How Lean Can Be Applied to Value Creation

25 min
Season 1
Listen directly on:

In this episode, Dr. Ivan Zak and Ryan Leech from Veterinary Integration Solutions discuss value stream mapping for veterinary consolidators, and how the bottlenecks can be addressed to improve the process.

Topics Discussed:

  • What is value stream mapping?
  • Improving systems and processes for value delivery to the customer by optimizing the value stream;
  • Lean Methodology described by Taiichi Ohno and the example of Toyota’s production system;
  • Finding bottlenecks to optimize your system;
  • Definition of Done/Definition of Ready;
  • Explaining the exercise with the sticky notes and mapping the on the board according to the steps;
  • A six months course to increase EBITDA;

Speakers

Dr. Ivan Zak has earned multiple accreditations in veterinary medicine. After graduating, he worked in 35 veterinary hospitals across Canada, where he was inspired to create Smart Flow, a first-in-the-industry workflow optimization system. Smart Flow was subsequently acquired by Fortune 500 company IDEXX, where he became General Manager of the Software division. After consulting 500+ practices worldwide on workflow optimization, he decided it was time for a new adventure. Dr. Ivan has a holistic view of the whole veterinary business market and he’s making his next step the creation of a more cohesive, unified platform that will ultimately benefit the veterinary professionals.

Transcript

Dr. Ivan Zak

You’re listening to consolidate that podcast. Hey guys, we have an interesting update on the consolidate that’s podcast. We have a new co-host. So Ryan joined our team and, uh, Ryan comes from the PIMS background and a lot of the industry knowledge, but Ryan, why don’t you introduce yourself?

Ryan Leech

Thanks, Ivan.
Well, I’m excited to be here with everyone, just like what Ivan said. I most recently came from working with Hippo Manager Software as a practice management software. I’ve worked with lots of fun on different unique startups and have a few different veterinarians in the family as well. So excited to take this chance to learn more about not only the veterinary space but also about consolidation.
So looking forward to our chats and learning more from you.

Dr. Ivan Zak

We were at the client the other day, and we were talking about value stream mapping and had a bunch of questions. So I thought maybe instead of just explaining them, we could record them as well. So what do you think?

Ryan Leech

That sounds good to me. Might as well kill two birds with one stone. So let’s do it.

Dr. Ivan Zak

You know, that actually in Ukraine we say kill two bunnies or hairs, you know, if you’re hunting with one shot instead of throwing stones in North America. So just a little,

Ryan Leech

so you guys are so advanced beyond us, you know,

Dr. Ivan Zak

Thanks.

Ryan Leech

You are more accurate.

Dr. Ivan Zak

Only in that. Alright. So, what questions did you have about the value stream mapping?

Ryan Leech

Yeah, so, I mean, first off we, we chatted with the great new customer and, we talked a lot about what the value stream, I mean is, but can you just give, catch the listeners up a little bit, give an idea of what is value stream mapping, and just give me an overview so that my foggy brain wakes up with it.

Dr. Ivan Zak

Start with a coffee while I’m doing that. So the value stream mapping is pretty much what it sounds like, depending on the organization where you work, and it works in every field. It could be in the veterinary clinic. It could be at a level of consolidator. It could be in any business that you do. If you produce something for the customer, you’re bringing them value, and value stream mapping is basically mapping out how does that product gets from the time you start making it to the time you deliver it. So it’s actually every step along the way. And then you’re mapping it, understanding what the steps are, so you can iterate on the process and make it better.

Ryan Leech

Gotcha. So, finding, I guess, inefficiencies, everything through there, but not just the production of the product or the production, but from day one, all the way to client deliverables.

Dr. Ivan Zak

Right. So basically, you hit it on the nail there. It’s finding those steps with the purpose to improve. Cause what’s happening. If you don’t know how long it takes you for each step, then you don’t know how can you make them shorter, and then you really need to know what each step starts with and ends with.
So to give you an example, it comes from lean. So lean is sort of, you know, there’s, this Toyota is well known for the production line and Taiichi Ohno was the guy who really described it and put it in place. There’s also Kanban terminology that is used, but basically, what it is, is that you want to understand how much time it takes from end to end of the process, which is called lead time. And then you also want to know what is the throughput of the system that’s really important because you then can know how many products you can deliver in what period of time. And then if your system is not well-designed that some of the places in the system could be bottlenecks, and then you can not go faster with the entire system then that bottleneck.
I’ll give you an example. So if you’re in the production line in the factory, and then you have a bunch of manual workers, and then you also automated a process by buying some sort of robotic technology. So now you have this robotic technology unlike step four, and then, you know, this slowest production is, let’s say heating the materials in the whatever oven, but then your robot, but is pumping, you know, a 50 an hour of whatever you make and then, this, you know, this heating process takes only 20 an hour. So it doesn’t matter how fast the robot will be producing those parts that can go faster than 20. So, therefore, your entire system throughput is only 20.

