Squeezing Lean (II): Value and Value Stream Mapping

The “Squeezing Lean” article series continues. In this chapter we will review the first 2 principles of 5 LEAN philosophy:

1. Identifying the value
2. Value stream mapping
3. Setting the flow
4. Making the flow work as a Pull system
5. Perfection search

LEAN Principle 1: Identifying the value

valueBased on the three basic attributes that determine a product/service, value can be defined as the price a customer is willing to pay satisfying her expectations in terms of quality and delivery time. Under this definition, value can only be assessed by the consumer who uses the product/service, while companies create the value through their operations and activities. That is, the consumer is the only agent who can perfectly determine what product/service she wants, how she wants it, and when she wants it. For that, it is not just a coincidence that the customer is positioned at the beginning and at the end of the stream value, which means she creates the need - which must be satisfied by the company delivering the product/service – and assesses what is received.

In contrast to the value, we find the term waste (muda, a Japanese word used in LEAN terminology). In the LEAN context, waste is any type of activity consuming resources but not creating value. Toyota's executive, Taiichi Ohno (1912-1990), was a fierce enemy of wastes and made a classification of 7 types of waste [Taiichi Ohno, “The Toyota Production System: Beyond Large Scale Production”, pp 19-20 Portland, Oregon, 1988]:

1. Defects. Errors in products/services that must be corrected to meet quality standards. This term also includes re-work in products/services to meet customer expectations,
2. Overproduction. Producing more products/services than needed by market demand or forecast. This is the worst waste of all since it can be the cause of most of the other wastes.
3. Overprocessing. Making more processing than required by the customer or providing levels of quality higher than those the market require.
4. Waits. People waiting materials or information to do their job. For example, waiting equipment to be repaired, customers holding in phone-line, etc.
5. Inventory. Excess inventory of raw material, work-in-process, finished goods, information, etc. is a bad practice since this hides other problems in the organization such as bad time responses, non-balanced processes, high rates of defects, planning errors, etc.
6. People transits. Any movement made by employees with non-added values is a total waste. For example, people going up and down to look for documents, an operator looking for her tool, even walking with no value adding can be considered a waste.
7. Transportation (materials or information). Moving things around with no value adding, including short distances, can be considered a waste. The simple fact of moving materials from the warehouse to the plant production is a waste since the customer does not pay for movements.

Recently, other types of waste have been added to the above list: services and goods which do not meet customers’ needs, a poor organization management, or the one widely accepted as the 8th waste: the misleading use of people talent.

James P. Womack and Daniel T. Jones, in his book: “Lean Thinking: Banish waste and create wealth in your corporation”, say that companies have less and less impact, almost null, in fixing Prices and that the real parameter that companies can control is Cost. Nowadays, Prices and Profits are highly linked to external factors such as customers, competitors, expected gains by ownership, social-economy context, etc. Taking all this into account, the conventional formula: Price (Value) = Costs + Profits, turns into the formula: Costs (Value) = Price – Profits, which means the only real thing companies can do to maintain value is defining and monitoring costs.

LEAN Principle 2: Value stream mapping (VSM)

Once the cost target has been set for a product/service, we must review all the stakeholders that compose the value stream - design, production, order placement, distribution, customer service, etc. in order to assure wastes are reduced and cost target is achieved. In other words, we must map the processes or activities taking place in the organization value chain.

By doing this, we must first identify all the activities participating in the value stream. The Value Stream Mapping (VSM) tool facilitates this work. This is a two-step process tool: 1) creating a diagram representing all the activities that are sequentially applied to the product/service, and 2) classifying the activities upon three categories:

1. Value added activities (value as perceived from the customer).
2. Non-added value activities which are necessary so cannot be removed – they can be optimized though.
3. Non-added value activities that can perfectly removed from the process.

After that, we must design actions to remove “Type 3 activities” and decrease the time consumed by “Types 1 and 2 activities” through wastes analysis and reduction.

Once this has been done, we can focus on applying the next LEAN principles. We will see this in next chapters…

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We, at ATAI, help companies detecting their operations value, removing non-value activities, reducing time in the rest of activities, and defining the target cost so that organizations are getting more efficient, LEANer.