XV International Scientific Conference on Industrial Systems (IS'11)

Novi Sad, Serbia, September 14. 16. 2011.

University of Novi Sad, Faculty of Technical Sciences, Department for Industrial Engineering and Management Available online at http://www.iim.ftn.uns.ac.rs/konferencije/is11/

Applying Lean Concept in Public Utility Companies

Slobodan Radicev
PhD candidate, University of Novi Sad, Faculty of Technical Sciences, Trg Dositeja Obradovica 6, Novi Sad, Serbia, radicev@uns.ac.rs

Milan Baosic
PhD candidate, University of Novi Sad, Faculty of Technical Sciences, Trg Dositeja Obradovica 6, Novi Sad, Serbia, baosic@uns.ac.rs

Igor Salak
General Manager, Public Utility Company JKSP EKOS, Djure Jaksica 2, Zitiste, Serbia, salakigor@yahoo.com

Abstract The Lean concept is known for over 50 years and in literature it is connected with manufacturing. As origin of Lean comes from the Toyota Company it is rather logical that Lean is the most visible in the automotive industry. The implementation of Lean concept in manufacturing industry is widespread and presented in many scientific articles, which is not the case with the service industry. Conceptual implementations of Lean in the service industry follows very similar routes to those in manufacturing and very often make use of the same tools and techniques. In this paper, we will show how Lean concept can be successfully implemented in public utility companies. As an example, we will use the public utility company JKSP EKOS from the municipality of Zitiste, Serbia. Key words: customer focus, efficiency, Lean concept, Lean service

1. LEAN CONCEPT
Lean is a term which was popularized during the 1980s and 1990s in order to include a certain number of approaches on how to run utility companies whose systems stress the production of the exact things the customers want at the lowest costs and without any waste. Many of these ideas were produced after the Second World War by Toyota. Their imperative was and remained an increase in profitability on the low-growth markets or no-growth ones. The focus was on the production of the best quality cars, with the lowest costs and the shortest time, along with the systematic elimination of waste. Considering the fact that Toyota has generated so many ideas connected with the lean concept, the term The Toyota Production System (TPS) is used as a synonym. The work of Toyota and its suppliers was studied and popularized in the Western World by the book The Machine that Changed the World: the story of lean production, which was written by James P. Womack, Daniel T. Jones and Daniel Roos of the Massachusetts Institute of Technology (MIT). The first edition of this book was published in 1990, but many of these ideas have already existed in manufacturing and service sectors in different forms. What Womack, Jones, and

Roos have done are adjustments of these ideas for the European and American markets. Why implement Lean processes? Lean processes provide a way to do more with less -less human effort, less equipment, less time, and less space, while coming closer and closer to providing customers with exactly what they want, when they want it, where they want it, and at a price that meets their cost/value expectations. After years of benchmarking and observation in organizations around the world, Womack and Jones have found that converting a classic batch-and-queue production system to lean production helps an organization achieve the following results for manufacturing: Labor productivity is doubled all the way through the system for direct, managerial, and technical workers and from raw materials to delivered product. At the same time, production throughput times are cut up to 90 percent with a subsequent reduction in inventory in the system by up to 90 percent as well. Errors reaching the customer and scrap within the production process are typically cut in half, as are job-

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2 related injuries and other undesirable side-effects of a non-lean production process. Time-to-market for new products is often halved, meaning that a wider variety of products within product families can be offered at a very modest additional cost. The capital investments required to implement the lean approach are very modest, even negative, if facilities and equipment can be freed up and sold. Organizations that have completed the radical realignment of their processes can typically double productivity again through incremental improvements to the product and process within two to three years, with a similar reduction in inventories, errors, and lead times. Similarly, Swank (2003) offers the following results for a financial services company: 70% reduction in turnaround time from receipt of applications to issuance of policy; Reduced application processing labor by 26%; and Reduced reissues due to processing errors by 40%. While the identified performance improvements should be more than enough justification for why a company should implement lean processes, one more reason exists: global competition requires the high-quality, lowcost products and services that only lean processes can provide. An organization that fails to become flexible, responsive, and effective in every area of its operations will not be able to compete with the lean enterprise. Becoming a lean producer is not an option -- it is a requirement for survival in the customer-driven global economy.[1]

