How to optimize

processes
Practical guide how to lower costs and improve quality

1
In this presentation I will discuss 3 things

Case Study –
General approach to Useful Techniques &
Optimizing processes
optimizing processes Tools
at Retailer

2
Let’s start with the first aspect

Case Study –
General approach to Useful Techniques &
Optimizing processes
optimizing processes Tools
at Retailer

3
 Process optimization is usually divided in the following phases

Process Modification of Implementation

Observation and initial
Data gathering optimization in the process for in the whole
analyses
selected unit other units organization

Description  Observation of process in  Data gathering  Usually you select one of the  Test of new processes in  Implementation of new
real life  Data preparation according units where you measure chosen locations redesigned processes in the
 Analyses of the formal to provided formats and optimize the processes  Modification of processes whole organization
description of the process i.e. in a specific store /  Creation of manuals
 Analyses of available data region / factory / site supporting the new process
 Proposal of KPIs needed to  Analyses of the process as is
set goal for each and every especially its efficiency and
process costs
 Preparation of list of data  Redesign of the process
and format for data entry  Creation of tools supporting
 Workshop the execution of the new
process

Who does it?  Consulting Firm  The Customer  Consulting Firm  Consulting Firm  Usually the Customer with
 The Customer  The Customer  The Customer some support from the
Consulting Firm

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During the processes many problems will occur

Processes may not be described or The Customer does not have the
even named knowledge and resources to optimize

Every unit is doing things differently Not-invented here attitude

There is no defined customer Lack of resources or will to

experience implement the new processes

Specific processes have no goals /

Inertia in the organization
KPIs

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Let’s have a look at some tools and techniques that are useful

Case Study –
General approach to Useful Techniques &
Optimizing processes
optimizing processes Tools
at Retailer

6
Tools overview

7
There are 4 groups of tools that are very useful during processes
optimization. I will briefly discuss them

Lean Manufacturing Theory of Constraints Queuing theory

Overall Labor
Efficiency (OLE)

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Elements of lean
manufacturing

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 Lean Manufacturing starts with an interesting observation. Due to different
of waste we only use 5% to create value
Share in total
%
In lean manufacturing We 60
have different types of
waste:
• Overproduction
35
• Defects
• Inventory
• Over-Processing
• Transport 5
• Motion
• Waiting Adds value Does not add value Obligator but does
and not obligatory not add value

Source: Report Going Lean, P. Hines, D. Taylor; Lean enterprise research centre; Cardiff Business School; 2000 10
 Lean Manufacturing defines 8 types of waste that we want to eliminate
Definition

Overproduction  Overproduction is making too much or too early. This is usually because of working with oversize
batches, long lead times, poor supplier relations and a host of other reasons.

Defects  You produce faulty things or not up to agreed standard. This may be due to errors done by production
people, quality issues or faulty materials

Transport  Transport is the movement of materials, people, machines from one location to another. This is a waste
as it adds zero value to the product.

Waiting  Long periods of no action due to lack of materials , resources, people

Motion  Unnecessary motions of workers due to the way working space is organized

Inventory  Too high inventory that cos t you money, space and causes operational problems

Over-Processing  When you use the wrong tools, procedures or methods you are creating waste as well

You have not used the  If you waste peoples’ efforts and creativity you will stop developing
employee’s creativity
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For example in the case of Retailers we have 2 main sources
Lower the need to move

Move faster
Too much movement
(people, resources, materials)
Change the timing of the
movements

Eliminate the movement

Set priorities

Assign specific people to perform

the activity during peaks
Peak of activities
Decrease the difference between
high and low periods

Use different frequency for

different activity
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For more on Lean Manufacturing check another presentation of mine

Essential Lean Manufacturing

for Management Consultants
Practical guide how to cut costs

presentation

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Elements of theory of
constraints

