Lean Principles
that Dramatically Impact
Process Performance
17th AnnualSHS Management Engineering Forum
Dallas, Texas 2005
SHS - Dallas - 2005 2
Facilitators
• Chuck Monroe, Pegasus Organization, Scottsdale, AZ– Master Black Belt, Certified Six Sigma Black
Belt (ASQ) and Certified Management Consultant (IMC-USA)
• Ellen Ermer, Scottsdale Healthcare, Scottsdale, AZ– Consultant Organizational Effectiveness
SHS - Dallas - 2005 3
Some Lean Principles
• Little’s Law – drives consistency in process’cycle time and allows rapid re-prioritization
• Process Flow – balances the work load to increase throughput with same resources
• Set-up time reduction – provides greater productivity, revenue & profits from expensive assets and/or constrained resources
• Waste Identification & Elimination – reduces non-value added operations
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Process: SIPOC Supplier, Input, Process, Output, Customer
Key Lean Concepts
ProcessInput Output
Supplier Customer
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Process: Series of steps or subprocessesaccomplishing task or mission
Key Lean Concepts
Guardian/PatientIntake Doc Registration
InsuranceCarrier
Authorizations
SchedulingAdmission
ClinicalCorodinator
InsuranceBenefit Rep Clincian
Insurance CarrfierBenefits
SHS - Dallas - 2005 6
Process: Series of steps or subprocessesaccomplishing task or mission
Key Lean Concepts
Patient's Doctor
Patient & Guardian
Registration
Scheduling
Admissions Clinical
Coordinator
Insurance Benefit Rep
Clinician
Insurance Carrier Benefits
Insurance Carrier
Authorization Dept
Ongoing Treatment?
Write & Deliver Rx
Write & Deliver Authorization
Guardian Calls for
Appointment
Complete Pre-Admit Module.Obtain
Insurance Info.Email
New Patient Notification
Enter New Patient Name, Demographics & Insurance into System
Verify Insurance
Verify: Insurance Benefits,
CoPay, Rx is covered.
Verify Info from Carrier Matches Info
in System
SLT or Feeding?
Mail Case History Form &
Handbook
Mail Handbook
No
GuardianCompletes
Form(s)
Remind to bring Rx &
Authorization
Guardian
GuardianCompletes &
Delivers: Authorization, History & Rx,
Prepare for Evaluation
Review File for Completeness
Guardian
3 Days before Appt.: Coming
to Appt?
Remind to bring Rx,
Authorization, & Case History
Guardian
Yes
Reschedule Appt.
No
Guardian Completes Missing
Docs
Admit Patient, Scan Rx & Authorization, Obtain Consents,
Complete Required Str____ Packages
Guardian & Patient Arrive in Waiting
Room
Greet Patient in Waiting Room,
Move Patient to Exam Room,
Perform Evaluation
Verify LastBill DOS
Initiate Discharge
Fax New Authorization
Request & POTto Dr.
Sign & Return Authorization
SendCust.Sat
Survey
Guardian Completes &
Returns Customer Sat
Survey
Who Receives Cust Sat Survey?
Scan AuthorizationIs Patient
"SIngle Service"?
Initiate "Discipline Specific"
DIschargeNo
Yes
File Plan of Treatment
within 48 Hrs
Initiate billfor Service
Initiate Billfor
Service
No
Send Email Notification Insurance is confirmed
Received confirming Insurance
Yes
ForwardAuthorization to
Insurance Carrier
Issue Insurance
Authorization
Request Next Appointment
Call for Appointment
Guardian
Good Appt.Mail Card
ScheduleAppt.
Mail Appt.Card
Guardian
Send Appt.Card
RecordClinicalNotes
Send Bill
Close Clinical
File
Approved?
Yes
Help Family Seek
Alternative Funds
No Successful FInding Funds?
