Nuon
As one of the Netherlands’ largest gas and electricity suppliers, Nuon had clearly been doing a lot of things right. However, some processing procedures were costing them a lot of money....
Slow and unpredictable
For each installation or maintenance project they carry out, Nuon Purchasing & Logistics deliver a container to site with all the necessary materials for the job. Some of these are nearly always left over at the end, but rather than throw them away, Nuon try to re-use and recycle as much as possible. This was where they were running into problems.
In the past, some materials had been returned to the Nuon processing centre at Duiven with no information about either where they had come from or what should happen to them. Sometimes containers were filled with the sort of chemical waste that Duiven simply couldn’t handle. Often the materials were in such bad condition that, despite having been stored for weeks before processing, they would just have to be scrapped. What’s more, to add insult to injury, containers were not always where they were supposed to be for collection. So truck drivers wasted a lot of time looking for them and occasionally even returned the wrong container.
Until returned containers are processed Nuon are paying to store what are essentially unusable materials: unusable materials with a total value of 15 to 20 million Euros per year. So, if processing is slow or unpredictable it is both expensive and terribly frustrating. Unfortunately, the Nuon materials return process was often slow and, with processing time varying from as little as one week to as much as six, it was always unpredictable.
Clearly, something had to be done.
Current state
As a first step, Nuon Purchasing & Logistics undertook a lean audit of their systems, focussing on throughput time, cycle time, work in progress, failure demand and batch size, to give them a clear picture of the inherent problems with their current system.
The results of the audit were then presented to everyone concerned in the return process during a two-day Kaizen event, during which the participants were introduced to lean principles. Participation of all employees is critical, because it not only involves them in generating initiatives but also simplifies acceptance of changes and improvements.
Before starting to design their future returns process, the team looked at all the operations in the current process to see if they added value and, if not, whether waste was avoidable. They also agreed on a vision for the future including what should happen to returning containers that do not meet process requirements.
Designing the future state
During the design of the future state the Executive Board of Nuon Purchasing & Logistics took a number of decisions. On
- what would happen to materials in a returned container that had not been delivered to the project in the first place.
- returned materials that had been ordered specially for a particular project. These materials can be so specialised that, if returned, they can stay in the warehouse for a long time.
- how to deal with containers holding an unsorted combination of materials and garbage that would take a lot of time to identify and clean up.
In all these cases they agreed that the materials would be processed. The value would not be deducted from the project account. But, the value of the returned materials and those responsible would be published throughout the company in order to “name and shame”.
The pilot
The most significant decision the Executive Board made, however, concerned the establishment of a separate material return group, to shorten communication lines and ensure adherence to the rules.
This material return group undertook a 5-month pilot project aimed at increasing transparency, minimising non-value adding operations, getting the active support and involvement of all employees and improving the handling of returned containers so they are managed in one go.
Their other and most crucial objective was to create a situation where processing times were both acceptable and predictable.
They started by aiming at a processing time of nine days, though having not canvassed their customers it was unclear whether this would be acceptable. However, after discussion between Nuon Purchasing & Logistics and Nuon Construction, customers were consulted and their wishes were recorded.
Fast and accurate
The results of the pilot were encouraging, with 58% of returns being processed within nine calendar days and 78% within fourteen - both of which are much better than six weeks!
Furthermore, the administration of a return application was reduced from four days to less than one, and collection, sorting and registering returns took, on average, thirteen days. Moreover, after establishing the material return group the number of transfer points was cut from eight to three.
As a result of all this, the amount of disruption and frustration decreased enormously. Whereas the service desk used to take and investigate all the project leaders’ enquiries, now their questions are handled directly by the material return coordinators. These people have access to information on the current status of a return request and can provide customers with fast, accurate answers.
Continuous improvement
The pilot project’s initial aim was to optimise a wasteful process, rather than minimising waste or eradicating it altogether. However, a lot has been achieved by standardising order flows and eliminating shadow systems (in Outlook, Access and Excel) alongside the SAP system. The number of ‘Chinese interfaces’ (data entry by hand) has decreased enormously, so more time is now available for value adding activities.
This pilot was also successful because a stable group of committed employees developed around the return process. What’s more, the interfacing functions of the organisation, such as transport and warehousing, also showed increased dedication to creating flow in the return process. This is illustrated by the amount of new ideas that were generated, not only during but after the pilot.
Optimising a wasteful process leaves room for further improvement, but now there is commitment from the workforce to the process there is no telling how much better Nuon’s materials return process can get.
Dirk-Jan Bakker has been supporting Nuon in this lean change effort.