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 Theory of constraints is about dealing with so called bottleneck that are
limiting the capacity of the whole system. Have a look at 3 examples
x Stage capacity

x Bottleneck

Example 1
7 5 7

Example 2
5 10 20

Example 3
5 5 3

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Due to bottlenecks the system the whole system is not efficient. Some people have
nothing to do whereas others are stranded with too much work

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That is why theory of constraints are very useful to optimize processes not
only in Production but also in Retail and Services

Production Retail Services

 Throughput of the whole  Throughput measured in  Throughput measured in

system number of customers number of customers
served served
 Inventory of materials,  Inventory of goods  Inventory of materials
finished products, WIP
 Operational costs of the  Operational costs of the  Operational costs of the
production store service point

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The aim of the theory of constraints is to increase the throughput in
bottlenecks and in this way to improve the whole system. Below how to do it

1  Identify the bottleneck

2  See how you can use in better way the time of the bottleneck

3  Everything should be aligned with the bottleneck

4  Increase the capacity of the bottleneck to meet the full demand (add machines,
people, resources, increase the time of work)

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OEE and OLE

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In the case of machines you can measure Overall Equipment Efficiency. Similar
concept can be used to measure efficiency of people
Open hours

Maintenance Machine uptime

60% 60 %

Idle time Uptime utilization x

60% 60 %

Proportion of good quality x

products

98% 98%
OEE = 35%
It means that we used only 35% of machine paid
time
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Similar to OEE that is designed for machines you can define the Overall
Labour Efficiency (OLE) for people

OEE OLE

 Estimated for machines  Estimated for people

 Shows you what percentage of  Shows you what percentage of
the machine is used to create the people is used to create value
value for which you are paid by for which you are paid by the
the customer customer
 It makes sense to analyze it  It makes sense to analyze it
especially for expensive machines especially for people that are
and bottlenecks representative of a big group of
your employees

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 Below an example of analysis of the time spend by store employees. As you
can see OLE is pretty low

Sales advising 31%

Shelf replenishment 29%

 Only sales advising and shelf
replenishment are added value
activities for which customer is willing
Transport and 21%
movement to pay
 This means that the OLE for a sales
reps is equal to 60% at most
Others 18%

Total 100%

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Queuing systems

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 In many cases to optimize processes you have to identify queues in your
systems to be able to serve your customers in the proper pace

Delivery of service

Number of service
point (servers)

Queue
Customer appears Exit

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In queuing system there are 2 parameters you have to estimate to see
how big the problem is

We have to parameters that we should look at

• λ – average number of people appearing in the system
• μ – average number of people that the system can service
We have 2 possible situations
• λ> μ – we are not able to service all customers – they are leaving the store
• λ< μ – We are able to service customers quite well yet occasionally we can
have still queues. The customer in the queue may give up purchasing or can
be less satisfied (not return for new purchase)

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 Even small difference between the number of appearing customers and your
capacity to service can cause fast big queues

Size of the queue μ =10

120,0

100,0

80,0

60,0

40,0

20,0

0,0
1,0 1,4 1,8 2,2 2,6 3,0 3,4 3,8 4,2 4,6 5,0 5,4 5,8 6,2 6,6 7,0 7,4 7,8 8,2 8,6 9,0 9,4 9,8 λ – average
number of
people
appearing in
the system 26
In complicated systems you can have 2 types of queues

Visible Invisible

 Clear service points  No clear service points or service

 People know where they are and how points not visible
to queue  People cannot find the service points
 A good example is the queue to cash and don’t know how to queue to them
till in a retail store  A good example is the invisible queues
to sales reps for advices in the retail
store

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Have a look how the service level (advice during the purchasing process
of the customer) looks in an example of store

DIY test store example Conclusions:

• λ = 126 customers • A big part of customer cannot be
• μ = 6 sales rep x 9 customer served
serviced in during the hour 54 • Some of the customer will not buy
customers at all (lower conversion) or will
buy less (lower average
transaction value – ATV)
• μ can be increased by increasing
the number of sales reps,
increasing the time they devote
to servicing customers or
shortening the time of service

