KANBAN / e-KANBAN in the service industry

Corona slowed supply chains, reduced, or even stopped production. This situation demonstrates the interdependence of manufacturing and service industry sectors and emphasizes the need for integration. Right now, it shows how much business, but our private life also depends on the service sector. The unpredictability of quantity by location, time, and service content characterizes the service sector. Some service sectors face an additional problem with a lack of specialist knowledge, such as the maintenance of telecom, water, or electricity infrastructure, both due to low wages and mismanagement. The service industry is a labor-intensive industry and requires a constant focus on labor productivity and efficiency.

How to optimally plan resources and stocks, ensure sustainable profitability and remain a leading service provider in a service sector?

What is the most common operational management model in the service industry?

The service sector is dependent on IT tools. The offer of IT tools for the service industry is very similar, so the operational management model is almost identical in all of them: Central receipt of requests, central preparation, planning, and scheduling of execution, and dispatching orders to the "appointed" executor. It is generally accepted that centralized management better manages resources, competencies, resource efficiency, keeps control, and reduces costs.

Practice usually shows the opposite results! Centralized management increases the share of administrative and other indirect costs. Resources' efficiency and effectiveness are the same or decrease, and costs increase, inventories increase, and the customer is increasingly dissatisfied. This model emerged when the number of orders was small, and service companies covered a relatively small geographical area. Today, service companies offer services in a wide geographical area, work with many subcontractors, complex technologies, and the range of spare parts is more extensive. The whole market environment has changed significantly, and the management model has remained the same - "traditional." IT tools just follow the processes of the traditional model.

I will paraphrase Albert Einstein: "It is not possible to solve a problem with the same way of thinking as when it arose!"

e-KANBAN - decentralized (agile) management model

The title itself shows the fundamental difference between the traditional centralized model and the e-KANBAN management model. e-KANBAN is a decentralized (agile) management model, which means that most processes are executed at the level of operational executors without the participation of the central administration. Vertical processes (central administration > executor) do not participate in the execution of the service and are primarily intended for supervision (supervision) of horizontal operations. In practice, this means when the customer creates a request, an order is automatically created and shown to the operational teams/executors, who independently pull and execute them.

Here is an example of a straightforward service. Imagine having an average arrival of 3,000 customer requests per day to deliver service to 3,000 locations. In the e-KANBAN system, the customer can enter the request himself, which is automatically transformed into the order and service described by the customer's content, location, and contact. All potential executors "SEE" that order and can take it (pull) over for execution. By taking over the order, the executor assumes the responsibility of implementation. In this way, the executor himself creates his own ad hoc plan/execution schedule without the influence of the central administration. You will recognize this approach in Uber.

Another example, also relatively simple, is the freight transport service. Think of e-KANBAN as a platform that aims to ensure that the transport vehicle never runs empty. Such a digital platform should allow any customer to request transport and drivers to "SEE" these requests in real-time. Drivers independently take orders that meet specific adjustable criteria (vehicle type, weight, route, delivery time, etc.). If the platform had a built-in "biding" (online best offer) or transport price lists, they would eliminate the central administration for cargo search, negotiations, contracts, dispatching. Also, companies could reduce investments in their vehicles, optimize supply chains, improve delivery performance, lower the costs and CO2 emissions—the "green" solution.

The third example of applying the e-KANBAN system in the service sector is perhaps the most complicated. In this example, specialist knowledge, materials, spare parts, tools, and machines are required to execute service successfully. The most common example is when repairing failures on devices and appliances. This e-KANBAN system works similarly to the transport system, only the criteria when the executor sees the order are more complex. In addition to the requirements, such a system should automatically monitor and replenish stocks in vehicles and warehouses. e-KANBAN system will ensure that vehicle is filled correctly, and as such, there will always be at least one field team that will have available materials, tools, and spare parts to take over the request. Teams/executors will also take over the order following the CURRENT situation in which they are, the priority of resolution, and the availability of spare parts, materials, and tools in the vehicle.

It is a very simplified view of how the e-KANBAN information system works. There are many functionalities that such a system should have that are not listed.

