“An investigation of the extent to which the transferability of lean manufacturing is successful in the UK banking industry and the bench marks it is capable of setting” Introduction Toyota were able to enter the US market with their production of cars through the successful implementation and development of lean manufacturing, a startling achievement that has continued to be successful with their rivals GM Motors and Ford struggling to maintain any critical success factors.
Lean Manufacturing has become evident in many manufacturing companies around the world bringing lower production costs and higher quality rates with continuous improvement as its main drive. The UK banking industry has in recent years seen the opportunity to use the skills and theories that lean has to offer and replicate them in a service sector environment. However, lean originated through manufacturing productions at Toyota in the 1940’s and 1950’s, Taichi Ohno later developing on this through the Toyota Production System (Liker, 2003).
T this investigation shall interpret the transferability of lean to the UK banking industry, in essence a service sector business, and deduce from its transferability the bench marks it is capable of setting. How lean is adaptable and how it can be transferable to the banking sector In its essence the banking sector is a service and thus the transferability of lean to a service can be acknowledged in ‘Lean Six Sigma for Services’. In this text George (2003, p11) explains how ‘almost all the applications of Lean and Six Sigma are for services and transactions’.
The thinking behind this involves elimination of waste throughout the whole organization, in its simplicity this does not exclusively apply to manufacturing of products but clearly it can be used in a service environment where non value adding steps to a process for example, can be removed. The ‘Quality Training Portal’ website explains the attributes of lean that involves eliminating waste in the entire organization and how lean efforts in certain manufacturing support processes are critical to successful lean manufacturing mplementation. Moreover, it , going on to states that ‘The role of purchasing, scheduling, shipping and accounting are all crucial to lean manufacturing success’, so through this it can be argued that lean is not just about production of materials. There is opposition however to the theory that lean can benefit service sector organisations, disputing the idea that lean can be suited to a Banking company for example. Waddle (2006) is against the theory of lean in principle in relation to the treatment of employees.
On a service sector level, Seddon (2005) argues that service organisations cannot benefit entirely from lean methods due to ‘greater variety in customer demand affecting service’. This, Waddle (2006) is arguing relating to the fact that flexibility is not an element that lean supports, yet is needed in the view of Seddon (2005) it is needed to ‘absorb that variety, and cannot simply apply to a template of lean tools’. More on Flexibility?? How and what makes lean special ‘Leaning Forward’ offers a notion of what lean theory and implementation achieves; Lean manufacturing techniques identify and eliminate waste from the business process, bringing improvements to quality, cost and delivery’ (‘Leaning forward’, 2008) This is only a part of what lean is really about and the benefits that derive from using its tools and techniques. From the tools and techniques that are used, in order to achieve the overall targets of costs, quality and delivery, statistical analysis can be utilized to determine important decisions that are backed up with evidence from the process.
Management Information Systems (MIS) are effectively what the tools and techniques of lean offer to managers. The ability to run their operations effectively, for example; to identify disconformities or problems that occur within processes that can be tracked through automated analysis, provide managers the comparative information they require to improve their performance and gain competitive advantages. With the advantages of statistical analysis and MIS, one crucial aspect that an often cause issues with lean manufacturing is that which concerns cultural issues within workforces. The online lean newsletter ‘Learn Directions’ recognizes this issue; ‘The biggest, and perhaps, cruellest lesson learned is that zero advancement can be made without the true support of the shop floor operators involved’ As Waddle (2006) stated, lean is a concept that has little consideration for the employees and more so on improving productivities and efficiencies.
This is a point that relates more towards lean in general rather than an issue against it being used in a service sector environment, however the factor lies that although lean in principle is an excellent managerial operation tool, if not used effectively and alongside those that operate within its processes (the staff) the excellence of leans theory is lost amid employee resentment and tyranny as ‘Learn Directions’ point towards.
As much as recognizing that lean can be transferable to a service sector as Liker (2003) supports, the accessibility for business institutions to implement its tools and techniques into the operations strategy has been attainable with specialist consultancies and ‘in-house’ departments being developed. Lean theory is very much accessible and supports both manufacturing and service sector businesses alike through the work of Liker (2003) in terms of knowledge based understanding.
As far as implementation is concerned, online analysis is available (‘Manufacturing Institute’) however some of the UK’s leading banks support lean and have developed their own lean departments that tie in with the operation such as Lloyds TSB and Royal Bank of Scotland (RBS). How does the implementation of lean manufacturing benefit the services customers? Some of leans critics suggest that ‘Lean or Six Sigma is all about cost cutting’ (Lopez, 2007).
Closer analysis will inevitablly lead to discovering that it focusses much more closely on the customer, specifcally the consistency and level of quality of the product or service on offer and the delivery of this product or service are two of the main factors that exist in lean theory. The truth of the matter is that companies may wish to implement lean manufacturing into a process or business to reduce costs as one of their main goals, reducing overheads clearly helps to increase profit therefore it makes perfect sense as a business to run as cost efficiently as possible.