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Let’s have move to a case study

Case Study –
General approach to Useful Techniques &
Optimizing processes
optimizing processes Tools
at Retailer

29
We will discuss examples of process optimization of a price change process for
a retailer that is working in DIY / Home improvement industry

DIY look Brands

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Price change process
optimization

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Price change is the process of changing the price tags. It generated 7% of
cost in the test store but generated 16% of all savings

CC: Wikimedia

32
 Let’s have a look how the price change process looks like

Printing and
preparation of new Price tag distribution Change of price tags
price tags

 Done by an Office  Office Specialist calls 4-  Sales Reps change

CC: Wikimedia
Specialist 7 Sales Reps to the prices in their
 Around 300-400 Office and hands them departments
changes per day over the price tags  A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)

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Click on the icon below to see the movie showing how we managed to
optimize this process of price change and save a lot of money for the
Retailer

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Check my online course were you find a detailed overview of the whole
optimization processes and examples of improvements done to all processes
along with calculation of savings in Excel

Management Consulting Project –

Behind the Scenes
$90
$10

Click here to check my course

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Processes optimization

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Introduction to processes
optimization

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Process Optimization went much better than expected

Leaders of each implementation

It lasted 4 instead of 5 days
team were the driving forces

Most of the things were done in 2 I was mainly coordinating,

days motivating and arguing

The team changed from skeptics to

We did more than the planned scope
deep believers

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As a reminder the original timeline

February
Tasks 20 21 22 23 24

Overview of process – definition of KPIs and measuring the current costs

Designing of new solution, testing and modifying them

Final touch, creation of tools and final modification to the processes

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 We managed to do much more as assumed in 4 days
Implementation teams Me
 Tried to apply techniques they have learnt during  Explained techniques and showing them the waste
the workshop  Gave them tips on how to improve
 Measured assigned process – how long it took  I was moving between groups and sometimes talking to
Day 1 what where the obstacles the leaders separately
 Looked for ways to improve

 Continued activities from Day 1  Continued activities from Day 1

 For some of the process they have implemented  Monitoring changes
Day 2 the quick wins in improving them

 We made a trip to the competitors to try to see how the process are organized there
 We tried to see the pros and cons of the whole process
Day 3  We came back to improving the process at the DIY
 We measured the results with t he new processes

 We finished the changes to the process

 The team that was doing the customer service went beyond the scope and worked on improving the
Day 4 basket (ATV) size as well conversion rate

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The store and the processes

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 The test store was 4 000 sq. m big (43 000 sq. ft.)
Warehouse /store racks
(shelving)

Cash Till

Employee

Customer

Warehouse

Offices

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 As you may remember there were over 20 process that we
optimized in the test store
Group Process
• Special orders • Direct deliveries
• In-bound Logistics including
• Direct orders • Deliveries from Central Warehouse (CW)
replenishment of the shelves
• Orders from Central Warehouse (CW) • Direct returns
• Cyclical orders • Returns via CW
• Transfers between stores
• Partial stocktaking
• Control of empty spaces
• Price change management • Price change
• Price monitoring

• Communication between stores and • ?

Head Office

• Promotion area management • Promotion area management

• Change of assortment • Range Change

• 1 to 1

• Customer support • Selling the product at the cash till • To be confirmed

• Return of goods
• Complaint from a customer
• Sales via telephone
• Deposit and transportation management 76
I will show you in details what we did in the case of the following 4
process

Price change Advising customers

Shelf replenishment Cash till and info point

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Price change

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Price change is the process of changing the price tags. It generated 7% of
cost in the test store but generated 16% of all savings

CC: Wikimedia

79
 Let’s have a look how the price change process looks

Printing and
preparation of new Price tag distribution Change of price tags
price tags

 Done by an Office  Office Specialist calls 4-  Sales Reps change

CC: Wikimedia
Specialist 7 Sales Reps to the prices in their
 Around 300-400 Office and hands them departments
changes per day over the price tags  A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)

80