Radicev

2. CURRENT STATUS AT PUBLIC UTILITY COMPANIES IN SERBIA

In some countries, like Serbia, there is a strong opinion that public utility companies (PUC) should be public property. Nowadays the circumstances of the ownership of public utility companies in Serbia are exactly like that they are public property. There are rare exceptions in fields like public transport or trash collection, where besides the public sector the private sector exists as well. In terms of organization they are separated only in the bigger cities (Belgrade, Novi Sad), whereas in the smaller cities and municipalities local utility companies and services are merged in the local administration for the public utility work. There is no institutional solution without reason; therefore it is the same with the ownership, organization and functioning of the public utility companies. Several strong interests support the existing solution. First of all, the majority of citizens are provided with the services by the public utility companies at prices that are lower than market prices. The majority of citizens in Serbia have low income and standards of living, thus lower prices have significant political support among the

voters. The services of PUC, among other things, are one way of social assistance. Secondly, local governments have complete control over public utility companies. That enables them not only to affect all crucial decisions in these companies (the policy of the prices, employment, organization), but also to put their political party personnel in board committees and in other management structures of these companies, as well as to use resources for financing their political party activities. Thirdly, employees, including managers, do not have anything against the fact that these utility companies are the public property. In the terms of employment, these companies resemble some kind of quasi-social institutions, where relatives, political party personnel or social cases are often employed. The policy of employment depends little on qualifications or market opportunities. Therefore the employees consider their workplaces safe. Mostly, the managers in these companies are usually the bush-league; they would hardly have gotten a job in private companies. In addition, the circumstances are such that the local government takes the responsibility for the majority of business decisions (the policy of prices, organization and so on), and this kind of irresponsibility suits the managers. Fourth, the government of the Republic of Serbia can have a strong influence on business and the policy of prices of public utility companies through the local governments. At the beginning of 2007, the government in Serbia controlled around 45 percent of the prices, whereas the rest depended on the market trends. Although the law, by which the Government of Serbia directly gives the permission for the rises in prices of the local utility services (after the local governments declare their position), was repealed in October in 2000, the influence of the Government on the prices has not disappeared. Nowadays the influence can be shown indirectly, through the political parties or by conditioning transfers for the financing of the local communities.

3. APPLYING LEAN IN COMPANIES IN SERBIA

PUBLIC

UTILITY

Up to now, in public utilities companies in Serbia there have not been any registered cases of implementing the business strategy that enables an organization to reduce its development cycles, produce higher-quality products at lower costs, and use resources more efficiently. The only known case is the one of the Public Utility Company Zelenilo from Novi Sad. This company is the part of the project 20 keys, which is implemented by the consulting agency Deloitte.[2] The methods and tools used in the implementation of this project completely coincide with the methods and tools of the Lean Concept. Furthermore, it can be openly stated that they are based on the Lean philosophy. This project is still being implemented so the results that have been achieved, if they have been achieved at all, are still unknown to the public.

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The Lean philosophy has to be accepted by every employee in the company, and not only accepted, but supported by engaging each employee. Unfortunately, this is very hard to achieve in public utilities companies in Serbia. The reason is, as it was mentioned in the previous part, that the employees and the management of the most PUCs are not interested in any kind of changes. 3.2. About PUC EKOS The PUC EKOS, itite is in charge of performing activities of general interest, and therefore, it is registered as a public utility company. The founder of the company is the municipality of itite, which controls and monitors the business activities through the managing board and directors of the company. All the business activities are regulated by the accompanying laws of the Republic of Serbia. The main activities of the company are gas distribution, managing the distributive system, retail of the natural gas in order to supply the customers, distribution and production of the heat energy with the total installed capacity of at least 1MW, managing the heat energy distributive system and supplying the heat energy to the customers. Furthermore, the company deals with garbage collection, removal of feces, burial service, maintaining the green parts of the town, plant nursery, construction and finishing jobs (plumbing, installation, painting) [3] 3.3. Applying Lean in PUC EKOS The first thing that was done was a meeting with the company management. During the meeting, the director Igor Salak has shown the wish and willingness to try to advance the business of the company by implementing the Lean philosophy. The first step was the education of the most important people in the managing board about the Lean principles. The education was done in oral form and it lasted for an hour. Afterwards, the extra material was emailed so the board could find out in more details some of the Lean principles, methods and tools. The following step was assessing the situation in the company. The first thing that was done was an interview with all the employees. This was a questionnaire with 12 questions:

Which activities or tasks take up most of the time What could make the work easier, i.e. advance it, and in which way

