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DAYS TO CLOSE - USING LEAN PROCESS IMPROVEMENT TOOLS TO SPEED UP YOUR PROCESS
Brett E. PolglazeSenior Manager
Wipfli LLP Madison, Wisconsin
[email protected] 608-661-2624
Danielle M. HeidemannSpecialist Internal Audit
Wipfli LLPWausau, Wisconsin
August 5 & 6, 2019
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DAYS TO CLOSE – USING LEAN PROCESSIMPROVEMENT TOOLS TO SPEED UP YOURPROCESS
Graduate School of Banking Summer 2019
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Agenda
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Why should we consider process improvement?Identify customer value streams Map the processValue add versus waste activitiesEffective lean teamsDefine and record metrics of successRoad map for execution
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Why Would We Do This?
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Concerns
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High expectations with fewer resourcesLong loan closing turnaround timeLow rate of loans closed per application takenUnder/over staffed in loan departmentHigh rate of loan refinancing with competitionCustomer complaints
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Competition
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Credit unionsOnline banksMortgage companiesFinTechEmerging disrupting technology
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Customer Value Streams
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A Process for Everything
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Personal Work Social
Brushing your teeth Walking to your desk Meeting new people
Driving to Target Logging into systems Making a date
Mowing the yard Managing email Choosing a restaurant
Doing the dishes Requesting vacation Ordering a martini
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Processes We Share
Opening the bank for the dayLoan processing Opening a new accountBoard and regulatory reportingStrategic planningOthers?
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Customer Value Streams
Define “Value”•Something a customer wants or needs enough to be willing to pay for it. Either with money, time, or sacrifice of other opportunities
Define “Customer”•Consumer of a product or service
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Customer Value Streams
Is your customer external or internal?•Who needs the output of the process?•What is specifically required?•When do they need the product?•How do they need the outcome?
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Customer Value Streams
Customer value streams can be defined as the entire flow of similar activities or services – from the beginning inquiry to the end delivery – from the “customer’s” perspective.
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“Leaning Out” Value Streams
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The organization’s perspective
Wait
Current value stream
Wait Wait Wait Wait
Custom
er asks about loan
Lender takes application
Underw
riting is completed
Loan is approved
Loan documents are signed
Custom
er receives funds
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“Leaning Out” Value Streams
Create a culture shift by dismantling and realigning each process from beginning to end to eliminate waste activities.
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60
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30
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15
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5
45
10
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Lean Value Streams
Effective• The degree to which you meet or exceed customer requirements
Efficient• The amount of resources consumed in delivery of the service
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New value stream
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Loan Policies and Procedures
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Industry history of vague loan policy language and guidelines to give lenders “flexibility.”Lenders are very good at business development,
but tend to struggle with formalizing and following policies and procedures.
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Art Versus Science
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Lending is an art – processing is a science•How to determine where automation and standard work can aid in the standard, repeatable, or regulatory tasks.
•These are some of the steps we can target for process improvements.
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How to Make Lending “Lean”
Guiding thoughts•Quick•Easy•Safe•Secure•Compliant
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Quick
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Duration loan process takes•Depends on the availability and capacity of resources
Standardization•Understand the art versus science of the process
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Easy
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Effort•The people hours it takes to process a loan
–From application to disbursement–In each section of the process
•What technology tools are available
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Safe
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Consistency with regulatory rules and expectations•Loan Policy•Underwriting and approval process •Specific organizational policy
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Secure
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Security of sensitive information •Gramm-Leach-Bliley Act, Section 501 (GLBA)
–Financial institutions are required to: o Ensure the security and confidentiality of customer informationo Protect against any anticipated threats or hazards to the security
or integrity of such informationo Protect against unauthorized access to or use of customer
information that could result in substantial harm or inconvenience to any customer
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Compliant
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Compliance violations involving violation of law and consumer harm weighs each of these four factors:
•Root cause•Severity•Duration•Pervasiveness
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What Leads to an Inefficient Process?
Remediation of audit and exam findingsInsufficient understanding of how to use technologyAdjusting procedures for changing regulatory
requirementsAttempting to prevent past errors from reoccurring
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Quality of Loan Applications
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Missing or inaccurate information•Garbage in – garbage out
How often are incomplete applications passed to the next step in the process?
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Risk-Based Lending
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The amount of time spent on a loan should be proportionate to that loan’s risk.
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Managing Exceptions
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Waiving exceptions – the quick fix •Understanding where hard stop should go •What can be waived to close •Process to document waive•Track waived items and resolve waived items
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Map the Process
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Many Ways to Map Processes
Map to understand knowledge flow•SIPOC
Map to diagnose value-add versus waste activities•Value Stream Mapping
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SIPOC
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Supplier
• Person that provides input
Input
• Resource added to a process by Supplier
Process
• Steps taken to convert input to output
Output
• Product or service that is the result of a process
Customer
• Person that receives product or service
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Loan SIPOC Exercise
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Purpose of SIPOC
Greatest benefit is that it clearly defines the requirements, tasks, and outputs of a process step.