Yes
InfromClerical Staff Treatmenrt
Ends
No
Patient Value Add Biz Value Add Patient Value Add Biz Value Add Biz Value Add Biz Value Add Biz Value Add Biz Value Add
Yes
Send Bill,Continue Treatment
Send Bill,End Treatment
Biz Value Add Biz Value Add Patient Value Add Biz Value Add
SHS - Dallas - 2005 7
Process Cycle Time
Work In Process (WIP)
Throughput (Capacity)
Key Lean Concepts
Definition: Time for one item to transit processGoal: Minimize Mean Cycle Time and Variance
Definition: Number of Items in ProcessGoal: Minimize number of items in WIP
Definition: Number of Units (Items) exiting process per Unit of TimeGoal: Maximize Throughput
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Key Lean Definitions• Velocity, Efficiency, Throughput, and Capacity of a
process:– Process Cycle Time (PCT): elapsed time from when
something or someone enters a process until they exit the process as completed or finished
– Work In Process (WIP): items or persons within the process– Exit Rate (Throughput): items exiting a process as finished
over a period of time
ProcessF
WIP
R
F
WIP
RR
RR
WIPWIP
FF
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– Capacity: maximum throughput a process can deliver over a continuous period of time
– Bottleneck: the operation or step that inserts the largest amount of time delay into a process.(There can only be one bottleneck at a time in a process and it controls the exit rate from the process)
– Constraint: a bottleneck that is unable to produce at the exit rate required to meet customer demand
Key Lean Definitions
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Traditional Processes:Lots of WIP = Long Cycle Times
TransportTime
Operation1
OperationTime
Operation2
InspectTime
Operation3
ReworkTime
Operation4
FRR
RR
FF
F
WIPWIP
WIP
WIPWIP
WIPWIP
WIPWIP
WIPWIP
WIP
WIPWIP
WIPWIP
WIPWIP
Thru
Put
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Lean Processes:Time Trap Resolution Reduces WIP & PCT
TransportTime
Operation1
OperationTime
Operation2
InspectTime
Operation3
ReworkTime
Operation4
FRR
RR
FF
F
WIPWIP
WIP
WIPWIP
WIPWIP
WIPWIP
WIPWIP
WIP
WIPWIP
WIPWIP
WIPWIP
Thru
Put
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Relationship Between WIP, PCT & Throughput
• Little’s Law* describes between WIP, PCT, & Throughput (also known as the Exit Rate):
PCT=WIP/Exit Rate• This is the most fundamental relationship for any
process• Used to size the inventory, people, paperwork,
projects• Shorter Cycle Times = More “Learning Cycles”
(Learning Cycles = no. of instances to learn about my process)*John D. C. Little
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Cycle Time = WIP / Exit Rate“The Mickey Experience”
Cycle Time =
Cycle Time =
WIPExit Rate =
51/minute
5 minutes
…and then think about them in July…
Cycle Time =
Cycle Time =
WIPExit Rate =
131/minute
13 minutes
Think about the lines at Disney World in March…
…conclusion: Fixed Capacity (Exit Rate) + Increased People (WIP) = Longer Cycle Times (PCT)!
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A Project Management Example• Traditional Approach: Start
all projects at once. Have each resource (4 in total) split their time evenly between 2 projects (each requiring 30 man-days of work)
Resources spread: Results accrue at the end
0 20 40 60 80
12345678
Projects
$$$s
Returned
Resources focused: Results accrue as projects are completed
0 20 40 60 80
12345678
Projects
$$$s
Returned
• Lean Approach: Minimizethe number of projects in process at any point in time. Team 2 people on a project.
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Cycle Time Effect on Capacity• Cycle Time can indirectly influence Throughput (and thus
Capacity) by:– Increasing Labor and Constrained Resource
Productivity:• Fewer items and/or persons being processed at one time by the process
– Less Lost Paperwork, Information more easily traceable:• Fewer patients and patient information at any point in time, less confusion• Mistakes easier to catch, caught more quickly
– Increase in Accuracy and Timeliness (decrease in mistakes; greater ability to recover quickly when they do occur)
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Lean Supply Chain
• Faster feedback on process performance (increased learning cycles)• Improved first pass yield (improved productivity)• Improved process stability (improved throughput)• Uncovers process deficiencies (forces problem resolution)• Less in-process & buffer inventories (reduced risk of things being overlooked)• Improved customer satisfaction (flexibility & responsiveness)
Cycle Time
Flexibility
Oldprocess
Newprocess
LeanImprovements
Long Cycle TimeLow Flexibility
Short Cycle TimeHigh Flexibility
Large Amt.of Inventory
SmallInventory
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What is our Goal?• The goal of Lean Six Sigma Improvement projects
is to reduce variability in, and improve the speed of, a process.– Controlling and reducing Cycle Time, and cycle time
variability, will generate faster feedback cycles on improvement projects (increase process velocity and, thus, more cycles of learning).