The questionnaire was filled in by an external consultant. Through interviewing and the obtained answers a clearer image of the activities performed by the employees was formed. A total of 36 employees were interviewed. The results have shown that the administration of the company has the most unused potential. In order to use that potential, a new systematization of the jobs had to be done. That meant that the activities were distributed on all the employees and that some of the employees could do more than one job. The old systematization dates back from the founding of the company in 1992 and since then, significant changes within the company, and also significant changes in technology have occurred. Thus, there was no need for certain job positions anymore. However, at the same time, the need for other type of jobs has occurred. The systematization was adopted after a month and it paved the way for a more effective organization of the administrative service in PUC EKOS. During the questionnaire in the company, a great disobedience was detected, primarily when it came to the time of arrival at work. Considering that there was no way of controlling when the employees came to work, the next step was to start with control. It was conducted in the following way: Every employee signed their names and the time of the arrival in an already printed chart. That chart is presented to the director at 7.15 am. This way of controlling reduced the average 35 minutes being late to 10 minutes. The next improvement was relocating the cashier to a separate office located at the very entrance of the company with the clear sign displaying Cashier. This had a two-fold benefit. The first one was that people paying the bills no longer had to pass through two extra doors, walking 30 meters and making inquiries about where the cashier was, since it was not marked. The second one is related to the employees in the administration who no longer had to listen to the noise and conversation of the customers queuing or paying the bills. The technical service of the company deals with the maintenance of the gas network, production and distribution of heat energy, removing the solid and liquid waste, maintaining the green areas in the town and smaller construction activities. It is situated next to the administrative part. The state in which we encountered the technical service was rather chaotic. The tools and the equipment were lying around, there was no order, and there was no tracking of who was taking the tools and who was returning them. Furthermore, workers were taking the tools whenever they wanted. The first undertaken step was to introduce the director assistant to the Lean tool 5S. The results appeared very quickly. However, there is still more room for advancing and upgrading. Most

First and last name Working position Level of education Additional education (seminars, courses, educational trainings) Foreign languages (level achieved) Years of working experience in EKOS Previous jobs in the company Description of the current job Description of the current tasks Which are the most difficult tasks or activities in their job

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4 probably, the external consultant would be hired to teach and train the employees and to help them implement 5S tool, since they themselves do not fully understand and comprehend the usage of this tool. One of the other benefits was that during the interview it was discovered that there is a qualified person who can maintain motor vehicles. With the new systematization, that person is now in charge of the maintaining of the motor vehicles. There are 8 of them in the company. This reduced the companys costs a lot because the company no longer has to hire people outside the company to maintain the vehicles. This does not apply to vehicles under the warranty which are bound to the official service center. There are only 2 new vehicles that fall into this category. The same type of control of the arrival time, just like in the administration service, was conducted. This helped reduce being late from 45 to 5 minutes. Last, but not least is the advance that happened within 6 months and it is this advance that we have chosen to show as an example in this paper. The advance is the increase in service charges for removing solid waste.

Radicev

2 pm. In the summer, that period is prolonged to 4 pm. The main reason for this is that there is more waste in the summer period, hence the necessity to work longer hours. 4.2. A problem that was noticed The biggest problem that occurred in this process of the waste transportation is the payment. The waste transportation naturally has certain costs and they are primarily covered with the fee that households whose waste is transported should pay. In order for this process to advance and develop more in the years to come, the fees had to be increased. For the last five years, the average collected fees were below 45%. The exact data on the fee percentage can be seen in table 2 below.[4] Year: 2005 2006 2007 2008 2009 2010 % 48.71 % 45.98 % 43.39 % 46,30 % 44,05 % 42,15 %

4. CASE STUDY EXAMPLE AND RESULTS

4.1. The process of waste transportation This service is provided to seven inhabited places in the municipality of itite. The largest inhabited place is itite and it is divided into two sections through which we could monitor the payment. The waste transportation is done by a DAF truck with Vatrosprem upgraded hydraulic container for solid waste, which has a capacity of 15m3. The number of people per truck is three. One person is driving a truck and the other two are throwing the waste into the truck. The collecting of the waste is done according to the annual plan made by the PUK EKOS and adopted by the assembly of the municipality itite. The annual plan can be seen in the following table 1.[5] Name of the place itite I i II Banatski Dvor estereg Veliki Torak Begejci Ban. Karaorevo Ravni Topolovac

(Table 2. The percentage of collected payment of the transportation of the waste in years)

