Many of life’s failures are people who did not realize how close they were to success when they gave up.
- Thomas Edison
Ok, let’s first address the 800-pound gorilla in the room, the word FAIL. Some people are actually afraid of the word fail… But I contend – You haven’t failed if you learned something.
What is Fail-Fast-Fail-Cheap (FFFC)?
Stop spending time and money on developing new processes, products, or marketing messages without trying (at least) pieces of it out.
TMAC, the U.S. Department of Commerce Manufacturing Extension Partnership affiliate for Texas worked with a company that wasn’t getting all they needed from their vacuum system, it was not removing debris from the material they were cutting. They were ready to spend thousands to tens-of-thousands of dollars for a new solution. After listening to their concerns and watching the process, we came up with, admittedly what seemed like a dumb idea, which was simply make the vacuum pull over a smaller area.
Back at TMAC HQ we cobbled together a crude prototype and tested it with a milling machine and sample material. It seemed to work, so it was time to try it on the real machine.
Can you imagine walking into a company with a 2-liter bottle and a roll of duct-tape? As you can imagine they laughed – mercilessly. However, after a quick test our concept proved to be a rousing success. So much so that the customer didn’t want us to take back our prototype – it worked so much better than what they already had in place. For a minimal investment of time and money, we were able to test the concept – fast and cheap. If it didn’t work, back to the drawing board and no one was out much. This time it DID work, so the company moved forward with the adjustment without purchasing an entirely new system. This example of cost avoidance directly benefits your bottom line!
Function, not form, is key when proving out a concept.
On a side note, it is very important to ensure that sufficient resources, in terms of time, money or both, are spent to truly test out a concept. Many (including us) have encountered instances where there wasn’t enough time spent to test a concept, and when it failed, it was not clear whether it was the concept or the implementation.
Bottom line: The key to Fail Fast Fail Cheap is to spend minimum resources to get the concept off the paper and into the application so you can tell if it needs to be revised, killed, or finalized.
Do you have a proven system for testing your new ideas?
Manufacturing in America is central to our economic strength and a driver of innovation. Manufacturing jobs are some of the best in the country, yet the public doesn’t perceive them to be. And there aren’t enough skilled workers to fill them. But together, we can help tell the real story…
The purpose of conducting management review is for the management team to get together at determined intervals to
discuss how effective its business is. This included looking for “opportunities for improvement and the need for changes” to how the business is run.
To some organizations, holding management reviews is as dreaded and avoided as going to the dentist. Even dentist trips should occur twice a year for cleaning, so I recommend against annual reviews.
So how often should “Management Review” be held?
When should management review “results of audits”?
Why not within 5 working days after the audit is held?
When should management review “customer feedback”?
Why not the same or the same day received or the following day?
Or why not at a weekly management meeting and review applicable items? How often should management review open “action items”?
How often should management review key performance results (aka Quality Objectives)?
Certainly not annually.
You may have picked up on the recurring theme in the examples above. The answer to “How often the activities listed in “5.6, Management Review” (ISO 9001:2008) need to be reviewed?” is, it depends. It depends on how timely and effective you want your appropriate action to be. The ISO 9001:2008 standard does not say that all the activities listed in “5.6, Management Review” have to be reviewed at the same time. As long as all items of 5.6 are covered and records are kept, whatever frequency of management reviews enables the organization to run its business most effective is acceptable.
How often do you review?
The opening of GE’s new GeoSpring Hybrid Electric Water Heater plant in Kentucky isn’t just a great endorsement for American Manufacturing but an affirmation of Lean’s ability to help improve a company’s competitive edge in today’s global marketplace. The events that have taken place at GE and GE’s Appliance Park in Louisville read like a case study straight out of a Lean handbook.
In the 1980s America was in an industrial decline and when the GE facility could no longer compete with production costs in Asia, for reasons such as an increase in wages and a decrease in the selling price of products, GE began moving production to the Asian plants. As expected GE was able to reduce labor cost and save on materials, but over time the cost savings from outsourcing was outweighed by the negative impact on GE’s competitiveness. The following examples are just a few problems GE encountered:
What did GE do to address these problems? They invested millions of dollars in Appliance Park. In addition to the problems brought on by outsourcing, two major events helped initiate the investment. The first was the availability of job-creation incentives from the state and federal governments and the second was a competitive labor costs as a result of the 2009 Competitive Wage Agreement between GE and IUE-CWA Local 761. But according to GE the company had not invested in Appliance Park because the culture “wasn’t right to invest”. How did GE address the culture problem? They embarked on a lean initiative that “maximizes customer value while minimizing waste and identifies employees as the most valuable resource a company has”, said a GE spokesperson.
