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Systems Thinking: Flow by Andy Lipok

In order to understand flow we must first understand the current organisational theory, design and management in more detail. This can be best explained by exploring the relationship between our industrial past and our understanding of economics which has led to the theory of economies of scale, for which there are two main arguments:

  1. The organisation design argument: specialisation and standardisation will lead to lower costs and greater productivity.
  2. The savings argument: cost savings will be made through common IT systems, less buildings and fewer staff.

flow

Because economies of scale are the route that most mass production companies have used our service organisations have followed suit, using the model of specialised, standardised and centralised so that they can achieve cost savings. As a result many service organisations take a customer requirement, break it into its constituent parts and send the parts to specialised workers who are expected to complete them in standard times.

The workers are measured as production resources, monitored and managed with activity targets (so many units per hour or day), service standards (how quickly something is done) and standard times (the time given to do it). To manage these systems, organisations need layers of management above the work whose purpose is to plan, monitor and report on the use of resources and the achievement measures concerned with managing activity in the assumption that activity represents cost.

While companies like Ford were concerned with unit cost, the man behind the Toyota Production System (Taiichi Ohno) took the view that cost was in flow – how smoothly and economically the parts were brought together in the final assembly – not just the aggregation of unit costs. Ohno was the first to demonstrate that greater economy comes from flow rather than scale.

His second and more profound challenge to conventional thinking was to put variety into the line, making different models in the same production line. A necessity of economies of scale is that the system must be large and standardised to deliver high volume, and thus low cost; but by definition it can’t deliver variety at the same time. The Toyota System broke new ground in showing it was possible to manufacture small volumes in high varieties at lower cost.

The problem of variety is especially important in service organisations – when we study customer demands it always reveals high variety. It is variety that hampers attempts of traditional approaches to control the work and deliver high quality service. And yet managers of service organisations are taught to be preoccupied with solving the following equation: How much work is coming in? How many people do I have? And how long do they take to do things? The calculation is then used to plan and manage resources. However, the first question – how much work is coming in? – begs a more important one: what is the nature of the work coming in? And this of course is where we find failure demand and if one call (even at lower costs) creates more calls, then costs go up not down. Costs are in flow, not in activity.

The problem of absorbing variety in demand is amplified by the standardisation and specialisation of economies of scale. An obvious example is the division of work between a front and a back office. The back office was invented to get the most from staff, service workers are often interrupted by customers, so having a front office to find out and describe to the back office what the customer needs enables the latter to work without interruption and thus optimise the use of its time and effort. In practice, what happens is that customer demands become fragmented, creating waste in the back office and failure demand in the front office = costs increase and service decreases. Meanwhile, the reports simply show more activity from staff and therefore lower transaction costs – the promise of scale economies is delivered! Yet the system is evidently creating more costs and many knock-on effects (we’ll discuss these in the next blog).

 

So Rather Than Economies of Scale, How About Economies of Flow?

The quality of an organisation’s response to customer demand will depend on the way the customer demand flows through the process back to the customer. It is vital to identify the process flow as it actually happens today. The task of mapping the process ’as is’ is best done by actually walking the process, from the point of transaction to its completion. Metaphorically ‘pin a customer demand to your chest’. Follow its every move through the process and talk to people about what is happening to it. It is essential to physically go to where the work takes place and involve people who do the work. Ask questions about any problems, how typical they are and how much impact they have. Understand where the value work takes place and what waste and inefficiency is hindering flow. Type & Frequency (what and how often) questions should be asked to understand what happens at each and every step along the flow.

Everything that happens in terms of the doing of the work should be noted down, especially across any functional interfaces or 3rd parties. It is often helpful to view the process or flow as having inputs (value demand placed on the system), throughputs (the end to end process) and outputs (what is delivered or sent or provided for the customer).

As you walk the process you can add more detail and additional steps into the high level process flow such as the types of the waste the impacts to customers, add data on volume into the flow, the volume out, and the percentage split between different options coming from decisions or questions and also highlight the value and waste steps in the flow. Typically waste falls into a number of categories including re-work, duplication, multiple entry, sorting/re-routing, checking, handovers, authorisation, delay, bottlenecks, black holes, batching and queuing.

Armed with this information start taking action on one thing at a time, starting with those that most affect performance, removing waste and concentrating on delivering value demand first time, fast and in as short a flow as possible back to the customer.

 

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