Lean in Outsourcing

Lean, a concept introduced to the world by Toyota with its success in car production, doesn’t stop at manufacturing. Its basic tenets can be applied in transforming any process — at least, that’s the philosophy of Jamie Flinchbaugh and Andy Carlino, authors of the recently published book, The Hitchhiker's Guide to LeanThe Hitchhiker’s Guide to Lean: Lessons from the Road.

Sourcingmag.com contributing writer Karen Watterson recently interviewed the two authors — founders of the Lean Learning Center, in the Detroit area — about how the principles of Lean can be applied to the activity of outsourcing IT and business process services.

Tip # 1. Don’t expect Lean to look the same in outsourced services as it does in manufacturing.

Yet the same principles apply, according to Flinchbaugh.

While outsourcing is about changing who does the work, Lean is about changing how the work is done. “So you have to first look at how the work is done, whether it has already been outsourced or you’re going to outsourcing — or you’re even thinking about whether or not you’re going to outsource it,” said Flinchbaugh.

One principle of Lean is systematic waste elimination. To apply that to outsourcing, said Flinchbaugh, you need to “understand the customer of that process and what they truly value at the end of the day. Look for the waste and look for ideas to eliminate that waste in the business process.” Frequently, there are lots of handoffs in that process — where it moves from one person to another or one department to another. Because the handoffs are often digital, you might think the processes don’t take a lot of time. But every handoff is an opportunity for an error or delay. The more handoffs there are, the more delay and more errors that can occur. A completely digital process can still take weeks even though most of the communication is done in “blips of a second.” Those delays are a result of the “white space” that occurs during handoff.

Tip #2. Eliminate white space and tunnel vision by going beyond the functional perspective and examining the horizontal perspective.

The key question, according to Carlino is, “Who’s managing the white space?” The customer of the service doesn’t see the individual, ‘silo’ed functions. They just care about the process — or, more accurately, the results of the process. “If I’m in an IT environment, and I have a request, and it requires that I have a hardware and a software solution, and I’m just taking the software solution and tossing it over to the hardware guys or the hardware guys are just tossing it over to the software guys, then I’m not really looking at specific result desired by my customer. [That tunnel vision is] common. It happens in every single industry, every single business process.”

Andy Carlino of Lean Learning CenterHe cites a personal example of going into a car dealer to have his leased car serviced. As he was wrapping up the transaction, he said, “Gosh, my car is coming off lease in a few weeks.” The service manager’s response was, “Well, I hope you enjoyed your service experience.” A better response from the customer perspective would have been for that service person to lead him to a salesperson to extend the lease. That didn’t happen.

“As a customer, I have a whole experience that starts when I purchase the car… In the meanwhile, this dealership just has a whole bunch of people doing their functions. If I’m in service, I do service. If I’m in sales, I do sales. If I’m in finance, I do finance,” he said.

Tip #3. Before you outsource a function, make sure you understand the processes that make up that function.

In a manufacturing process, it’s fairly easy to map out the individual steps, since you can typically see the components that make them up. That isn’t so easy to do with a service, since there are usually non-physical aspects to it. But mapping it out is what you need to do.

Why? Explained Carlino, “So [you] can see the waste, see the connections, see the handoffs.” Process mapping is a method for displaying the workflow or stream of activities within an operation. Software tools such as Microsoft Visio, SigmaFLOW and iGrafx can help with this aspect of evaluating the interaction of activities in the process map.

Once that’s done, the next step is to engage the people doing the work to see how to improve it. Said Carlino, “They might not know all the strategic things, but in terms of improving the process, the people that do that work…are going to have ideas about how to improve [it]. They’ve been running that process day in and day out, and they’re going to know [it].”

They make an important point, though, that it’s not necessary to tackle the hard task of figuring out the workflow first — before outsourcing it. According to them, it’s probably better to work with the service provider to figure it out together, and proceed from there. You can lose too much time trying to do it yourself, and you may benefit from the outsourcing vendor team’s industry experience. (More about this in Tip #8.)

Tip #4. Just having a high CMM level rating doesn’t preclude the need for Lean.

“We have yet to find any model, any process, any industry, any activity that can’t be improved by Lean,” said Carlino.

The inherent flaw in relying totally on industry standard models such as CMM or CMMi, said Flinchbaugh, is that they tend to focus on the “run” activities — “this is the point you push the button, where you do the actual work.” The problem is that it doesn’t examine the overall process. “I might say, ÔWell, here’s a best practice for how we receive a customer order,’ he said. “But if the customer order waits four hours because someone doesn’t have access to the right database or they have to walk to the printer that’s on the other side of the room, that doesn’t show up in the industry model. That stuff is where the waste is.”

Tip #5. Focus on the connections in your processes.

“As good as a process may be at the [service provider] and as good as the process might be at the organization that did the outsourcing, the connections between those two are going to be absolutely critical,” said Carlino. “If the connection fails, regardless of how good those processes are, the whole outsourcing effort is going to fail. Look real, real hard at those connections between customer and suppliers.”