Ryan Leech

Gotcha. So that’s was that I remember the other day you talked about the theory of constraint when we were talking about that, is that sort of that chokepoint, that overall throughput limiting, is that sort of what we’re looking at there?

Dr. Ivan Zak

Exactly. And the whole point of value stream mapping it’s there’s, you know, there are several things. So if you know your most narrow spot, which is the bottleneck, then you know how to optimize your system. So if you will, for example, if then, you know, okay, well, if we’re producing 50 parts, using that robotic technology, but our oven is, you know, heating up in only 20 an hour, if we want to optimize the entire system, then we need to improve throughput through that bottleneck. So we need to buy another oven to do 40 an hour, and then, therefore, you’re catching up to the system. And the whole theory of constraint is very well described in the book called Goal, Eliyahu Goldratt.
And basically, they talk about how the system is a continuous improvement system when you continuously looking for these bottlenecks because as soon as you relieve one bottleneck, it starts traveling across the whole value stream. And then, by optimizing this value stream, you will perfect your system and the process of value delivery to the customer.

Ryan Leech

I think I remember that book from business or my undergrad business learnings. We talked a little bit about that. That’s the one that has sort of the story. It’s a little bit easier to read than a textbook. Yeah, I think I definitely remember that one. So that’s, that’s definitely cool. But so we’re talking about manufacturing, right?
Consolidation is, you know, has benefits and different processes in place, but like, how does a manufacturing idea of a lean methodology or constraints fit into the consolidation model?

Dr. Ivan Zak

So, this is something that we came up with at VIS. So we were trying to help the consolidator to just picture the entire process in the organization.
And for the most part, there’s really no one single picture that says what consolidator does. So when they’re hiring, let’s say a regional manager, there is no one I’ll call it infographic that shows the entire organization and how it functions. And everybody has a different picture in their mind. So I remembered this book from business school, and it was suggested to me by a good friend of mine, Emmitt, it’s his favorite book.
He was COO at SmartFlow. And, you’re right, it’s told as a story first, I was a little surprised I was expecting like a really boring business book, and it was totally as a story.

Ryan Leech

When you look at the cover, it’s just the guy sort of staring at you, and you think, well, you’re gonna lecture me for the next 400 pages, but it gets a little better.

Dr. Ivan Zak

Yeah, it’s nice. It’s like about this guy who was optimizing, you know, his production line on the factory, but we thought about consolidate in the same ways. It is just what is the product of consolidation, and if you’ll think about it, the product of consolidation is acquiring, integrating, and improving veterinary hospitals that is sort of the product.
So, so the moving part, if you will picture the factory and if consolidator is a factory, then the product that is moving through it is the clinic. First, you acquire it with a low EBITDA. It needs to get through the process of due diligence. It needs to go through financial, legal, due diligence. And then once the deal is closed, which is a definition of done, then you go to the next phase, which is integrating that clinic into the entire ecosystem or the platform that you created.
And then after that, after the clinic is stable, then you want to improve the EBITDA using the growth levers that you have. And then when you reach certain EBITDA in that particular clinic, it goes into this sort of business as usual mode. So that’s the value stream that we pictured for consolidation. And it actually works for most of them.
At least those that are buying clinics. And we also mapped out one for those that are building Denovo.

Ryan Leech

So, do you recommend it? I know we did this when we were meeting with the client the other day, but do you recommend actually mapping it, drawing it out more than just sort of having a conversation and talking about these things with them and for people that are listening, right. Should they be drawing out what their different steps are and, and how would that look?

