Value Stream Mapping in the service sector: from Toyota to banking processes

Value Stream Mapping was developed for manufacturing, and for a long time was thought to apply only there. Today VSM is actively used in banks, insurance companies, healthcare institutions, IT operations and public services. This transition was not trivial — it required adapting the terminology and the toolkit.

The specifics of service flows

In manufacturing the value stream is material: raw material becomes a product through a sequence of operations. In the service sector everything is different. The value stream is the path of information, a document, a customer request through departments. The flow is intangible, harder to measure and visualize.

Nevertheless, the basic principles of VSM apply fully. Every step in handling a request can be classified as adding value from the customer’s point of view or as waste. Cycle time can be measured. The waiting time between steps is visible to the naked eye.

Typical waste in services

In a bank loan application, typical waste looks like this:

• Waiting — the application sits in a scoring queue for hours
• Excess approvals — several levels of sign-off that add no value
• Rework — the application is sent back at the verification stage due to incomplete data
• Excess checks — duplicated checks in several departments
• Document movement — even electronic “movements” through several systems create delays

Analysis usually shows that the Process Cycle Efficiency (the ratio of real working time to total time) in an untouched bank process is 2–5%. That means the customer waits 95% of the time without receiving any value.

Adapting the terminology

Many VSM terms need to be adapted for services:

• “Raw material” → “Customer request” / “Application”
• “Assembly line” → “Handling chain”
• “Inventory” → “A queue of waiting requests”
• “Takt time” → “Target response time for the customer”

At the same time the basic VSM symbols remain: a triangle is an accumulation point, a rectangle with a cycle time is an operation, and the sawtooth line at the bottom of the map is the total lead time.

Example: a mortgage application

A typical VSM map of processing a mortgage application looks like this:

1. The customer fills in the online application — cycle time 15 minutes, value-added time 15 minutes
2. Queue for initial scoring — waiting 8 hours
3. Initial scoring — cycle time 5 minutes
4. Queue for document verification — waiting 24 hours
5. Document verification — cycle time 45 minutes
6. Queue for approval — waiting 16 hours
7. Approval — cycle time 10 minutes
8. Signing the contract — cycle time 30 minutes (the customer visits the office)

Total process time: ~50 hours. Real working time: ~2 hours. PCE = 4%.

The future-state map

After analyzing a typical bank VSM, the target improvements become:

• Automating initial scoring → the 8-hour queue disappears
• Verifying documents and approval in parallel → saving 16 hours
• Electronic signing → removing the trip to the office

The target PCE after reengineering often reaches 25–40%, and the total process time drops to 4–8 hours.

Where VSM does not work

Despite its versatility, VSM is of little use for:

• Creative processes with an unpredictable sequence (R&D, design)
• Adaptive case processes with a lot of branching
• Processes with a great variety of routes

For such processes CMMN or BPMN is a better fit.

Conclusions

VSM is a powerful tool for diagnosing service processes. Its main value is that it clearly shows the gap between real working time and total lead time. Often this gap comes as a revelation to management, which had been sure that “everything is fine with us”.