Optimizing processes is not an easy task. It requires a structured approach to it and good understanding of helpful methods such as lean manufacturing, theory of constraints, queuing models, Overall Labor Efficiency and others. In this presentation I will show you how you can approach process optimization. I will show you not only the general approach to this subject but also we will go briefly through methods. I will also show you one example of process optimization in retail. You will have also a lot of links to additional resources that will help you learn the methods required to do process optimization during consulting project or internally in the firm on your own. There will be also a link to the course where you can learn more on that. The presentation is devoted to 3 parts 1. General framework / approach to process optimization 2. Examples of methods and tools used during process optimization 3. Cases study – process optimization in retail

1. 1
How to optimize
processes
Practical guide how to lower costs and improve quality

2. 2
In this presentation I will discuss 3 things
General approach to
optimizing processes
Useful Techniques &
Tools
Case Study –
Optimizing processes
at Retailer

3. 3
Let’s start with the first aspect
General approach to
optimizing processes
Useful Techniques &
Tools
Case Study –
Optimizing processes
at Retailer

4. 4
Observation and initial
analyses
Data gathering
Process
optimization in
selected unit
Modification of
the process for
other units
Implementation
in the whole
organization
 Observation of process in
real life
 Analyses of the formal
description of the process
 Analyses of available data
 Proposal of KPIs needed to
set goal for each and every
process
 Preparation of list of data
and format for data entry
 Workshop
 Data gathering
 Data preparation according
to provided formats
 Usually you select one of the
units where you measure
and optimize the processes
i.e. in a specific store /
region / factory / site
 Analyses of the process as is
especially its efficiency and
costs
 Redesign of the process
 Creation of tools supporting
the execution of the new
process
 Test of new processes in
chosen locations
 Modification of processes
 Creation of manuals
supporting the new process
 Implementation of new
redesigned processes in the
whole organization
 Consulting Firm
 The Customer
 The Customer  Consulting Firm
 The Customer
 Consulting Firm
 The Customer
 Usually the Customer with
some support from the
Consulting Firm
Process optimization is usually divided in the following phases
Who does it?
Description

5. 5
During the processes many problems will occur
Processes may not be described or
even named
Every unit is doing things differently
There is no defined customer
experience
Specific processes have no goals /
KPIs
The Customer does not have the
knowledge and resources to optimize
Not-invented here attitude
Lack of resources or will to
implement the new processes
Inertia in the organization

6. 6
Let’s have a look at some tools and techniques that are useful
General approach to
optimizing processes
Useful Techniques &
Tools
Case Study –
Optimizing processes
at Retailer

7. 7
Tools overview

8. 8
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)

9. 9
Elements of lean
manufacturing

10. 10
5
60
35
Adds value Does not add value
and not obligatory
Obligator but does
not add value
Lean Manufacturing starts with an interesting observation. Due to different
of waste we only use 5% to create value
Source: Report Going Lean, P. Hines, D. Taylor; Lean enterprise research centre; Cardiff Business School; 2000
In lean manufacturing We
have different types of
waste:
• Overproduction
• Defects
• Inventory
• Over-Processing
• Transport
• Motion
• Waiting
Share in total
%

11. 11
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
employee’s creativity
 If you waste peoples’ efforts and creativity you will stop developing
Definition
Lean Manufacturing defines 8 types of waste that we want to eliminate

12. 12
Too much movement
(people, resources, materials)
Lower the need to move
Move faster
Change the timing of the
movements
Eliminate the movement
Peak of activities
Set priorities
Assign specific people to perform
the activity during peaks
Decrease the difference between
high and low periods
Use different frequency for
different activity
For example in the case of Retailers we have 2 main sources

13. 13
For more on Lean Manufacturing check another presentation of mine
Essential Lean Manufacturing
for Management Consultants
Practical guide how to cut costs
presentation

14. 14
Elements of theory of
constraints

15. 15
Example 1
7 5 7
Example 2
5 10 20
Example 3
5 5 3
x Stage capacity
x Bottleneck
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

16. 16
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

17. 17
That is why theory of constraints are very useful to optimize processes not
only in Production but also in Retail and Services
 Throughput of the whole
system
 Inventory of materials,
finished products, WIP
 Operational costs of the
production
Production
 Throughput measured in
number of customers
served
 Inventory of goods
 Operational costs of the
store
Retail
 Throughput measured in
number of customers
served
 Inventory of materials
 Operational costs of the
service point
Services

18. 18
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
 Identify the bottleneck
 See how you can use in better way the time of the bottleneck
 Everything should be aligned with the bottleneck
 Increase the capacity of the bottleneck to meet the full demand (add machines,
people, resources, increase the time of work)
1
2
3
4

19. 19
OEE and OLE

20. 20
Open hours
Maintenance Machine uptime
Uptime utilizationIdle time
60%
60%
OEE =
60 %
60 %
x
x
98%
Proportion of good quality
products
98%
35%
It means that we used only 35% of machine paid
time
In the case of machines you can measure Overall Equipment Efficiency. Similar
concept can be used to measure efficiency of people