Dr. Ivan Zak

So it’s a great question because, you know, by the sound of it, it’s sort of, you can, you know, everybody pictures, a production line of maybe people with the hammers like in, you know, the Ford factory, but in reality, what you want is a very simple, sort of like a Kanban board of a kind with columns.
And the way I do with consolidators, I actually do this little exercise with the sticky notes. And well, or if you’re now in COVID times, you can do some sort of a, you know, a virtual, but there’s a bunch of boards that you can use, but basically what you do, you know, the consolidator might have like 30 or 50 clinics, and then you create sticky notes with them and then you. First, you map the steps, and usually, for the most part, they all are, you know, prospecting, due diligence, then integrating, optimizing, business as usual. So you map it out, they might split it a little further, get a little more detail, but essentially you just want them to own it, and as they create them with you, which is a huge part of change management.
Then the exercise is, take all the sticky notes and put them all into the buckets where these clinics are. And that’s super important because then you can say, okay, well, what is the role to move from one column to another? And what does it mean that the hospital is ready to move from this column to another?
And then you can start saying, okay, well, how long is this step in your organization, how long is this step? And then the most important part of it, you can actually talk about EBITDA in different phases, which contributes to a normalize the corporate EBITDA. And that’s super important to know.

Ryan Leech

So moving them from, from one stage to the next. I know we, when we did this the other day, we mapped out a bunch of hospitals and clinics and practices on the board. And then we had those lines between the columns. And you mentioned the definition of done. And I know we talked about the definition of ready. What are each of those, like, how would you as a group go ahead and decide what those are?
How would you figure out what is ready? How stringent should those criteria be before it moves from production to manufacturing, to improvement stage, to all of those different things for the consolidator?

Dr. Ivan Zak

Yeah, so super important. And that’s another thing that we’re doing as a joint exercise, because if you don’t set solid policies around it and make them explicit, which is one of the rules of there or the Kanban system if you don’t make those explicit, then people would be moving clinics back and forth.
And that’s what actually happens all the time now. So people are saying, okay, we are going to improve the bottom line by better inventory, and we put this, you know, some automation into procurement, per Cubex. I always give them an example cause they’re amazing technology. And let’s say they’re saying we’ll buy Cubex for all the hospitals.
Great idea! But that is something that needs to be implemented later when the clinic is stable, and then we are going to teach them how to do hospital-level marketing. That’s another thing. And then we’re going to do the hospital level inventory process, which also needs to be taught to them.
And we call those processes decentralized that are down to the level of the hospital. So as soon as the consolidated buys the clinic, before they even changed their benefits, people are stressed out, thinking that they’re going to lose their job. They just lost a leader. The consolidation throws at them five processes at the same time, and then people just burn out. So what is important is to say, okay, well, these are the phases, and if we’re in the phase of integration, we need to plug them into our financial system. Do the, you know, all the HR integration and HR processes integration, teach people how to run the organization, what the core values, which is super important.
One of the triggers for burnout is a misalignment with core values. So you have to do the cultural integration process. And then once the clinic went through that stress, you should assess them and say, okay, they’re not stressed out anymore. They’re ready for change. So that’s what I would call the ‘definition of ready’ – when the clinic is ready to be moved on to the next phase.
So that’s the definition of ready, and it’s different for every consultant, but deciding together, locking it, and writing it down somewhere, almost creating like checklists before you move from one phase to another, is super important. And then the definition of done is a different thing. So what does it mean that the process is done?
So, we’re kicking off, you know, inventory management process and the level of the clinic, and then we go, all right, let’s start with the next one. Let’s start doing marketing for these guys or, you know, put the PetDesk in there. And then these people are now just learning how to do one process, but what does it mean it’s done?
And one of my favorite definitions of done is that. We now know, based on the metrics collected after we implemented the process, that it worked, which a lot of people don’t do, they just throw in a thing and then they go, all right, we put, you know, appointment reminders in every clinic. Okay. Did it work?

Ryan Leech

The software is downloaded, right?

Dr. Ivan Zak

Yeah, exactly.

Ryan Leech

And when you have the login it’s done.

Dr. Ivan Zak

Yeah, when COVID happened, we had, you know, a couple of consolidators that went, “We implemented the telemedicine in one week, as soon as the COVID has done, you know, hit us”. And then, you know, and then it’s like, all right, well, what did it do for you? “Uh, you know…”.
a) they don’t know;
b) actually they didn’t do anything because they didn’t go through the whole change management process, but that’s the main thing.
So what is the definition of done before you start the next initiative? So those are two super important, have to be explicit, have to be explained to the entire organization. Then the leaders that are managing the process have to agree on it. And for leaders to agree on something from a change management perspective. Ideally, they should design it together.