He points out that sometimes the roles will be reversed — that in some cases the service provider will actually be the customer, awaiting an action or a decision on the part of the client organization that will allow the vendor to move to the next activity.

Too often, said Flinchbaugh, in situations where a complete function such as payroll has been outsourced, there are still handoff issues. “The host company has to start that transaction by [making] a new hire,” he said. “There’s some activity there between the outsourcing company and the company that’s providing that service. Too often you look at those as a wall. You might provide a seamless Internet transaction. But at the end of day, how that company starts the process affects [the service provider’s] ability [to improve the process].”

He cited a customer that’s a service provider. “Their work is basically taking a process that begins at their client, [working on] a big chunk of it, then handing it back. They’ve figured out they can’t just do their part better. They have to help their customer do their part of the process better [as well].” The service provider has actually started doing workshops with the client to figure out how to remove waste from the joint project. “No matter how much you’ve outsourced, there’s still a handoff,” he said. “You’ve got to look at it from both sides of that wall.”

Tip #6. Another aspect of Lean is to set the appropriate size for the process or staff as it exists today and not for possible future needs.

Jamie Flinchbaugh of Lean Learning Center“There’s always a tendency to build more capabilities into the process,” said Flinchbaugh. “We should strive to build a little bit less… If you build a factory that’s bigger than you need, the next day when you move into it, it will fill up. People will put stuff in that empty space. If we always build too much in, we’ll never know what [waste] is there.”

The key, he said, is starting with no more than what you need today, and then focusing on your ability to grow. Focus on that flexibility and not just building for what may or may not happen down the road.

According to Carlino, that requires understanding your current state and having a “great idea of what your ideal state is.”

Tip #7. Visibility into your processes is vital.

“No matter how good you design the process, it’s going to have problems,” said Flinchbaugh. “A lean mindset says, ÔEvery day there are going to be problems. So as the problems occur, we know about it — we can intervene right away.”

“We feel very strongly that you do [need to] provide that kind of transparency,” said Carlino. “It doesn’t have to be a transparency in the result. It’s a transparency in the process. So there’s something in the process that signals you when you’re not getting the desired result… Any time you can provide that transparency in the value chain, you absolutely need to work at doing it.”

A trap that companies have fallen into, said Flinchbaugh, is forgetting that gaining visibility is also about building trust between vendor and client. He cites the examples of companies going through a Lean project, saving a “million dollars,” and then telling the service provider, “We’ll make sure we pay you a million dollars less the next time we send you a check. That doesn’t do a whole lot to build trust,” he said. “You have to do it for the mutual benefit of both companies, not just one… When there’s a lack of trust, visibility into the process itself is considered invasive, when it should really be considered helpful in order to make improvements.”

Tip #8. Don’t assume you need to clean up a process before it’s outsourced. But do assume you’d better play a leadership role in understanding it fully — no matter what side of the transaction you’re on.

Carlino admitted that in the past, he was always a proponent of making sure the process was done right before it was outsourced. “I hopefully have matured past that, because you’ll never get it all right before you outsource it.” His new philosophy: “Hey, let’s work together to get it right.

Flinchbaugh’s concern is that somebody has to manage the improvement from beginning to end. “What tends to happen…is that the suppliers of outsourcing services wants to leverage the solutions they already have; but the hard but necessary work of understanding the reality of that process isn’t done. If a company is having problems with its current process and they just want to outsource it and get rid of it, fine. But there are likely to be some underlying problems that cause that problem to be so unmanageable. If you don’t do the work to understand what those problems are, where in the process they’re occurring, or even why they’re occurring, even if the supplier of that service has better processes, those fundamental problems are still likely to exist. We just replaced one process with another process, but we didn’t really look to understand what was going on in the current state. If you start outsourcing a process without understanding the current state, you’re doomed to repeat all the problems that are already in that process.”

Tip #9. To achieve Lean, continuous testing is essential.

Flinchbaugh said testing is actually nothing more than using the word, “expect.” “You drive home from work today and you take a different route, [saying to yourself], ÔI expect this to take five minutes less.’ In order to be able to answer whether it did, you need to know your current state. Then you need to create your current hypothesis — your expectation.” Next you test your expectation, and based on that testing, you’ll learn something — that it might save you time or it might save you more time than you expected, or it won’t save you any time at all.

“If you think about the steps you have to go through — understanding current reality, having an expectation, and then testing those expectations — most of the improvements people try to make in the world around them miss all three of those. They go right to saying, ÔI assume this is going to work,’ and they implement that. That’s the difference between proving through scientific method and just trying to prove with a guess.”

With the right training, said Flinchbaugh, students of Lean gain an understanding of its principles, but more importantly, they “internalize” them. Once that happens, he said, you can apply them “to IT, or a hotel or an accounting process — whatever it might be.”

Useful Links:

Hitchhiker’s Guide to Lean: Lessons from the Road

Lean Learning Center


Microsoft Visio