The major benefit of lean for companies who implement it is that as well as being a cost reducing tool, it additionally focuses clearly on the needs of the customer so that cost reduction is not mutually exclusive with the likes of quality (of product/service) and delivery (e. g. quicker/smoother). Consequently, the customer will see improvements to the product/service they involve themselves with. As a straight forward example, online ‘batch and job’ production helps with customer delivery, whereby systematic evaluation can take place in real time with the attention of the specification being delivered straight to the experts.
From an economic analysis the benefits, of there being production cost reductions and yet improvementsplus improvements to quality and delivery enables a positive change in price elasticities. Because of these factors of improvements to cost, quality and delivery, profits should increase leading to an expansion of in iinvestment, e. g. faster processing tecnology. With this further improvements are seen where sales increase leading yet again to increasing profits giving the opportunity for Banks to operate the price elasticities accordingly. Sloman et al (2004) states that; The price elasticity of supply refers to the responsivness of supply to a change in price’ (Sloman et al, 2004 p90) Where lean encourages reductions in costs to a business, theoretically the operator can quantifiably reduce its cost price to consumers and still maintain the equivalent profit margin. Spinning off from this if the cost price of a product to a consumer is reduced and its quality and delivery made competitive in the market, this will lead to an increase in sales and thus the bank operating in such a way gains competitive advantge in its operating market, just as for manufacturing .
In the competitiveness of UK banking, lean has emerged in order to achieve competitive advantages or indeed to keep up with other leading banks. Johnson et al (2006) describes the search for competitive advantage through the use of threshold capabilities; ‘…are those essential for the organistation to be able to compete in a given market’ (Johnson et al, 2006 p119). As an example a matrix can be used (see appendix 1) to construct what these threshold capabilities can involve, the concept of lean would fit into ‘threshold competences’ as Johnson et al (2006) describes this section of the matrix as; …the activities and processes through which an organisation deploys its resources effectivley’(Johnson et al, 2006 p120) The overall goal a company is to firstly make profit and from that, make advanced profits. The threshold capability of lean in service sector banking can provide companies with competitive advantage in order to gain those advancing profits for progression in the market place. Lean is not a tool that takes x number of years to put in place, it is a continuous strategy which is a good reason as to why its popularity has increased in the 21st century.
Conclusion With reference to profit data and share prices of some of the leading banks of the UK (see appendix 2), there is clear evidence to suggest that progress has been successful over the past five years (note recent ‘Credit crunch’ downfalls however), lean implementation and resources may well be able claim accountability towards this success however that alone cannot be the merit, it can however suggest that lean is capable of helping successful progress if not setting the bench mark for success in a service industry.
With reference to Liker (2003) and the fact that leading banks in the UK have taken lean on board is evidence to suggest that leans transferability has been successful to the industry and services overall. With regards to setting bench marks, lean certainly paves the way for banks wishing to gain competitive advantages, working continuously to improve key areas that the customer benefits from is something that is hard to compete with suggesting that lean is becoming if not already become a threshold in the industry of UK banking. Word count 1667 RE: appendices
See if you can apply app 1 to banking, and siurce as ‘adapted from … ’ Put sourceunder the diagram (see Insert/reference/table position inWord) App 2 – what does this tell you re: lean? Answer this in your text Refs – ensure that you have listed every one’s work that you have mentioned (referred to) in your text. Appendices Appendix 1: Strategic Capabilities and competitive advantage (Johnson et al, 2006 p118) [pic] Appendix 2 UK banks performance indicators HBOSHSBC Lloyds TSB [pic] [pic] [pic] (Reuters, 2008) References George, Michael L.
Lean Six Sigma for Service. Blacklick, OH, USA: McGraw-Hill Companies, The, 2003. p ix. http://site. ebrary. com/lib/staffordshire/Doc? id=10152891&ppg=11 Liker, J. 2003 The Toyota Way. McGraw-Hill Professional Publishing ‘Lean Directions’ http://www. sme. org/cgi-bin/get-newsletter. pl? LEAN&20030116&6& at 16. 16 on 12/03/2008 Lopez, M. R. (2007) http://www. leanblog. org/2007/06/quality-systems-innovation. html at 08. 31 on 18/04/2008 Waddell, B. 2006 http://www. evolvingexcellence. com/blog/2006/05/lean_manufactur. html at 10. 51 on 10/04/2008 http://www. manufacturinginstitute. o. uk/uploads/lean%20on%20line%20brochure. pdf at 15. 23 on 17/04/2008 http://www. leaningforward. co. uk/whyUs. htm at 09. 43 on 13/03/2008 http://www. qualitytrainingportal. com/resources/lean_manufacturing/why_lean_manufacturing. htm at 16. 39 on 12/03/2008 http://uk. reuters. com/business/markets at 10:18 on 29/04/2008 ———————– Resources Competences Threshold Capabilities Capabilities For Competitive advantage Threshold resources • Tangible • Intangible Unique resources • Tangible • Intangible Threshold Capabilities Lean Manufacturing Core Competences