Integrating Lean Six Sigma in Financial Services

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A commercial bank receives many loan applications, and these application forms are submitted to the consumer loans department. If one were to track the trail the forms go through, it would probably start from a bank officer’s desk, then go up or down the elevator to every floor level until it reached the department for processing and approval, finally returning to the front office where a loan offer letter would be handed over to the client or potential client. Astonishingly, the paper trail could be a few kilometers long when physically traced through the process value stream. It’s hard to believe!

“Everyone in each and every department is working hard but it still takes too long to process an application.” Everyone but the client sees it as real work. “What’s the value to me?” asked a client.

Financial institutions today are turning to operations experts with strong Lean Six Sigma training to help them to improve the speed of their operations. The aim is to identify the value-adding steps in these processes, i.e. activities that a customer is willing to pay for when identified leaving everything else being discarded as waste. This waste is the loss of time, resources and costs that cannot be recovered when banks process applications or perform financial transactions.

What is Waste? 
 
Lean Six Sigma instructs practitioners to develop a sort of “waste sensing” ability, in that they are trained to recognize wastes that are frequently observed either physically or virtually in any process driven organization, then categorize them as Transportation, Inventory, Motion, Waiting, Over-processing, Over-production and Defects. 

What is Transportation?

Any unnecessary movement of documents or information via the network can be described as transportation waste. This includes activities that involve moving from one individual to another, within departments or between departments, which adds time to the overall process. In the service environment, this manifests itself as tasks that involve collection and delivery, physically or virtually. Eliminating transportation waste can at one extreme mean the combination of tasks or another extreme mean relocating workspaces to minimize physical movement.



What is Inventory?

It is the work-in-process, or incomplete work, that does not meet the demand (cycle time) rate of the customer.  Inventory of work-in-process is equivalent to “hyper-tension,” an invisible problem for financial services. It’s the physical piles of un-cleared inboxes, list of pending financial transactions, applications, enquiries or e-mails. Even the time a client spends in a queue waiting for an over-the-counter transaction is considered as work-in-process. These examples always result in increasing the total time required for the task to be completed.

The goal is to have the sufficient work-in-process for immediate and short-term needs. Ignoring process inventory and work-in-process drives cost up. Investing into additional resources, larger virtual storage capacities or establishing a larger queue space are some after-effects when work-in-process inventory is not truly considered.

What is Motion?

It is the unnecessary movement of people or resources in order to execute or complete a transaction or task. The physical movement of personnel from a station to another to continue a process is an example of motion.  Others include the switching between computer terminals or databases, which is a form of motion that requires additional steps to be executed before a truly value-adding step can be carried out. The goal is standardization or simplification of tasks or execution to the extent that excess resources/systems or even movement/switching of resources/systems is eliminated.

What is Waiting?

It is the lapsed time between the end of a process step or activity (transaction) to the beginning of another. Waiting may have a direct or indirect impact to the customer. The time spent waiting between processes and transactions result in customers having to wait for the delivery of a financial product or service. This is one of the deadly wastes in transactional processes as there is always the possible existence of another commercial bank that could deliver products and services quicker to the expectation of customers. Techniques such as process swim-lane diagram and value stream maps are potent in identifying the wastes such as Motion and Waiting, which are typical causes of delays.

What is Over-Processing?

Generically, Over-Processing means adding more work to a product or a service then necessary, trying to exceed the customers’ requirement. This in-fact translates to adding more value to a product or the service then what a customer is willing to pay for. Examples of over-processing are the posting of a hard copy financial transaction when transactions were conducted virtually or duplication in processes due to the requirement of several managers to sign-off on standardized virtual transaction.

These are typically caused by not clearly understanding the customer’s requirement or having to manage redundancy in process.

What is Over-Production?

Over-Production is the use of capacity and capability beyond the mean of the present service or product requirement, resulting in outputs that are not delivered to customers. An example of over-production in the financial services is when a procurement department is processing material requests for several front line service centers at a given time. When the existing process does not allow for the flexibility of stratifying requests and demands based on the front desk’s or online service center’s needs, then all requests would be processed in a queue like manner resulting in delays in delivery of application forms or electronic transactions to the location where urgency is required. Non urgent requests would be processed in advance and potentially in batches and delivered to locations that have no existing present needs. Over-production, in a sense, is work carried out ahead of the customer’s need and can also result in wastes as the services are performed without the clear understanding of the customer’s requirement.

What is Defect?

The waste of defect is always seen when non-conformity exists. When financial transactions or services do not conform to a customer’s demand, then it’s a defect, and all effort in time, resources, transactions and cost are wasted. There is a price to pay for non-conformity.

For an organization, it has produced a transaction or service that a customer in not willing to pay for—ultimately driving the customer to seek an alternate provider for financial products and services.

Typically, the Voice of Customer is heard when a defect occurs in the form of complaints. And many organizations engage in improving the complaints handling processes and fail to focus on the process value stream to identify where the defect occurs. Eliminating the root cause of defects presents a lasting solution to eliminating this waste.

Eliminating TIMWOOD

The wastes that are described are also known as TIMWOOD. Lean Six Sigma trains its practitioners to recognize TIMWOOD and eliminate it. Having TIMWOOD eliminated from the processes, transactions and services can extend their value-added components that meet customers’ requirements and demand. Eliminating TIMWOOD does not only improve operational performance but drives the cost of time and resources down—an important value that can be passed over to customers.

References:
Bill Kastle, Learning to Recognize Process Waste in Financial Services.

Adapted from Changing with Lean Six Sigma.

Contributor: Arul Aruleswaran

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Dr. Arul Aruleswaran is the founder of LSS Academy Sdn. Bhd., a keen developer of customized Lean Six Sigma solutions and the online knowledge portal for the Australasian region. Trained as a practitioner by the George Group and Novelis Inc. and now supporting several global deployments with UMS Consulting GmbH. Dr. Aruleswaran is also the author of Changing with Lean Six Sigma, a book presenting the necessary concepts of leadership for Lean Six Sigma.

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Report Abuse   mmsangma 06/22/2010 11:08:24 PM EDT when 75% of the process (loan processing) is done by field staff outside of branches/processing back office and that too manually, challenges could be even more. This scenario is quite prevalent in microfinance environment. Replies (0) Post a reply Sign in or Sign up to post a comment

Report Abuse   iVelocity+ 12/29/2009 9:39:58 AM EST Working as a consumer researcher, undoubtedly customer satisfaction is considered the essence of success in today's highly competitive financial industry. I reckon the author’s clear visibility of the value stream and the cleverly use of TIMWOOD in my perception had beginning to drill into our local bankers operations ie CIMB, PublicBank, Hongleong had been consistent in their course of driving service level up without compromising on the relevance of quality. While others continues to attract defective services into their processes, some are more interested in growing the business pie through M&A, which largely is what the banking headlines nowadays appears to highlight. This article had given me some perspectives of what service quality can be; the outcome and the other is the relational aspects of the service. I wish more CXOs look into the opportunities by evaluating more the performance at the shop floor which ultimately in the mid to long term, produce organically moderate to high income growth but also superior market share in this digitize consumer age. Surely I found the book Changing with Lean 6Sigma authored by Arul a great share and a companion for employees of all levels who struggles in managing change. Replies (0) Post a reply Sign in or Sign up to post a comment