•Standard work•Accountability•Visibility to leadership
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Value Stream Mapping
Agree on the process to be mapped.• Clearly define start and end of process
Create a team of people who represent each part of the process.
•Lenders, underwriters, possessors, etc.
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Value Stream Mapping
Agree on the beginning and end point of the process.
•Taking an application through booking the loan
List 5 – 7 critical steps that must occur to accomplish the process.
•Application, Underwriting, Approval, Document Prep, Closing/Funding, and Booking
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Value Stream Mapping
Walk through the process as it is being done now from start to finish to create a “Current State” workflow.
•List the major activities, inputs, outputs, and decisions from the beginning of the process to the end.
•This can be done using sticky notes on a wall or table, a white board, or software designed for creating flowcharts.
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Loan Value Stream Map Exercise
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Simple Customer Loan Creation Process
Greet Customer Record Information Submit Application Review Forms Qualify Loan Disburse Funds
Inputs• Customer
Information• Account
Forms
ResultLender Review
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Current State Value Stream
Test the value stream for completeness•Are we using clear language?•Are the steps clearly defined?•Is every loop closed?
Show the chart to others who are familiar with the process to get their feedback
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Value Added, Non-Value-Added and Waste Activities
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Customers
Who is your customer? • External customers are not part of the organization, but
they are impacted by it. They can be the “end user” or a person willing to pay for what we are producing.
• Internal customers are part of the organization who use services not available to external customers, and there is no money exchanged.
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Customers
What percentage of your organization works directly with external customers?
How do the relationships with internal customers affect the experience of the external customers?
Are we paying enough attention to our internal customers?
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Customer Value
What is value to our customers?• Benefits – Costs = Customer Value
Customer perceptions influence definition of value.• Online banking – Is this of any value to your customers?
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Customer Value
How can we increase value?•Decrease cost•Increase benefits
-Quality -Brand-Service -Positioning/Differentiation-Function -Personal Experience
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Using Time, Money and Energy
Producing a good or service requires some degree of time, money or energy to be spent. This input can be classified into the following:
•Value added•Non-value-added but required •Waste
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Value Added
Value added:•Something a customer needs or wants enough to be willing to pay for it―whether with money, time, or sacrifice of other opportunities.
– Perks– Options– Easy– Great Service
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Non-Value-Added
Examples of activities that do not add value but are required:
•Compliance with laws and regulations–Banking – Regulations –Heath care – Privacy–Manufacturing – OSHA
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Waste
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Waste
Waste:•Anything other than the minimum amount of equipment, materials, parts, space, and employees’ time that is absolutely essential to add customer value to the service.
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Identifying Waste – Service Oriented Checking
Handoffs
Approvals and internal controls
Missing or inaccurate information
Prioritization and scheduling
Interruptions
Ownership and accountability
Nothing happening/waiting
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CHAMPION
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Count the number of other steps, checkpoints, documents, requests, or wait periods that take time.
Select one or two of these non-value-adds. Ask why—up to five times if necessary—until you get to a
real reason it’s being done. Ask how could the overall activity be improved if this one
“reason why” is changed?
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Waste
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Defects
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Defects in Manufacturing Defects in LendingParts made wrong Errors/ReworkWrong material used Violations of laws or regulations (CMPs)Product assembled wrong Customer complaintsParts engineered wrong Long waits
Substandard/watch credits Charge-offsAdditional audits required due to poor exam resultsLack of ability to compete in market
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Waste of Defects
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Waste that comes from a substandard loan that is charged off:
• Increased monitoring and appraisal requirements•Collection costs and legal costs•Financial loss of funds from the loan loss provision• Increased historical loan loss rates that could increase the loan loss provision required
•Cost to repossess and hold collateral •Potential loss on sale and cost to sell collateral
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Apply to the Value Stream MapReview the “Current State” map:
• Identify points where defects or failures have an opportunity to occur and activities that add value, add no value but are required, and add no value and are not required.
• Make these activities visually obvious on the value stream map:– Highlight value-adding activities in green.– Highlight failure points and non-value-adding activities that are not
required in red.– Highlight required but non-value-adding activities in yellow.
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Value Stream Mapping – Future State
Develop solutions or reengineer a process to:•Maximize value-adding activities – Activities that improve the internal and external customer experience.
•Eliminate the non-value-adding activities that are not required.
•Minimize the required non-value-adding activities.