– In addition, controlling and reducing cycle time (and cycle time variability) is a key driver for:• Increasing utilization of expensive capital resources • Facilitating productivity and capacity improvements
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More Lean Definitions
• Lean Six Sigma definitions to describe the relationship between the velocity and efficiency of a process:– Process Cycle Efficiency (PCE): the efficiency of a
process is based upon the time in which value is added versus the total amount of time spent in the process
– Value-Add Time (VA Time): the amount of time that value is actually applied to a product while it is “in process”
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Why Cycle Efficiency Matters
“Any process with low cycle efficiency will have great opportunities for cost reduction (and increases in service level). Most processes whether in service,
business, transactional, or product development run at cycle efficiencies of less than 10%. The result of
this (are) hidden costs in overhead, rework, invested capital...and unhappy customers.” *
*Mike George, Lean Six Sigma, McGraw-Hill 2002
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Process Cycle Efficiency
Process Cycle Efficiency = Customer Value Add Time
Process Cycle Time
PCE = VAT
PCT
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Process Cycle Efficiency (PCE)
World Class Cycle Efficiency Benchmarks*
High End PCE
Low-EndPCE
Application
80%30%Test/ContinuousProcess
50%10%TransactionalProcesses
25%5%Creative/CognitiveProcesses
*Source: Lean Six Sigma for Service, Michael George, McGraw Hill, 2002
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Exercise:
Determine Process Cycle Efficiency
• Transactional ExampleIn analyzing the billing operations of a hospital, it was noted that the bill goes through 9 steps, and the average “touch time” per bill was 19 minutes. Over a week’s time, 30 bills were time stamped going into the process and again as they left the process. The average time they were in the process was 3.75 days (7 working hrs. per day).
The PCE was .32 hrs./3.75 x 7 = .32/26.25 = 0.0122
TimeCycleProcessObservedTotalTimeProcessValued"Customer"EfficiencyCycleProcess =
SHS - Dallas - 2005 23
Process Sizing Formula
WIP – Patients, Receivables, Documents, Inventory
Exit RatePCT
Process WIPProcess WIP
WIP
PCT * Exit Rate
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Process Sizing Examples
• Example:–A regional medical system issues approximately 1500 PO’s per week to its suppliers. It has been determined the average value-add time for a PO is 30 minutes. Assuming a buyer is 75% efficient, how many buyers are required to issue PO’s?
BufferExit RateProcess WIPProcess WIP
PCT
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What About Variability?
“We have tended to use all our energy and Six Sigma science to move the mean [delivery time] to…12 days.
The problem is, as has been said, ‘the mean never happens,’ and the customer is still seeing variances in
when the deliveries actually occur – a heroic 4-day delivery time on one order, with an awful 20-day delay
on another, and no real consistency…
“Variation is evil.” – Jack Welch, 1998
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Can We Tolerate Variability?• There will always be some variation present• We can tolerate this variation if:
– The process is on target, meeting performance specs.– The variation is small compared to the process specs.– The process is stable over time.
• However, as variability increases, cycle time increases.
• We need to recognize that variation should be minimized - the key is not just moving the mean, but reducing the span as well
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Ratio of Actual Wait Time/ Machine time per unit,can be reduced by Total Productive Maintenance
R2 = 0.8723
R2 = 0.8908
R2 = 0.8162
0
5
10
15
20
25
30
35
40
60% 70% 80% 90% 100%
Utilization Percent
Wai
t Ti
me/
Ser
vice
Tim
e
High Variation
Moderate Variation
Lower Variation
Results based on over 5000 simulation runs of an 11 station, single part workstation
Variation in Demand or Supply Can Radically Increase Cycle Time
Ratio of Wait Time to Actual (Value-Added) Time per Item or per Patient
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Why Use Work Control Systems?• Stabilize processes to more easily apply analysis
& improvement tools (Lean Six Sigma tools)
• Control & reduce number of items in a process, allowing focus on problem areas
• Control & reduce CT to generate faster feedback cycles on improvement projects
The primary goals of a work control system:Stabilize & then reduce PCT and CT variability
SHS - Dallas - 2005 29
WIP Cap
ExitsStarts
Trigger
Work Control System DefinedDefinition:• A Work Control System establishes a WIP Cap on the amount
of “stuff” within a predefined physical work area or process.