Many managers ask me WHY field teams/executors would pull requests? Because they are motivated to do so! If you correlate their wages and bonuses with the fright they transported or the number of requests they solve, they will do. Also, if executors are freelancers, they do not need particular motivation but they would need competition always.

Managers who think that field executors do not know how to use mobile applications on smartphones or tablets live in delusion. The majority use social networks, and they know how to use mobile applications. My experience proves it.

Also, they will say that it is complicated and that such platforms do not exist. That's what taxi drivers thought before Uber😊.

A similar platform was developed for the third example (the most complex) from this text in Croatia. One company uses it, and the author of this text did the specification and lead development.

How to plan and optimize resources with e-KANBAN system

e-KANBAN is independent of the operational executor of an order. It means that the system may treat internal or external executors, logisticians, carriers, suppliers independently but focused on delivery. In this way, the service provider who uses the system gets almost unlimited resources, which he manages by setting criteria (business rules) and various online functionalities. Therefore, human resource planning is neither possible nor necessary. It is impossible to plan external resources. Their number is theoretically unlimited and constantly fluctuates.

Only what should be done is to provide a minimum of own employees, vehicles, materials, spare parts, tools, and machines to address those requirements you want to keep to yourself. It is also necessary to determine and regularly update "security stocks" in case of crises and other unforeseen delays. The example of Uber, Bolt, Wolt, Glovo best shows that the best you can do is estimate the number of requests and executors. You only have to establish such an information and motivation system for such a way of working to be economically viable. Right motivation may create unlimited resources which are cheaper and more productive than your own.

Many will say that Uber, Walt, Glovo have simple services. They think prices will be too high if the contract will not be centrally negotiated and prices fixed. However, they forget that the procurement and logistics employee cost often significantly exceeds their negotiations' savings.

Market changes are happening faster than ever, subject to various influences, like this one with Corona. The service industry has never rerun out of resources, but they go where "motivation" is better. Is hiring limited resources a better solution than outsourcing with unlimited and risk-free resources? Is it wise to focus only on the price of an outsourcer while your costs within the company grow out of control?

I will paraphrase Albert Einstein AGAIN: "It is not possible to solve a problem with the same way of thinking as when it arose!"

Benefits of introducing the e-KANBAN system

The benefits I will list are the concrete results of the company in Croatia that introduced the e-KANBAN system.

Before e-KANBAN introduction, the company, like all others, did central dispatching to an appointed, narrowly specialized technician. Dispatching, billing, warehousing, procurement, and distribution of spare parts and materials were done by 12 people for 24 technicians. The average daily amount of requests received and executed was 45 or 1.5 per technician. As it is a field job, the location covered several neighborhoods in one city. Execution within the contracted period was 40%. The agreed deadline for repair services was 24 hours, and deliveries were seven days from the date of receipt of the application.

After the transformation, the company grew to 65 own technicians, divided into eight teams and more than 350 technicians working in 120 small subcontracting companies. It was over 400 field technicians. The number of received and realized orders was on average 2600 daily in the whole of Croatia, i.e., 6.3 per technician or 4.2 times more than before! The realization of orders within the deadline increased to 85%, two times more than before the transformation. The same 12 central employees performed supervision, billing, warehousing, procurement, and spare parts and materials for all internal teams and subcontractors throughout Croatia. The "first delivery" success rate increased by 2.5 times. The annual turnover of stocks of materials and spare parts has improved many times over. Cost reduction per delivery decreases by 50%. On average, the central administration intervenes in less than 10% of orders when field executors have not taken over the order, and the priority is high.

Appendix - KANBAN and Total Production System - History

The KANBAN system originated at Toyota as part of the Toyota (Total) Production System (TPS). Many do not know that Toyota does not work on MRP (Manufacturing Resource Planning) principles, but ON-DEMAND, at the customer's request as a service industry. They realized they needed a complete automated information system at the horizontal operational processes, independent of central management. Such a system integrates all participants (external and internal) in the value chain to customers according to the Just In Time principle. For successful integration, business, organizational and managerial preconditions are necessary. TPS has over 15 methods that set up these preconditions in place. And one of them is e-KANBAN. Toyota is the least affected by the Covid-19 crisis, with the most cars sold per year and the highest resource efficiency in the global auto industry.