Ryan Leech

It reminds me a lot of, you know, coming from the sales side of the world and sales management, and working with my sales teams to say: “No, this deal isn’t closed” or “Yes, this deal is closed.” My wife is a realtor, and she and I are always talking and using my sales history and her smarts and beauty. Hopefully, she’s listening, right.

Dr. Ivan Zak

You still have to buy her a Christmas present. Don’t try that.

Ryan Leech

No, no, no. I’ll just say nice things on a podcast about her. We always talk about that, though, where a client has signed a contract, or they’re in their option period. And she says: “Yes, I got a deal.” And I said: “No, you’re still 30 days out. You still have your option, period. You need to close your inspection. And then when those things are done, when the person has passed those date marks or has made that first payment or things like that, that’s when you can move it to a win category”. And for sales, a lot of times we would talk about, you need to have your, your DocuSign signed and returned.
And until then, nothing mattered before that. It was just really nice conversation. But that’s nice to see, and so I guess when you’re doing the value stream mapping, things always should be moving forward, but they never moved backward.

Dr. Ivan Zak

Ideally, there should be a process. And basically your definition of done should be as such as that there’s no return back, because these clinics that are in limbo or 15 processes at the same time.
That’s where you get problems. And then that leads to the conversation of why would you do that from the EBITDA perspective? That I mentioned at the beginning. A lot of the times the consolidator would run into this, you know, after about owning clinics for a year, a year and a half, they would run into this conversation with their investors, where investors will say, okay, well, we bought these clinics, they had EBITDA X and then our corporate EBITDA is, I don’t know, 18, as I average between the clinics. So what’s going on with these clinics already a year ago. So why it’s super important for consolidators to split these phases because you are buying a clinic with a 13, and then that’s an opportunity clinic. We know that you can speed up the clinic EBITDA, you know, up to 25, 30% if you’re like really, you know, chiseled on your processes. And then when you bind them at 13 you’re then evaluating, what can we do with this clinic out of those things that we have in our back pocket? What are those growth levers we can apply? So at that point, that 13% dilutes your overall EBITDA, but it’s good because you bought this clinic with the opportunity.
Then you pull it into your stabilization phase, and you usually lift a point or two with your standard vendor management process or your HR standardization. But then you get into these improvements, whether it’s marketing, procurement or talent acquisition, and you know that each of these growth levers carry a 1%, 2% or, you know, whichever process you do based on your organization, but you know, a point or two from each process, and only after you fully applied it only, then it’s relevant to measure EBITDA. But if you measure post-growth lever implementation and the opportunity ones, mix them all together, and then show it to your investors, it seems low.
What is important to show is that. After improvements, each clinic that we take gets a standard 25% EBITDA, and then we can do it consistently or the course of six months. And then, therefore, we need to buy X number of clinics. And then in six months, they’re going to be XX percentage EBITDA, super important.

Ryan Leech

Okay. Yeah. Looking at your portfolio, but knowing where each one’s growing there. So all of this, right, I, after talking about this myself, and hopefully everyone listening can go in there, they can work on putting together sort of that board, they can put together and as a team defined, what’s done, what’s a definition of ready is, hopefully mapping those things together.
But you’ve mapped it, and you’ve put your sticky notes up, you know what you’re doing? You know, who’s at risk is doing well, but like, what is, what is your overall vision? What’s your overall goal? What’s you know, what is all of this for, for the consolidator?

Dr. Ivan Zak

Yeah. Well, why the hell? Why the hell are we talking about this, right?

Ryan Leech

Yeah. I mean, it’s, it’s cool to write. What’s the difference between this and another one of those, uh, retreats out in the woods where everyone writes, you know, a vision board on the wall, and then you forget about them when you get back to the office.

Dr. Ivan Zak

Exactly. Yeah, no, it is not that, it basically immediately on a day one after you created it, becoming the command control sort of center of all your initiatives inside of the organization.
So this board with the sticky notes, it stays there and then you start optimizing your system. Basically, it becomes a flow system. So you have a, you have sort of deal flow through the margin and acquisition and then improvement flow and then stabilization flow, or the other way around. What do you want to do?
There’s one quote from the Kanban methodology, stop starting, and start finishing. That’s the most important thing, because of a lot of people in all aspects of our life…

Ryan Leech

Hey, say that again, for me, say that again for me.

