physically and block workstations, floors and warehouse spaces. It’s easy to see the clutter and appreciate the concept that Work in Process (WIP) is tying up the company’s capital. Individual items stuck in processing can be found on the floor and labeled to be expedited. It’s easy to lose the focus in service organizations because metrics are less visible in the transactional world making it difficult to know how long or where transactions are accumulating or even how many transactions there are. In any process, the sum of delay and execution of each consecutive step make up the total cycle time.
Often only sign-offs are available to be measured so the wait and execution time of an activity are deemed ‘out of scope’.
A BPO program attacks these challenges through two initial activities to gain visibility:
1. Define and map the entire process
2. Capture direct measures from the transactional system by instrumenting the process for measurement
BPO starts by mapping the steps of the process to define the start and stop of important pacing steps. The tools of BPM create a graphical model to define the business process and points where each step starts and ends. The level of detail should be enough to identify the blockage points in the process. Both execution and wait can then be measured directly using integration messaging to capture tracking information across the defined process. This creates the visibility that allows analysis and control of each individual transaction as well as the overall heath of the business process.
Get Flow – The Lean Component
Through the visibility step, the WIP clogging the process can be seen as easily as in a manufacturing process. The next step is to attack the areas where excess wait times are preventing flow.
In almost all cases, the real time traps are found in the wait arrows joining the process steps. This is where transactions spend time aging and growing obsolete. These delay components are usually more than 50% of the time contribution to a step and are the cause for the most extreme cases of poor service:
Total Cycle Time (red) is the sum of Execution and Wait Time
Armed with the visibility and analysis gained above, a BPO program next attacks these blockages to:
3. Create flow by removing the causes of delay
The objective of this step is to identify the right places to focus on adding speed and efficiency. In its simplest terms, flow entails arranging and sequencing resources so that transactions flow most efficiently through the business process at a set tact rate without any impediments. In manufacturing, materials, machines and labor resources are grouped to ensure that all transportation and movement is reduced to an absolute minimum. In BPO, this is accomplished by using the BPM functionality instead of physically localizing the resources.
Applying Lean principles through BPO, any build-up of WIP or delay in the processing is immediately apparent and can even generate alerts when action needs to be taken. Flow can then be established with BPM tools by:
- Level loading resources across the process using work flow and queue management functionality.
- Reducing set-up:
- caused by changes in the work rules by using engines that remove the rules from code and make them explicit in a way business users can modify them
- caused by start, stop and transition by grouping transactions (same region, customer characteristics, etc.) so that similar actions are taken on similar transactions
- Creating flow with work flow applications that place all steps and actions virtually adjacent to each other and ensuring all information is available at the point of need.
- Linking suppliers so that communication is instantaneous using orchestrated messaging over an inter- and intra- enterprise information bus.
- Continuously improving the process using BAM tools to focus efforts and resources on areas of most need.
The Six Sigma Component
Eliminating waste and variability in every aspect of business provides real value to the customer and businesses. Six Sigma has the sole focus of creating continuity in processes so that fewer than 3.4 in 1,000,000 executions of the process are outside of the bounds of customer expectations. It is at once a measure, a methodology and a philosophy to drive value.
Applied to BPO six sigma means:
4. Create control and consistency by focusing on the sources of variation and waste identified from measures collected.
Again, this leverages the visibility gained from the instrumentation of the process to identify the best places to apply control. The foundation methodology of six sigma is
This methodology is largely automated with a BPM application. The scope and customer requirements are Defined early and can be modified as needed with new monitors and alerts. BAM applications can automatically calculate the Measures used in six sigma. Much of the Analysis to determine cause and effect is also automated with data readily available. BAM can show the causes of variation. Improvement activities are automatically tracked and results available. Control can be tightened to create alerts if the improved process goes outside the new capabilities.
Put it all Together:
The glue of a BPO program is socializing the pursuit of perfection. Striving for perfection is itself a continuing process. The optimized enterprise has a cultural awareness of maximizing value and minimizing waste in every activity. Communication, education and reinforcement are key components in the pursuit of perfection. BPO workers grow their understanding by performing their own jobs with excellence and by sharing responsibility for upstream and downstream tasks.
Faster internal processes lead to greater customer satisfaction. Greater consistency in fulfilling your customer’s requirements leads to less time and money spent on rework and waste. Both directly yield greater profitability and competitive advantage for your business.