21. 21
Similar to OEE that is designed for machines you can define the Overall
Labour Efficiency (OLE) for people
 Estimated for machines
 Shows you what percentage of
the machine is used to create
value for which you are paid by
the customer
 It makes sense to analyze it
especially for expensive machines
and bottlenecks
OEE
 Estimated for people
 Shows you what percentage of
the people is used to create value
for which you are paid by the
customer
 It makes sense to analyze it
especially for people that are
representative of a big group of
your employees
OLE

22. 22
Below an example of analysis of the time spend by store employees. As you
can see OLE is pretty low
31%
29%
21%
18%
100%
Sales advising
Shelf replenishment
Transport and
movement
Others
Total
 Only sales advising and shelf
replenishment are added value
activities for which customer is willing
to pay
 This means that the OLE for a sales
reps is equal to 60% at most

23. 23
Queuing systems

24. 24
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
Customer appears Exit
Number of service
point (servers)
Queue
Delivery of service

25. 25
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)

26. 26
Even small difference between the number of appearing customers and your
capacity to service can cause fast big queues
0,0
20,0
40,0
60,0
80,0
100,0
120,0
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
Size of the queue μ =10

27. 27
In complicated systems you can have 2 types of queues
 Clear service points
 People know where they are and how
to queue
 A good example is the queue to cash
till in a retail store
Visible
 No clear service points or service
points not visible
 People cannot find the service points
and don’t know how to queue to them
 A good example is the invisible queues
to sales reps for advices in the retail
store
Invisible

28. 28
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
• λ = 126 customers
• μ = 6 sales rep x 9 customer
serviced in during the hour 54
customers
Conclusions:
• A big part of customer cannot be
served
• Some of the customer will not buy
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

29. 29
Let’s have move to a case study
General approach to
optimizing processes
Useful Techniques &
Tools
Case Study –
Optimizing processes
at Retailer

30. 30
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

31. 31
Price change process
optimization

32. 32
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

33. 33
Let’s have a look how the price change process looks like
Printing and
preparation of new
price tags
Price tag distribution Change of price tags
 Done by an Office
Specialist
 Around 300-400
changes per day
 Office Specialist calls 4-
7 Sales Reps to the
Office and hands them
over the price tags
 Sales Reps change
prices in their
departments
 A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)
CC: Wikimedia

34. 34
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

35. 35
Management Consulting Project –
Behind the Scenes
$90
$10
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
Click here to check my course

36. 36
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Processes optimization

70. 70
Introduction to processes
optimization

71. 71
Process Optimization went much better than expected
It lasted 4 instead of 5 days
Most of the things were done in 2
days
The team changed from skeptics to
deep believers
Leaders of each implementation
team were the driving forces
I was mainly coordinating,
motivating and arguing
We did more than the planned scope

72. 72
As a reminder the original timeline
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
February

73. 73
We managed to do much more as assumed in 4 days
 Tried to apply techniques they have learnt during
the workshop
 Measured assigned process – how long it took
what where the obstacles
 Looked for ways to improve
Day 1
Implementation teams Me
 Explained techniques and showing them the waste
 Gave them tips on how to improve
 I was moving between groups and sometimes talking to
the leaders separately
 Continued activities from Day 1
 For some of the process they have implemented
the quick wins in improving themDay 2
 Continued activities from Day 1
 Monitoring changes
 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
 We came back to improving the process at the DIY
 We measured the results with t he new processes
Day 3
 We finished the changes to the process
 The team that was doing the customer service went beyond the scope and worked on improving the
basket (ATV) size as well conversion rateDay 4

74. 74
The store and the processes

75. 75
The test store was 4 000 sq. m big (43 000 sq. ft.)
Warehouse
Offices
Warehouse /store racks
(shelving)
Cash Till
Employee
Customer

76. 76
• In-bound Logistics including
replenishment of the shelves
As you may remember there were over 20 process that we
optimized in the test store
Group Process
• Special orders
• Direct orders
• Orders from Central Warehouse (CW)
• Cyclical orders
• 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
• Return of goods
• Complaint from a customer
• Sales via telephone
• Deposit and transportation management
• To be confirmed
• Direct deliveries
• Deliveries from Central Warehouse (CW)
• Direct returns
• Returns via CW
• Transfers between stores
• Partial stocktaking
• Control of empty spaces

77. 77
I will show you in details what we did in the case of the following 4
process
Price change
Shelf replenishment
Advising customers
Cash till and info point

78. 78
Price change

79. 79
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

80. 80
Let’s have a look how the price change process looks
Printing and
preparation of new
price tags
Price tag distribution Change of price tags
 Done by an Office
Specialist
 Around 300-400
changes per day
 Office Specialist calls 4-
7 Sales Reps to the
Office and hands them
over the price tags
 Sales Reps change
prices in their
departments
 A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)
CC: Wikimedia