Service Process Improvement MD254 Service Operations Professor Joy Field

Foundations of Continuous Improvement Customer satisfaction Focus on customer needs Management by facts Formal data gathering and statistical analysis Respect for people Assumptions about employees Customers as co-producers Support and engagement

Plan-Do-Check-Act (PDCA) Cycle Documenting the current process, selecting the problem, determining possible root causes, and developing an action plan Do Implementing the process change on a trial basis and collect data on performance measures Check Review and evaluate the effect of the change Act If the experiment is successful, standardize the process change, provide training on the new process, and codify learning from the improvement process

Basic Tools for Quality and Productivity Improvement Check sheet Run chart Histogram Pareto chart Flowchart Cause-and-effect diagram Scatter diagram Control chart

Process Improvement Challenges in Services High input and process variation Variation reduction is a more complicated and sensitive issue than in manufacturing Poor tracking of flow, especially of customers in the process Customers cannot be treated like inventory A tradition of individuality and employee discretion Lack of meaningful data and data-based decision-making Quality metrics are often subjective (although time is an example of an objective metric in transactional services) Employees and customers cannot be controlled like machines

Six Sigma for Services Principles Emphasizes the need to recognize high-impact, financially quantifiable opportunities and eliminate defects as defined by customers Recognizes that variation hinders the ability to reliably deliver high-quality services Requires data-driven decisions using a comprehensive set of quality tools Provides a highly prescriptive cultural infrastructure for aiding implementation When implemented correctly, promises and delivers $500,000 of improved operating profit per Black Belt per year The Define-Measure-Analyze-Improve-Control (DMAIC) improvement process used in Six Sigma is analogous to the PDCA cycle

Six Sigma Organization Roles and Responsibilities Executive Project Member Own vision, direction, integration, results Lead change Part-time Project-specific Champion All employees Green Belts Project owner Implement solutions Black Belt managers Understand vision Apply concepts Part-time Help Black Belts Master Black Belts Black Belts Full-time Train and coach Black and Green Belts Statistical problem solving experts Devote 50%-100% of time to Black Belt activities Facilitate and practice problem solving Train and coach Green Belts and project teams

Sources of Variation in Services Customer introduced variability Arrival variability Request variability Capability variability Effort variability Subjective preference variability Internal process variability Process design Employees Equipment

Reduction of Variation in Services Due to the involvement of the customer in the service process and the more intangible nature of service products, services tend to have more uncertainty (i.e., variation) than manufacturers. Process standardization in services often involves defining a framework for action and customer interaction rather than a rigid sequence of steps. Any standard that causes “failure demand” (e.g. strictly limiting the length of customer service calls) is an inappropriate application of variation reduction. Standard operating procedures provide a basis for evaluating service processes and assessing the impact of process changes. Many service processes can be more standardized than they currently are, making services more efficient and effective (e.g. best-practice bundles in healthcare, separate processes for high and low complexity services such as insurance applications and grocery store checkout, Mandarin Oriental’s LQEs).

Lean Services Principles The lean approach to process improvement includes: A focus on customers (both internal and external) Maximizing process velocity (i.e., flow) Tools focused on analyzing process flow and delay times at each activity in a process Eliminating waste Separating “value-add” from “non-value-add” and addressing the root causes of non-value-add activities Reducing unnecessary complexity and its costs

Throughput Time and Process Speed Little’s Law: Throughput time is the amount of time an item (e.g. customer) takes to complete the process Work-in-process is the number of items in progress Average completion time is the number of items completed per unit time If two of the three quantities are known, the other two can be calculated Increasing process speed requires either reducing the WIP or increasing the completion rate

Services Wastes Overprocessing Transportation Motion Inventory Trying to add more value to a service than what your customers want or will pay for Transportation Unnecessary movement of materials, products or information Motion Needless movement of people Inventory Any WIP in excess of what is required to produce for the customer Waiting time Any delay between when one process step/activity ends and the next step/activity begins Defects Any aspect of the service that does not conform to customer needs Overproduction Production of outputs beyond what is need for immediate use

Lean Six Sigma for Services Lean Six Sigma combines the emphasis on maximizing flows and reducing waste from Lean with variation reduction and an organizational infrastructure and specific improvement process from Six Sigma. Lean Six Sigma for services focuses on improving the customer experience and service outcomes by addressing poor flow and excess waste and variation in the service delivery process for both the firm and customer co-producers.

Lean Six Sigma DMAIC Tools (Lean tools in bold) Define Measure Analyze Improve Control Project selection tools PIP management process Value stream map Financial analysis Project charter Multi-generational plan Stakeholder analysis Communication plan SIPOC map High-level process map Non-value-added analysis VOC and Kano analysis QFD RACI and quad charts Operational definitions Data collection plan Pareto chart Histogram Box plot Statistical sampling Measurement system analysis Control charts Process cycle efficiency Process sizing Process capability Pareto charts C&E matrix Fishbone diagrams Brainstorming Details “As-Is” process maps Basic statistical tools Constraint identification Time trap analysis Non-value-added analysis Hypothesis testing Confidence intervals FMEA Simple & multiple regression ANOVA Queuing theory Analytical batch sizing Brainstorming Benchmarking TPM 5S Line balancing Process flow improvement Replenishment pull Sales & operations planning Setup reduction Generic pull Kaizen Poka-yoke FMEA Hypothesis testing Solution selection matrix “To-Be” process maps Piloting and simulation Control charts Standard operating procedures (SOPs) Training plan Communication plan Implementation plan Visual process control Mistake-proofing Process control plans Project commissioning Project replication Plan-Do-Check-Act cycle

Examples of Lean Six Sigma Tools Poka-yoke (mistake-proofing) A poka-yoke device is a simple, often inexpensive, device that prevents employee and customer mistakes from becoming defects (e.g. e-commerce order forms, hospital wrist bands, spellcheckers). A poka-yoke device undertakes 100% automatic inspection and prevents defects and/or stops or gives a warning when a defect is discovered. Poka-yoke steps include: elimination (possibilities for accidents or errors are eliminated), replacement (replacing human actions by automated actions for safety and error reasons), facilitation (make the work easier to carry out and less error prone), detection (identifying mistakes before they become defects), and mitigation (reduce the effects of an error). Design of experiments (DOE) DOE is a method for simultaneously investigating anywhere from a handful to dozens of potential causes of variation in a process. Experiments are conducted by varying a number of factors according to a statistically-based plan.