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December 6, 2011

But we have to…

By raikman December 6, 2011

Some Lean practitioners have promoted the use of a third type of value-add: Non-Value-Add Required (NVAR).

Value-Add Ratio

Also known as Business Non-value Add, these activities are those that must be performed for legal or regulatory requirements.  Another consideration is whether the process would fail altogether if the process step were eliminated.  It is important to keep in mind that these activities are still a form of Non-Value Add.  So the goal from a Lean practitioner standpoint for NVAR activities is to minimize or (if possible) to eliminate these process steps.

A Fundamental Lean Measure: Process Cycle Efficiency

Once you have agreed on the definition of CVA a key measure to understand for any Lean practitioner is the Process Cycle Efficiency (PCE – also called value-add ratio).  This is simply the ratio of the total customer value add time for a single item (or transaction) divided by the total process lead time to deliver the product (or service).  This is the key performance measure of any process.

A number of Lean writers estimate that a typical process has a PCE of 5% or less.  In other words, 95% of the time required to move a product (or information) from start to finish are due to non-value add activities.  Common examples of such activities include waiting, performing rework, reviewing information, dealing with defects / errors / mistakes, moving items, and watching.

Past research for a variety of types of business processes resulted in the following figures for a typical PCE, and ‘world class’ PCE (George Group, 2004):

Type of Process Typical PCE World Class PCE
Machining 1% 20%
Fabrication 10% 25%
Assembly

(Batch Transfer)

15% 35%
Continuous Process/ Assembly

(Continuous /One Piece Flow)

30% 80%
Business Processes

(Transactional)

10% 50%
Business Processes

(Creative/Cognitive)

5% 25%

My own experience is that the values in the table above for ‘typical’ processes are somewhat generous.  That is, the values are too high.  I have seen PCE values well below 1% for many processes.  In short, while the practice of determining the PCE for any process is an important one, it can also be very humbling.

The Challenge of Defining Value

As noted previously, both new and experienced Lean practitioners sometimes struggle with defining value.  I hope the guidelines covered in Parts 1 and 2 of this blog will help to make this task a little easier.  But even if you still find it challenging, I would suggest that the time spent discussing, debating, and arguing over how to categorize each process step in terms of CVA is exactly the sort of thing you should be doing as a lean practitioner.  Working through this categorization is fundamental to developing Lean thinking, and hence is always worth the extra time required.

Finally, from a Lean practitioner standpoint you should always keep in mind the following rule of thumb when working on various types of activities:

  • Customer Value-Add : Optimize
  • Non-Value-Add Required: Minimize
  • Non-Value Add : Eliminate

December 1, 2011

Defining value, part deaux

By raikman December 1, 2011

In part 1 of this topic the fundamental concept of customer value was discussed.  Before applying lean methods to improve a process, the first step is to define exactly what value means for that process.  Or more accurately, to define what value means for the customers of that process.

Does your process contain too many non-value added activities?

What's the value?

This understanding of what adds value – which comes from an understanding of customer requirements – can then be used to categorize each process step as either Customer Value-Add (CVA) or Non-Value-Add (NVA).  Once this categorization is performed a lean practitioner can focus on eliminating or minimizing non-value-add activities.  Sounds simple, and for many lean projects it can be that straightforward.

As was explained in Part 1 of Defining Value, there are two key characteristics of process steps that add customer value:

1)      Change to materials OR information

2)      Something for which a customer will pay

So to be clear: A customer value-add process step must cause both a change to materials (OR information) AND be something for which customers will pay.  Examples of such activities in manufacturing include cutting metal, assembling a wiring harness, and painting a panel.  In a transactional process CVA activities include analyzing data, writing a report, approving a loan, performing a credit check, and answering customer questions.

The Second Time Around

Not covered in Part 1 was the situation where any of these activities are done a second time due to a mistake made the first time.  In this case the process step should not be categorized as customer value-add.  Such an activity is a form of rework, and although it may meet the first part of the definition of customer value-add (a change to materials or information) it fails the second part (activities for which a customer will pay).  Think about it:  If you purchase a new television, would you want to pay for rework performed on that TV?  Or if you submit an application to refinance your home loan do you want to pay for mistakes made by the staff of the bank?

One easy way to check if an activity is non-value-add is to see if the letters “re” are used in describing the task.  Some NVA examples include: rework, review, rewrite, repaint, retest, recheck, return, recall, retype, retrain, reissue, reship, redesign.  Always keep in mind the lean goal to ‘do it right the first time’.