• To maintain the WIP Cap, the Exits from the process trigger Starts into the process.
Establishing and maintaining the WIP Cap is the key to cycle time reduction!
Process WIPProcess WIP
PCT
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The Power of a WIP Cap
With WIP Cap - Cycle time is both: reduced & stable
No WIP Cap - Cycle time fluctuates with the amount of WIP
Cycle Time
Cycle Time
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Order5 each:A, B, C
Order5 each:A, B, C
ScheduleTreatment
VerifyInsurance
CreatePatientRecord
Receive Dr.
Referral
Receive Dr.
Referral
CreatePatientRecord
VerifyInsurance Schedule
Treatment
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Work Control System Benefits• Efficiency: A pull system can attain the same throughput as a
push system, with less average WIP (and therefore, a shorter cycle time)
• Productivity: Less WIP means less “stuff” to get in the way, and thus more time spent adding value to the process
• Ease of Control: Pull systems rely on setting easily controllable WIP levels, creating a much more manageable process
• Quality Improvement: Low WIP (and associated cycle time) systems are more sensitive to quality (and therefore, force problem resolution) and facilitate it (by improving feedback andlearning cycles)
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Work Control System Example
Emergency Room Admitting Process:• Limited number of patient resources• Patients assessed & assigned a priority by ER
doctors as they arrive, • Critical patients admitted into process
immediately – bed space & resources “added” to accommodate surges in demand & removed ASAP
• “Backlog” of patients managed allowing Marginal and Non-Critical patients admittance as resources freed up
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How to Size aWork Control System
1. Determine current Process Cycle Time (PCT)2. Determine current Process Cycle Efficiency
(PCE)3. Identify appropriate target PCE 4. Calculate theoretical best PCT5. Calculate WIP Cap
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PCT: time from release of a product into a process until it’s completion, approximated by using Little’s Law:
WIP: the “number of things in process” at any given time,
EXIT RATE: is the amount of work completed over a given period of time, which should also equal customer demand (“completions per hour”)
Step 1: Determine the Current Process Cycle Time (PCT)
RATEEXITWIP
PCT =
SHS - Dallas - 2005 35
PCT = ???
Exit Rate = 20 orders/day
WIP = ä“Things in process”WIP = 100 orders
PCT= WIP/Exit RatePCT = 100 orders/20 orders per dayPCT = 5 days
Example:
Step 1. Calculating Current PCT
PatientRequests
ScheduleTreatment
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
VerifyInsurance
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
CreatePatientRecord
ReceiveDr.
Referral
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
PatientRequests
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
SHS - Dallas - 2005 36
PCE: a measure of the relative efficiency in a process - the percentage of value-add time (delivering a service, changing contents, form, fit, function) that a product experiences in its production.
PCE is THE performance indicator for Work Control Systems.
Step 2. Determine Current Process Cycle Efficiency (PCE)
PCTTimeAddValuePCE% =
SHS - Dallas - 2005 37
Example:
Step 2. Calculating Current PCEPCT = 5 days
Exit Rate:20 units/day
Our Example PCE is:PCE = 1.5 hrs / 5 days
PCE = 4.0%
BVA: 0.4 hrs BVA: 0.3 hrs BVA: 0.3 hrs BVA: 0.5 hrs
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Note: 7.5 hrs. per day
ScheduleTreatment
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
VerifyInsurance
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
Order5 each:A, B, C
CreatePatientRecord
ReceiveDr.
Referral
WIP = Sum of all “things in process” = 100 units
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Step 3. Determine Target PCETarget PCE: the PCE the process should be operating at based on “world-class” benchmarks.PCE Benchmarks based on type of process:
25%5%Creative or Cognitive50%10%Transactional
High End,World-Class
Low End,Typical
PCEApplication
Curr’t PCE<<‘Low End Typical’, target curr’t PCE x 10Curr’t PCE < ‘Low End Typical’, target ‘Low End’Curr’t PCE near ‘Low End Typical’, target ‘High End’
SHS - Dallas - 2005 39
Step 4. Calculate Theoretical Best PCT
Theoretical Best PCT is “best” or lowest PCT achievable based on process characteristics. It is measured as:
PCETargetTimeVA
PCTTB =
Our Example PCTTB is:PCTTB = 1.5 hrs / 0.1
= 15 hrs
VACP is VAT along critical path. It does not include VAT of parallel process steps.
