Learning to Recognize Process Waste in Financial Services

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y Bill Kastle

One of the biggest challenges for Six Sigma practitioners in financial services is developing the ability to recognize waste.

Imagine an "overnight pack" entering Bank One's wholesale lockbox process for processing remittance payments. By the time it has been through every step, up and down the elevators, back and forth between departments, it would have traveled one-and-a-half miles. Hard to believe? The lockbox staff also thought so, at first. But as they traced the physical flow of the value stream, everyone was floored. "Well, I guess maybe it could travel that far!"

What is even more astonishing is how much that distance could be shortened. Bank One's team came up with a workspace design that required just 386 walking steps to complete the entire process – an 80 percent reduction in transportation.

Most departments or companies that provide financial services are in the same position as Bank One. They accept things like traipsing up and down hallways as simply part of "how work is done around here." But success with Six Sigma means developing new eyes, then critically and regularly re-examining what is being done and how it is being done. The goal is to identify the steps in processes that are value-added in the eyes of customers. That is, steps which customers would value and be willing to pay for if they knew about them. Everything else is waste. A company will never be able to recoup the time, resources and dollars spent on waste.

To help Six Sigma practitioners in financial services begin developing a "waste-sensing" ability, here are seven types of process waste that someone is doing right now somewhere in virtually every company:

Waste No. 1: Over-Processing

Adding more value to a service or product than customers want or will pay for - The basic theme of over-processing is doing more work than is absolutely necessary to satisfy or delight customers. There are two elements to over-processing:

1. Not knowing what customers want. For example, including return envelopes for loan payments is seen as value-added by customers who pay by check, but waste by customers who pay through automatic transfer.
2. Redundancy. Consider a process that involves a number of approval steps or handoffs. Would customers think that each of those steps is adding value? Rather than requiring five managers to sign off on a decision, why not develop a process and guidelines so one manager can make the call?

Waste No. 2: Transportation

Unnecessary movement of materials, products or information - Too much physical back-and-forth movement is one of the problems that plagued Bank One's original lockbox process. Excess transportation is important because every move from one activity to another adds time to a process – and world-class organizations are passionate about reducing time.

Yet in many service processes, it is not uncommon for paperwork to loop back several times…waiting in queues in a virtual or actual in-box every time it goes through again. Transportation in service processes almost always manifests itself as materials constantly being collected or delivered, or the actual or virtual chasing of information ("Who has that expense figure? Marcy? Okay, I'll ask Marcy…. Marcy says Hector has it…"). At one end of the spectrum, eliminating excess transportation can involve combining steps to eliminate loops. Cutting the hand-offs in half generally cuts the queue time in half. At the other end is the option to rearrange the workspace to match the flow of the process.

Waste No. 3: Motion

Needless movement of people - While "transportation" refers to the movement of the work, "motion" involves movement of workers. Both are much harder to see in service environments than in manufacturing. Motion may show up as people constantly switching between different computer domains or drives, or simply having to perform too many keystrokes to accomplish a computerized task. Solutions can involve everything from rearranging people's desks, to purchasing ergonomic furniture and equipment, to using software that performs tasks offline so information is waiting for the staff rather than vice versa.

Waste No. 4: Inventory

Any work-in-process that is in excess of what is required to produce for the customer - The evils of inventory were first recognized in manufacturing because that is where the inventory itself is most visible. It is hard to ignore a room full of half-completed assemblies – a very visible reminder of thousands of dollars the company could be putting to better use.
 
Inventory in service areas is just as big a problem, but more insidious because it is not as readily apparent. Look for physical piles of forms (in in-boxes, for example), a list of pending requests in a computerized email program, callers on hold, people standing in line at a branch, and the like. This excess inventory is often the result of overproduction. (See Waste No. 7) The goal, from a Lean standpoint, is to have on hand only what is needed immediately or in the short-term. (To find solutions to inventory problems, read up on Lean practices such as pull systems and triaging.)

Waste No. 5: Waiting

Any delay between when one process step/activity ends and the next step/activity begins - One of the biggest evils in today's marketplace is to make customers wait for delivery of a product or service – because chances are a competitor will be able to get it to them quicker. Anything in a process that makes a work item wait to be processed should be eliminated. Because so much of the work in a service process is invisible to the naked eye, process-mapping techniques (flow charting, value-stream mapping) are essential for identifying delays in a process.

Waste No. 6: Defects

Any aspect of the service that does not conform to customer needs - Producing work that customers are not going to pay for – or that makes them seek out other companies to do business with – is one of the more obvious forms of waste. Six Sigma practices have long been structured around minimizing the possibility of producing defects. In services, that translates to preventing the possibility of missing information, thus improving the chance of making deadlines.

One clue to studying defects is to recognize that their impact is usually felt far downstream from where they occurred. A customer service staff, for example, is likely to receive the complaint calls from customers upset about something that happened in an entirely different part of the process. The defect has to be traced back to where it happened – where the incorrect information was put into the computer system, for example – in order to find a solution that will last.

Waste No. 7: Overproduction

Production of service outputs or products beyond what is needed for immediate use - In one of Lockheed Martin's procurement centers, buyers purchased items for 14 or more different facilities. The way the computer system was initially set up, it was incredibly cumbersome for the buyers to switch from one facility to another. So they naturally processed all the requests from one center before moving on to the next, even if there were urgent or priority requests in queue from other facilities. As a result, non-priority requests from one center would be processed before priority requests from another facility. This batch processing and delivering a service before it is needed by the customer is a type of overproduction common in services. The solution to overproduction is to examine the process and see why the staff does not work in a way that reflects actual customer needs, then make changes accordingly. (At Lockheed Martin, the solution was to change the computer system so buyers could see priority requests from all facilities simultaneously.)

The better Six Sigma practitioners in financial services are at recognizing these forms of waste, the more effective improvement efforts will be.

About the Author: Bill Kastle is a vice president at George Group and has helped guide Lean Six Sigma initiatives at major corporations. He is co-author of the book What Is Lean Six Sigma? (McGraw-Hill, 2003). He has conducted executive training at Fortune 500 companies such as Alcan, Geico, Xerox, ITT Industries and DuPont-Merck. For more than 15 years, he has helped teams at all levels apply Lean and Six Sigma tools to respond to their customer needs. Mr. Kastle can be reached at bkastle@georgegroup.com.