How the US Private Service Sector Can Eliminate $2 Trillion in Costs
The private service sector in the US contributes $10 trillion to GDP, about 20% of this figure is non-value-added costs…
Why apply lean to the service sector? Simply because of the potential cost savings that Lean can bring to trade, transportation and utilities, information services, financial services, professional and business services, education and health services, leisure and hospitality services. , marketing services, etc. The private service sector in the United States contributes 80% of the Gross Domestic Product or approximately $10 billion annually. In most service organizations, it is conservatively estimated that at least 50% of their costs are the result of non-value-added work. For the sake of argument, let’s say the average operating expense for the service sector is 40% or $4 trillion. If 50% of these costs do not add value, $2 trillion is wasted each year.
Isn’t it amazing that potentially 20 percent of service sector GDP is non-value-added cost? Isn’t that justification enough to apply Bend down in the service industry? In addition to the cost-cutting power of Lean, other benefits the service industry could reap include reduced errors, improved productivity, faster service delivery, and increased customer satisfaction.
Lean is no longer a manufacturing “thing”, it is a strategy to improve all business processes. It represents significant potential to achieve speed, quality and cost improvements and position an organization well above its competition.
By analyzing and improving its processes, the service industry can reduce work-in-progress delays, unanswered phone calls, and incomplete reporting. All of which results in lower customer satisfaction rates.
To improve their competitiveness, service companies must adopt systems such as Lean, Six Sigma, and hands-on problem solving within their organizations to ensure continuous process improvement. These systems can give individual providers the opportunity to meet and then overcome the challenge of competitors. A continuous process improvement philosophy enables a service company to cultivate a process-oriented way of thinking and develop strategies that ensure continuous improvement involving people at all levels of the organizational hierarchy. Such a system requires a new organizational culture that sees change, rather than compliance, as the norm.
A widespread dissatisfaction with the current way the organization works may be the impetus for implementing Lean in a service business. In the case of for-profit service organizations, dissatisfaction is heightened by red ink or loss of market share. However, with respect to nonprofit service organizations, such as government and public education, these types of competitive pressures are virtually absent. Therefore, organizational dissatisfaction must be created from within by the leadership team.
The service sector of the US economy can no longer rely on traditional methods such as restructuring and reorganization to make it more cost competitive. A more focused approach must be found to improve quality and productivity. One of these alternatives to increase competitiveness is to introduce lean process improvement in service organizations. If you’re a business in the service sector and think you could benefit from a more effective strategy, why not consider adopting lean thinking? Not only will it establish a more productive focus, but it will also help you reduce your non-value-added costs, motivate your employees, increase customer value, and improve the efficiency of your business.