Assessing Value in Internal Processes

This approach to classifying activities as CVA or NVA seems pretty straightforward for most manufacturing processes, and even most service processes.  Where many lean practitioners struggle is when they are working to improve internal processes that may not directly impact the external customer.  Examples of such processes include payroll, month-end close, hiring/HR, and regulatory processes.  Clearly such processes do result in a change to materials or information.  But just as clearly, external customers are not willing to pay for these types of activities.

There are two keys to assessing value in such processes.  The first is the previously mentioned question of who is the customer of the process.  But the second consideration is to answer the question: Are we looking at the process level, or at the organization level?  The answers to these questions will help in characterizing the process steps.

To be clear, when speaking of organization level I am referring to the value stream used to meet the needs of the external customer by the organization.  This value stream – sometimes referred to as the order fulfillment process – is really made up of a series of sub-processes including order entry, scheduling, operations, packaging, and delivery.  The customer at the organization level is the customer who pays for the product or service they receive.

On the other hand, the process level refers to any process within an organization whether it is part of the order fulfillment process (such as operations) or is a support process (such as payroll or hiring).  The customer of the hiring process is the department that needs a new employee.  The customer of the month-end-close process is the management team.

Now let’s look more closely at a process like payroll.  Does the external customer – i.e., the paying customer – care about payroll of their supplier?  No, they do not.  So at the organizational level, the payroll process does not contain any CVA activities.

But now consider the customers of the payroll process: employees (who want to be paid), managers (who need to track costs), and the government (who need the information to tax the company and its employees).  Each of these entities do value the activities required to provide them with the various products (checks, reports, information) of the payroll process.  So at the process level, there are CVA activities.

And here is the clincher: What if the company decided to outsource payroll?  That is, what if they asked a third party to perform the process of payroll.  Would the company pay the third party to perform this process?  Absolutely.  Therefore, one can infer that the company values the critical activities performed in the payroll process.  So now we have met the two requirements of a CVA activity covered in Part 1: (a) Change to material OR information, and (b) Something for which a customer will pay.

Do you have non-value add elements in your processes? What are you doing to make your processes more efficient?

April 19, 2011

Are you really open to new ideas?

By kmiddelkoop April 19, 2011

It was the second day of the E3 process and still the company refused to believe or accept that there were opportunities to improve.  The day before we had shown them lights left on, areas over lit, compressed air leaks and poorly insulated equipment.

Recycling Container

Recycle by coljox, on Flickr

The facility manager was a long time employee of the company that had been in business for over 50 years. He nursed an unlit cigar that he held in the side of his mouth.  I keep asking myself why did he not want to change?  Could it have been that the company was making lots of money or the fact that he was close to retirement?  Maybe he had just gotten lazy and was set in his ways. Was I going to be like him one day?  

So we keep to the agenda of the E3 (Energy, Environment, Economy)…an on-site 2 day training to help manufacturers understand ways to reduce costs, utilities and other impacts to the environment.  We took the group for a walk outside their buildings to look at things…we had just trained them on Learning to See, an exercise to help identify non-value outputs from their processes.   The group included TMAC staff and 4 employees of the company.  This included the maintenance manager, operations manager, quality engineer and someone from the sales staff. 

Learning to See

As we walked around the property the maintenance manager commented saying “you guys just won’t give up..there is nothing out here to find”.  We were running out of time, just one more hour and the workshop would be over. This was going to be a disaster…. So we walked up to one of the 60 yard solid waste containers, it was closed.  I stood the group together in front of the dumpster and asked the team how much they spent each year on disposal.  They all looked at each other and said “oh maybe $4,000 per year”.

Why Are We Doing This?

So we took a look inside and discovered that there were over 100 wood pallets inside.  Then someone said that this was just one of 3 containers that were picked up weekly.   Then the operation manager turned to the others and asked “why are we doing this? How long have we been doing this?”  For the first time the facility mangers cigar pointed to the ground as they all look puzzled.  Once again the E3 process produced the results we were looking to find.  The actual cost to dispose of their wood pallets was over $60,000 per year. This expense could be fully eliminated through recycling or reuse. 

I slept better that night knowing that it wasn’t up to me to find future opportunities, but to just let the process lead the way.

November 12, 2010

I hate managing people!

By Pat Boutier November 12, 2010
working together

Photo by: United States Department of Labor

Managing people is always about politics, isn’t it?

It is, if we believe interpersonal relationships are always someone else’s responsibility.   

 “I’ll ignore it for now; it will stop being a problem soon.”

We tend to think that our involvement requires too much time and uncomfortable discussions with people.

I’m just too busy to spend my time on little stuff like that.”

Continue reading “<i>I hate managing people!</i>” »

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