CP
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Step 5. Calculate the WIP CapThe WIP Cap……determines the maximum WIP allowed within the process at any time. It is measured as:
RateExitPCTCapWIP TB ×=
Our Example WIP Cap is:WIP Cap= 2.0 days x 20 orders/day
WIP Cap= 40 orders
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Example: SummaryBeginning State:
Desired State:
PCT = 5 days
WIP Cap = 100 orders
Exit Rate: 20 orders/day
Value Add time = 1.5 hrsPCE = 4.0%
PCT = 2.0 days
WIP Cap: 40 orders
Exit Rate: 20 orders/dayVA time: 1.5 hrs
PCE: 10%
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How to Release WIP into a Work Control System
Release logic for Work Control Systems is all about discipline:
1.Count the WIP in your process2.Determine if you can release work or not:
– If the WIP >= WIP Cap, do not release any more work
– If the WIP < WIP Cap, release enough work to get to the WIP Cap or slightly above
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Time WIP PCT PCE
Current Month 0 1.5 hrs 20 /day 100 5.00 4.0%
Step 1 Month 1 1.5 hrs 20 /day 80 4.00 5.0%
Step 2 Month 2 1.5 hrs 20 /day 67 3.33 6.0%
Step 3 Month 3 1.5 hrs 20 /day 50 2.50 8.0%
Step 4 Month 4 1.5 hrs 20 /day 40 2.00 10.0%
WIP Reduction Plan Example
Value Add Exits
Transitioning to WIP Cap Typically current WIP level is significantly greater than the WIP Cap level. Plan to reduce the WIP in steps.
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Distribution
WIP CAP Reduces PCE from 14 to 2 Days & Variance from 48 to 4 Hours
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0 2 4 6 8 10 12 14 16 18 20
Lead-Time to Customer (days)
% D
istr
ibut
ion
Mean Delivery Time Reduced
Time Variation Reduced
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Project Case History
Registration/Reception
Endowaiting area
Pre-procedure
prepProcedure RecoverySchedule Visit
Outpatient Visit to Endoscopy Department
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Project Case HistoryR
ecov
ery
Proc
edur
ePr
e-pr
oced
ure
Endo
scop
y w
aitin
gR
egis
tratio
nR
ecep
tion
Sche
dule
Vis
it
Patient calls to schedule
appointment
Patient “checks in”
Registration clerk takes insurance
and demographic information
Volunteer escorts patient to
endoscopy waiting area
Patient completes history form
Patient given medical history
form to complete & short explanation
by nurse)
Admitting nurse picks up completed
form
Admitting nurse takes competed
form to Endo secretary
Patient have questions? no
Nurse answers questions
yes
Endo secretary gets patient chart
ready
Physician& Staff ready for
Patient?
Patient waits
Patient taken topre-procedure
area
Patient vitals taken, IV started,
consent form signed
Physicianready &
available?
Patient waits
Nurse or Tech escorts Patient to procedure room
Physician speaks with Patient
Nurse preps Patient & area for
procedure
Procedure completed
Patient taken to Recovery by RN or
Tech
Procedure Nurse gives report to
Recovery Room Nurse
Patient monitored by Recovery Nurse
Patient escorted out of Department
by Volunteer
Outpatient Visit to Endoscopy Department
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Reg&
Recp
EndoWaitArea
Pre-ProcPrep
Proc Recov
x VAT
x NVAT
12 5 15 40 45
3 90 60 7 0
117
129,760
ä
SchedVisit
5
129,600
Outpatient Visit to Endoscopy Department
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PCE = VAT / CT
PCE = (x VAT ) / (xVAT +xNVA)
PCE = 117 / (117 + 129,760)
PCE = 117 / 129,877
PCE = ~ 0.09%
Outpatient Visit to Endoscopy Department
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This is a Workshop
• That means we get to do some work and learn for ourselves about some of the Lean Principles
• Let’s get some experience with 2 Lean Principles– WIP Cap will stabilize our process’ cycle time– Balancing will allow us to accomplish more
with the same resources
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References
• Little, John D. C., “Tautologies, Models and Theories: Can We Find ‘Laws’ of Manufacturing?, IIE Transactions 24:7 13
• More about Prof. Little: http://www.informs.org/Prizes/whoisLittle.html