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Problem Solving
Brainstorming – Problem-solving activity•Applying where we found waste to the mapped process
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Effective Lean Teams
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Different Team Dynamics
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Team Competencies
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Four Phases of Team Dynamics
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Continuous improvement and Lean depend on new teams forming and implementing solutions.The psychology and language of teams are critical
for you to understand.Four phases to top performance:
• Forming • Norming• Storming • Performing
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Best Practices for Lean Teams
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1. Select cross-value stream (CVA) teams, including people closest to performing the work itself
2. Communicate the high impact, high profile nature of a Lean improvement assignment
3. Arrange for a process walk
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Best Practices for Lean Teams
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4. Facilitate the approach; avoid micro-managing• Share the four phases and five dysfunctions• Allow time and space for teams to gel (up to 30%
of a work day/week/month per person)5. Focus on creative ideas and small wins, less on
devil’s advocates or problem identification6. “Eyes on, hands off” for executive leadership
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Roles and Responsibilities
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Role: •Position team members assume
Responsibility: •Tasks or duties the team member is expected to complete as part of their role
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Importance
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Team members know what to doTasks are completed as expectedClearly defined roles reduce conflict Less time is wasted
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Lean Team Roles and Responsibilities
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Role ResponsibilitiesSponsor Senior Executive that sponsors the Lean initiative.Champion Senior Executive who sponsors a specific Lean project to
ensure the resources are available and facilitates communication across departments.
Team Member Individuals who bring experience and expertise to a specific Lean project.
Process Owner Individual responsible for a value stream that is the target of a Lean project.
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Metrics for Success
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SMART Objectives
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Specific MeasurableAchievableRelevantTime Based
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Quality Measures
Average time to close issuesAccount setup error ratesAccounts opened with insufficient documentationClient survey scores
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Productivity
Total volume of accountsAUM per employeeOperating profit per employeeSales per branchNumber of workflow processes implemented
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Profitability – Call Report Data
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Ratio Formula
Yield on Earning Assets Interest Income/Average Balance of Assets
Cost of Funds Interest Expense/Average Balance of Liabilities
Efficiency Ratio Noninterest Expense/(Net Interest Income + Noninterest income)
Return on Equity (ROE) Net Income/Shareholders’ Equity
Return on Average Assets (ROAA)
Net Income/Average Assets
Avg Personnel Expense Per Employee
Salary and Wages/FTEs
Avg Assets Per Employee Average Assets/FTEs
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Data Sources
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Central Data Repository (CDR) https://cdr.ffiec.gov/public/
•Individual Call Reports •Bulk Data for all Banks•Uniform Bank Performance Report (UBPR)
– Your Bank vs. Peer Group– Standard report items – Customizable time periods
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Internal Data – Loan Production
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Loans closed per loan FTELoan applications per loan underwriting FTELoan pull through rate (closings per application)Loan originator compensation as a percentage of
loan production
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Metrics
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What metrics does your bank use?What are the metrics used for?Who uses the metrics?
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Road Map for Execution
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Road Map
Start in your immediate “circle of control”1. What one activity or task “wastes”
the most amount of your team’s time?2. Who does the end result of that wasteful activity serve
(who is its customer)?3. Write down only the most valuable aspects of the activity
and its result for that customer.
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With your list of value adds:1. Count the number of other steps, checkpoints,
documents, requests, or wait periods that take time.
2. Select one or two of these non-value-adds.3. Ask why – up to five times if necessary – until you get to a real
reason it’s being done.4. How could the overall activity be improved if this one “reason
why” is changed?
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Road Map
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Road Map
1. List out the major processes in your organization
2. Try some process walks, be inclusive3. Sketch out the customers and value-added steps4. Name and count the wasteful activities5. Ask the “5 Whys” before trying to improve6. Set some small initial goals and lead the organization to
work on change
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Sacred Cows
Some ritual, object, rule or person that cannot be tampered with, or criticized, for fear of public outcry:
• Usually symbols of an organization’s values or historic virtues
• Defended hardest by those who havesomething to lose if it’s changed or killed off
• Some are okay – litmus test against customer value and efficiency
• Make it okay to do something with those that are not okay (i.e., don’t protect them any more)
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“That cell phone policy will
change when pigs fly!”
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Culture Foundations
• Legends and Heroes
• Rites and Rituals
• Stories, Myths and Events
• Value Statements
• Physical Space
• Systems and Procedures
See Edgar Schein’s embedding culture work!
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Continuously Improving to a Vision
Leadership can directly affect:• What activities need attention• What qualifies as a crisis• Resource allocation• Own behavior according to clear values• Criteria for what is rewarded
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Summary
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Identify the problemMap the processDetermine key steps and identify wasteBrainstorm solutionsApply those solutions!Measure success
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Questions?
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