Some Concepts in Lean Management
Lean – Value
You may recollect that value is as defined by the customer and customer alone. If we are giving something the customer does not want, we are wasting our resources. We also defined who our customers are. We examined concepts relating to multiple entities such as the decision maker, the one who is paying; to a concept applicable to internal operations of a business.
The concept of value has an obvious and immediate implication. We must do only those activities that add Value to the product or service and not do anything that does not add Value. Value, once again,is seen from customer's point of view. This immediately brings us to the concept of Value Stream. Value Stream
A product or service is created from its incoming inputs like material or data; and systematically converted into a finished product, ready for the customer; in various steps, activities, operations or processes.
Typically, an organisation has work stations (service and manufacturing) or machines (manufacturing) organised, based on some logic. Customer's product or service flows through these work stations in some ordered (often chaotic!!) manner.
There may be travel time between one work station to the next work station, sometimes the same work station will be visited more than once. There is waiting time before the semi-finished product or service is picked up for processing at that work station. Then there is processing time; and finally, the time it waits at this work station before the job is sent to the next work station.
At various stages in all this activity, there are stages of inspection, quality checks which are all quality gates, by whatever name you choose to call them.
If we put this information on an office or factory layout diagram as the case may be, of various work stations, flow of work from start to finish, incoming to outgoing, first work station to the last, including outside processing, in a scaled diagram; and put in the travel and waiting times, we get a Value Stream Map (VSM).
VSM in Operations Management
VSM is a very powerful technique in managing our operations. It can help us in identifying -
Distance travelled by a product or service in the entire operation. By extension, you will eventually, step by step, include the steps carried out outside of our premises / factory / company as well, covering the entire supply chain.
Waiting time at each station and make attempts to reduce/minimise/ eliminate it.
Inspection time, with a view to minimise or optimise it.
Which of our actions are adding value to the customer and which are not.
This classification of activities in terms of value adding and non-value-adding needs careful consideration. This can prove to be a very powerful technique to improve efficiency of our operations and we can achieve much more than we thought was possible.
By definition, any activity that adds Value to the product or service, is value adding. Any activity that does not, is non-Value adding activity.
What is the criterion for defining this Value? Remember value is defined by the customer, not what we think the customer wants. If the customer does not want to pay for something, it is not adding value and must be classified accordingly.
Let us look at some examples of activities not adding value, so that the remaining can be understood to be adding value.
Travelling time for material or information, does not add value. Waiting time, whether in the stores or at a work station or at some server or some computer does not add value.
Non-value adding activities can be classified into 7 categories (the classical model) called 7 muda (waste, in Japanese). Once identified, it becomes our job to keep eliminating them and look for more. These 7 mudas are-
Transportation – Unnecessary movement of material or data is a waste. When we use the word unnecessary, we are tempted to classify lot of movements under the carpet of ‘’necessary’’. The right approach is, whenever you have a doubt, apply a strict rule and consider all or most of it unnecessary!
If you do not move material in your factory, customer is not going to pay you less. The same applies to movement of information, data, or any other resource.
Movement of people – Like movement of material is a waste, unnecessary movement of people is also a waste. Unnecessary movement includes movement of the whole body or micro movement of even a finger or eye.
Defects / rejects – Producing defects so that the product gets rejected is an important waste. Manufacturing organisations try to target lower and lower rates of rejection. This is a visible waste in manufacturing but not so visible in service industries.
Reworking – reworking on some material or product is visible waste. Despite this, many companies simply do not measure or target the reduction of rework. In service industry it is completely neglected. For instance, in software development business, rework reflects in a project being worked upon again and again. Typically, developer writes code, QA finds bugs, developer corrects it and this situation repeats itself.
Even when a company is following agile methodology, where the developer and QA work together, the same situation happens at a micro level. This issue is so common and accepted, that software developers say with full confidence that no project code can be developed right the first time. Manufacturing industry has gone through this situation and there is a strong school of thought that says “Do it Right the First Time” is possible, though difficult.
Material waiting – waiting time for material is considered to be waste, as there is money blocked in stock, the stock occupies space and can deteriorate in value. Most organisations are now sensitive to this aspect and are looking to improve their inventory turnover ratios and stocks of slow-moving items.
Overproduction – producing more than what is wanted, is a waste. In manufacturing companies, the focus used to be on utilising resources of money and people. They, therefore, kept producing products even when there was no order for them or no reliable forecast.
The excess goods just sit in the stock and block money or deteriorate over a period of time, causing losses for the business. In service businesses, this can be interpreted as providing services the customer is not asking for or customer does not appreciate.
Often there is a tendency to provide more, under the excuse of the “wow factor”. While this may help retaining a customer (we haven’t seen a reliable study on the profitability of this yet), customers may not notice the extra value we are trying to provide and an added “wow” becomes a necessary part of the product or service next time, increasing cost, without increasing the value.
A hotel may offer a welcome drink. Customers may love it. If they don’t get it when they check in next time, they are going to be unhappy. And this welcome drink won’t compensate for poor service.
People waiting – Like material or equipment waiting, people waiting is one of the most important wastes. This is invisible, as we take waiting time of people (except when they are manufacturing workers) for granted.
People waiting for material, equipment, instructions, information etc are examples of waste. Time spent on searching is never counted. In a large factory, a supervisor and workman spent a good 45 minutes searching for an Allen key!! Can you find any important document within 30 seconds? Can you find any file you need from your computer within 30 seconds? Searching for material? Information?
People coming to work late, from home, tea or meal are some more examples.
One of the most invisible and damaging wastes in this category is meetings that are unproductive. Meeting related (people waiting) wastes are as follows: -
I. Meeting called when it was not requiredii. People who have no role are invitediii. Meeting that could have been finished in a certain time gets dragged on longeriv. People come unprepared and waste everyone’s time during the meetingv. Discussion gets diverted from the agenda or main issuesvi. Meeting venue was too comfortable and people did not want to leave quickly. This may sound absurd, but try this next time. Conduct a meeting with the air conditioner set at 28 degrees. Also try holding stand-up meetings; and see how fast they get over. This is also why I recommend meetings to be held at gemba, stand up; as far as possible.
One of the standard tricks to follow in shortening phone calls is to stand up when talking on phone, as we tend to finish the call faster, compared to talking on the phone with our feet on the desk.
Meetings when held in a productive manner can be very useful but a large number of meetings are not. If we reflect carefully on the meetings we held today or recently, we can get a lot of insights. This waste affects all types of organisations and is all pervading, like the mythical Ether.
Entrepreneurs will do well to spend a significant amount of time to identify the value-added activities and non-value-added activities. Check out your diary for the last few weeks. If you are not keeping one, start keeping one from today. Study your meetings in the last few weeks. See where your employees, particularly senior ones are spending their time. Keep visiting your Gemba – your place of work, factory, offices from time to time and observe carefully.
After careful preparation of Value Stream Map, we calculate a Value Adding Ratio, as time spent on value adding activities divided by the total amount of time the job spends in our organisation. Our job then is to improve this ratio. Do not worry what is an ideal ratio, just focus on improving yours.
For this purpose, we prepare a target Value Stream Map, with improved layout and movement of material, information, process activities so that the Value Adding Ratio is better. We need to review the VSM from time to time and take corrective action.