Dr. Ivan Zak

Stop starting and start finishing.

Ryan Leech

Stop starting and start finishing. Okay. That sounds like a part of my day.

Dr. Ivan Zak

We start a lot of stuff, and then we never finish it. We get distracted. We don’t know what the definition of done. So we’re just starting things and never finish them. So that’s sort of the whole point behind it. So if we’ll summarize what we talked about, first, you map it out, second, you grab all the clinics, throw them this board, then you say, okay, we do due diligence for two weeks on a clinic.
And then you say, okay, well, how many can you do in two weeks? Is it just one? Yes. Just one. Well, that means that you can do two clinics a month. And if your goal is to buy seven clinics a month or five clinics a month is just not going to work because of that bottleneck. So what do you do?
Okay. You ramp up on your legal department, you double up on the lawyers, or you hire an external firm, and then you need to open up those bottlenecks. So it’s a live system that you continuously optimize to improve bottlenecks. And then also you see the risks. So you see the risk of not having a certain process in place where we’re saying, okay, we’re going to improve marketing.
Well, what does that mean? We’re going to. Print pens, you know, we’re going to improve websites, we’re going to give everybody a t-shirt with a logo. What does marketing mean? Okay. We need to create initiatives. So initiative of changing the website, initiative of attracting new employees, initiative of attracting new clinics to be purchased. So all of those are initiatives, and they’re becoming risks to your flow system because you don’t have fully developed initiatives with metrics and everything else. So using this system, then you can say, okay, there’s a bottleneck in the phase of integration.
And then this is because we are short on the integration team. So, therefore, we can mitigate that risk by hiring more people and training them. So the entire thing is becoming the instrument of risk mitigation and roadmap creation. And then you can pull all of those things from the system into your quarterly planning, and then you can have those rocks if you’re using traction system or goals, or initiatives, whichever ones do you call them in your organization, then it’s also important to align on terminology. Then you pull them into your quarterly planning, and then you execute on them, and then you continuously optimize the system. So it’s a day to day monitoring sort of interface in which the entire organization can understand where the clinics are in what phase, what’s their EBITDA and what we’re trying to do with them.

Ryan Leech

Awesome. Awesome. It’s nice to hear an idea of something more than, you know, just visions, just ideas, and thoughts, but actual actionable plans there. For me, a huge takeaway is having that goal at that end. Man, I just said the name of the book. That’s good. Having the end goal in mind when you’re creating those visions, right?
Redoing the website is not changing the homepage, but if that’s the goal, if that’s if the initiative is changing the homepage, that’s the correct definition of done for it. And having all of those things versus, well, we keep adding new pages. So, is it ever done? Well, if we didn’t define it, to begin with. So that’s wonderful. So obviously, we talked about the goal, the book the ‘Goal’, I was going to ask you if there was anything else that I should take the weekend and dive into to learn more on. I’ve got that one in the Amazon shopping cart. So it needs to overnight itself here for me to reread it.
But is there anything else that myself or anyone listening to should make sure that they’re doing to be prepared to dive into this?

Dr. Ivan Zak

Yeah, there’s a lot of you can read on lean and, you know, I researched lean in healthcare. I researched lean in veterinary medicine, which is almost nonexistent.
There’s one book that Chip Ponsford wrote this year. He finished writing it, and it’s pretty good. It’s at the level of the hospital, but this is a bit different from what we’re talking about here, we are lifting it to the level of consolidation, and there are tons of practices and lean that could be applied here.
There are principals, there are types of wastes that we didn’t talk about, but there’s, there’s a lot of things that you can, you know, using this system. But the basics, I don’t want to confuse people here, is create your value stream, make it visual, throw the clinics against it and stop starting and start finishing.

Ryan Leech

Awesome. That’s great, Ivan. Well, thank you for catching me up. I’m going to keep this one in the back of my mind for all the rest of our conversations, and as always, I enjoy our chats and enjoy learning from you.

Dr. Ivan Zak

It was lovely to chat with you today, and I’ll see you next week.

Ryan Leech

Talk to you soon.