4.3. The delivering of the solution to the problem When the above-mentioned problem was noticed, the board headed by the director Igor Salak decided to investigate the problem since the percentage of the paid fees was so low. It was decided that all the households whose waste is transported would be contacted by the phone in order for the company to try to determine the problem. Furthermore, the households who were not paying regularly would be warned over the phone. Contacting 11,000 households takes a lot of time. Therefore, an analysis which determined who would be the most suitable employees for this work was done. This new task was in addition to the other tasks that the employees were regularly doing. Value stream mapping analysis determined that in the administration part, the two clerks working on the issuing of the bills both for the waste collection and gas are the most available ones. It was estimated that the issuing of the bills takes three working days, whereas the processing of the bills takes two additional working days. The remainder of the working days leaves them with work that does not take up more than one or two working hours. These two clerks were given charts with names and contact details of the households, as well as the dialogue list that they would be using while talking to the clients. Apart from these two clerks, this job was sometimes done by some other employees in the administration. They would do this when they would complete all their prior tasks. During two months, i.e. during May and June, 2011, around 80% of all the

Time of the collection I and III week (Thursday and Friday) II and IV week (Tuesday) II and IV week (Wednesday) II and IV week (Thursday) II and IV week Tuesda) II and IV week (Wednesday) II and IV week( Friday)

(Table 1. The annual plan of the waste collection) From the above table, it can be seen that the waste is not collected on Mondays, because these days are used for cleaning and maintaining the truck. Apart from this, on Mondays the possible leftovers of the waste collection from the previous week are taken care of. The waste collection takes place between 7.30 am and

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households contacted.

whose

waste

was

transported

were

have also complained about the lack of adequate dustbins. The percentage of the payment has increased to almost 70% after calling and explaining that the fee must be paid regularly since it is charged in accordance with the decision of the assembly of the municipality of itite and that the households would be sued at in court unless they paid. The exact payment data before and after the calling can be seen in table 3.[6] The number of households that pay regularly June 2011 1321 1005 1569 1414 1249 918 660 85 8221

4.4. The results What most of the citizens have complained about is their difficult financial situation. This was the main reason for their irregular payments. Beside this, they

The inhabited place Cestereg Banatski Dvor Zitiste I Zitiste II Ravni Topolovac Begejci Veliki Torak Banatsko Karadjordjevo TOTAL

The total number of househol ds 1645 1615 2191 1855 1579 1562 1259 126 11832

The number of households that paid regularly April 2011 641 516 1054 950 789 567 424 76 5017

% 38.97% 31.95% 48.11% 51.21% 49.97% 36.30% 33.68% 60.32% 42.40%

% 80.30% 62.23% 71.61% 76.23% 79.10% 58.77% 52.42% 67.46% 69.48%

(Table 3. the percentage of collected payment in the inhabited places)

Table 3 clearly shows that the payment percentage increased from 43.40% to 69.48%. In other words, the bill for June 2011 was paid by 3204 households more than for April the same year. The price of the waste transportation in the municipality of itite is 169,89 dinars per household which leads us to the sum of 544.327,56 dinars extra than before the calling.

understanding of every single employee, the results of the Lean concept can be successful in the longer run.

6. REFERENCES
[1] Lean Enterprise Fundamentals, Dr. Frances A. Kennedy, Clemson University. Published by Institute of Management Accountants, 10 Paragon Drive, Montvale, NJ 07645 pp. 2-3. http://www.imanet.org http://www.zelenilo.com/i2.php? tabid=1&cid=289&portalid=1&a=readMore JKSP EKOS - Plan rada za 2011 godinu i izvestaj za 2010 godinu pp. 3. JKSP EKOS - Plan rada za 2011 godinu i izvestaj za 2010 godinu pp. 7. JKSP EKOS - Plan rada za 2011 godinu i izvestaj za 2010 godinu pp. 16. The table is obtained from payment report for the removal of garbage for the months April and May. The report compiles the head of financial services, legal and general affairs Goca Ninkovic

5. CONCLUSION
The pressures on the public utilities companies would intensify, the expectations of the clients will rise both in terms of service quality and prices. Being the founders and managers of these companies, the local governments would try not to make financial losses by providing cheap service fees. At the same time, they would invest in development, providing new services and improving the quality of the service. Through our case study in PUC EKOS, we have shown that Lean concept, its methods and tools can also be successfully implemented in public utility companies. Lean concept, its methods and tools can help a lot in identifying the processes needed to improve the quality of the services provided by the company. In order for the lean concept to be successful in a long term period, it is crucial to involve all the employees in the implementation process and the development of the lean concept. Only by the complete acceptance and

[2] [3] [4] [5] [6]

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