Feature

Business applications, data analytics can make business lean

When Toyota started to develop its Toyota Production System (TPS) in the late 1940s, few people outside the car-maker industry would have predicted that it would give birth to an entirely new approach to manufacturing. 

But the Toyota Production System gave rise to both the notion of lean manufacturing and, more recently, lean business processes.

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Over the last 50 years, TPS and lean manufacturing transformed Toyota from a small car company to the world's largest car manufacturer and convinced other manufacturers to focus on the two main building blocks of lean: reducing waste and creating customer value.

Lean at the heart of modern manufacturing

Today, lean processes are at the heart of most manufacturing operations, not just in Japan, but throughout the western world, and are increasingly important in other industry sectors, including distribution and financial services.

But the engineers and production experts of the 1940s and 1950s could not have envisaged the growing role of IT in lean business. And also the way that IT would sometimes come to stand in the way of lean.

"You have lean purists who think that enterprise resource planning (ERP) gets in the way of business improvement," says Mark Edwards, a manufacturing expert at business consultancy, KPMG. 

"But people have started to realise that there can be a virtuous circle. ERP brings in common nomenclatures and data standards, so you have a fact base to apply lean thinking to."

ERP brings in common nomenclatures and data standards, so you have a fact base to apply lean thinking to

Mark Edwards, KPMG

One of the objections raised by lean practitioners is that centralised back office and business applications – such as ERP and customer relationship management (CRM) – often impose rigid business processes on the organisation. Although the software suppliers try to design these processes around industry best practice, there is inevitably an element of one-size-fits-all in the software's templates.

These work well enough for generic business processes and in areas where organisations are neither looking to differentiate themselves nor achieve maximum operating efficiency. 

But, lean advocates argue, off-the-shelf enterprise applications struggle to deliver lean because the degree of customisation lean requires reduces many of the advantages of using a standard application and its business process templates.

"Businesses are asking for lean and business applications at the same time," says Mark Edwards. "But if you back lean into ERP, that can end up preventing the waste and cost savings lean should provide. 

"You have to change ERP's settings to implement the learnings from the lean process. As you change the settings to reflect lean, you risk playing a Wackamole game with ERP."

No lean in a box

The challenge for businesses attempting to implement lean come from the way that the lean process relies on continuous improvement, as well as a focus on eliminating waste and a sharp focus on what the customer wants. Lean business is not just about cost cutting, but about efficiency.

In some cases, as Peter Lumley, of PA Consulting, points out this can mean spending more money on some areas of the business, in order to reduce waste and improve efficiency in others.

This might mean employing more expensive, but more productive staff; using external consultants for some work; or even spending more on IT. It also means giving employees across the organisation, quite possibly including those on the shop floor, the flexibility and incentives to make efficiency changes as well as the tools to implement them.

"The nature of ERP is that its processes have to be broad enough to fit the needs of many businesses," says Peter Lumley. "That is the opposite of a very lean process. You have to be smart to configure an ERP system to cut away the fat."

The same problems apply outside manufacturing, in areas such as CRM, and even for internal business processes, such as human resources management. An inability to change or adapt software to a rapidly-changing business removes flexibility and affects customer service: the computer-says-no syndrome is common in service businesses, and it is at odds with lean.

But more businesses outside manufacturing are starting to look at lean operations, just as manufacturers have applied lean thinking to non-production tasks such as sales or distribution.

As David Davies, IT director at financial services firm Hargreaves Lansdown points out, lean is about eliminating unnecessary steps from the business, such as the use of faxes, or manual document printing.

Davies encourages his IT team to spend time talking to staff in the lines of business, and asking them why they run processes in the way they do. The results, he believes, contribute significantly to the firm's financial performance.

Lean walking

At PA Consulting, Peter Lumley points out that financial firms, and others in the service sector, are effectively "paper factories" – set up to process large volumes of documents and information. These can be automated in ways similar to the lean process improvements applied to manufacturing plants.

Lean consultants advise clients to carry out a "lean walk" through the business, in a formal version of the way Hargreaves Lansdown's Davies encourages his staff to spend time on the shop floor.

These lean walks, PA Consulting's Lumley says, are being used at services companies to see where processes can be improved and to see how information systems and back-office technology can help to create efficiency.

In IT-driven businesses, it might not be possible for individual employees to tweak or tailor systems in the way that an engineer might do so in manufacturing; it is certainly not possible in regulated businesses such as financial services or pharmaceuticals. 

But continuous improvement, combined with a lean approach to IT – possibly embracing tools such as agile development – is certainly possible.

Instrumentation, data and lean

And this, experts argue, is being made more practical by the growth in data available to managers from across their businesses. Manufacturing firms have already gained, and become leaner, by using MRP (manufacturing resource planning) and advanced planning and scheduling and demand planning tools to ensure production is aligned to customer demand.

But the increased availability of data – both from customers and from internal business processes – is opening up more opportunities to improve operating efficiency, says Richard Hunter, research analyst at Gartner.

Lean business operations have always relied heavily on data. Better access to data from systems such as ERP, and business intelligence (BI) is allowing companies to fine-tune the process further.

Every organisation needs instrumentation, if it is operating at a significant scale, to tell it where its efficiencies are

Richard Hunter, Gartner

"Processes like lean Six Sigma are data driven and IT has a significant role to play in that. But instrumentation is essential to business operations, regardless of whether the business has embarked on a lean programme," says Richard Hunter.

"Every organisation needs instrumentation, if it is operating at a significant scale, to tell it where its efficiencies are. Whether that instrumentation is tuned to stripping out waste is another question."

Providing business systems the ability to capture data and report it back to the business, is perhaps where IT can make its greatest contribution to lean business, suggests Hunter.

Systems such as BI or data mining provide a magnifying glass to help managers see how efficient the company really is. But Hunter believes that IT is more likely to have a supporting role in lean business rather than driving the move to lean.

"I've not seen companies where IT applies lean to the rest of the business," he says, "although I have seen IT organisations apply lean to their own operations to reduce waste and improve efficiency – sometimes dramatically."

But to move to lean businesses also need to invest in the right people, both in IT and beyond, argues KPMG's Edwards.

"With technology changing so fast, even companies with a good balance between IT and lean have to make sure they continue to have the right capabilities and skills," he says. "To be successful, you have to maintain that balance between the two."

Case study: Hargreaves Lansdown, lean business in financial services

Hargreaves Lansdown, a FTSE250 financial services firm, based in Bristol, believes that IT is central to its lean approach and profitability.

According to IT director, David Davies, lean has always been part of the way the company does business and its use of IT reflects that. But the result is very different to the cost-cutting and outsourcing common to many services businesses.

Hargreaves Lansdown maintains a large IT team (100 staff out of a total of 700) and does not outsource. Although this might cost more initially, it allows the business to respond more quickly to change and to deliver improvements – both in the back office and areas such as e-commerce. 

"Outsourcing can be restrictive," says David Davies. "It is more efficient to do it ourselves and pay more to have a dedicated team, rather than have stovepipes of third-party suppliers."

But for Davies, lean is also about integrating IT with the business

"IT has to be in tune with the business – it is no good if it is kept in the basement," he says. 

"We found staff faxing hourly reports to investment funds so we automated that: it was a week's development time. That won't happen if the IT department is at arm's length and it is this type of work, along with our cost controls, that contributes to our profit margins."


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This was first published in February 2013

 

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