GE’s upper management is showing their commitment to changing the company’s manufacturing culture by investing not just in the building with a multimillion dollar renovation but in their people. Investment in the people has been done through lean training and employee empowerment. The empowerment has removed barriers that would keep any employee from taking positive action that would lead to better quality and/or performance. According to GE’s Appliance Lean Leaders and employees, the way of thinking and the way things are done at Appliance Park have changed:
Using lean practices and tools, GE has reported cutting cycle time by 50%, eliminated 20% of the parts included in the GeoSpring final assembly, and reduced equipment investment by 30%. GE’s lean journey is demonstrating that Global competitiveness can be accomplished when the right tools are used in the right way.
According to a report by Boston Consulting Group (BCG), labor cost in China have risen dramatically and shipping and fuel costs have skyrocketed, this means China is not as cheap as it used to be and the United States is poised to bring back jobs from China. The report also points out that by 2015, it will only be about 10% cheaper to manufacture in China. If the BCG report is correct then the question for the United States will not be what company’s want the jobs but what companies have the capability (structure and culture) to compete in a global market.
With the freedom that a consumer has, in today’s global market, to go almost anyplace for a product that meets their quality and price requirements companies must be agile enough to meet consumers changing needs. As GE is showing us, the place can be the United States and the way to get it done can be through American Manufacturing.
According to the Centers for Disease Control and Prevention (CDC), in 2003 American businesses lost earnings due to influenza illnesses and loss of life was $16.3 billion. What does this figure mean in a day to day business context? In 2005, the average per-employee cost of absenteeism was $660 a day in lost productivity according to CCH incorporated (a leading provider of human resources and employment law information). How can companies eliminate this loss of money, this waste?
The single best way to prevent seasonal flu, according to the CDC, is to get a yearly flu vaccine, but good health habits and antiviral medications are other measures that can help protect against the flu. Studies have shown that American companies have had some success reducing the number of sick days taken by workers by offering the flu vaccine at the plant or office, not only is this more convenient for employees but it also reduces the time employees have to take away from work to receive the vaccination.
Whether the flu vaccine is offered through an employer sponsored event or off site one of the biggest barriers for employees to taking the flu vaccine is lack of information/understanding about the flu and flu vaccine. Some misconceptions regarding the flu vaccine are that you can get the flu from the vaccine itself or you are protected from the vaccine you received three years ago. One of the company’s measures to prevent seasonal flu should always include educating the employees on what the flu is, how it can hurt you and how the flu vaccine can help.
Companies should always educate employees on good health habits and strategies to prevent the spread of germs.
The CDC has put together a FREE toolkit for businesses and employers that provide educational material that can be used to fight the seasonal flu and help companies eliminate the loss of money caused by the flu (http://www.cdc.gov/flu/business/).
Historically, most companies have viewed their EHS department as a necessary evil that must be retained to avoid regulatory infractions. However, some companies have shifted their thinking to include their EHS departments as profit centers through re-classifying wastes as revenue streams and identifying opportunities for cost reductions and cost avoidance. This transition is becoming more noticeable as companies implement ISO programs, look for ‘Greener’ products and attempt to reduce the use of raw materials. The following include techniques to demonstrate to executive managers that an EHS department can serve as more than just an overhead expense:
And, as always, DOCUMENT, DOCUMENT, DOCUMENT. Without an accurate baseline, results are hard to demonstrate.
In today’s manufacturing arena equipment reliability is paramount, thus we are seeing more and more companies trying to implement Total Productivity Manufacturing (TPM). TPM is not a program that can be implemented over night and takes commitment at all levels of the organization to be successful. One major indicator of a successful TPM program is Overall Equipment Effectiveness (OEE). This OEE number can be challenging to obtain for most companies and involves six major areas of equipment losses: Setups and Adjustments, Breakdowns, Idling and Minor Stoppages, Start-ups, running at Reduce Speed, Defects and Rework.
Manufacturing is an exceedingly important industry sector in our state – maintaining our strength is a key economic driver. We’ve rewritten the rules regarding ROI on conferences. Gone are the days when you spent three days out of the office only to return with fragments of useful information. Join us this coming February for an informative day of learning that impacts every facet of your business!
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.
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?
Does that activity add value? The answer can provoke friendly debates, heated arguments, tears, hurt feelings, and the occasional fist fight. And that’s just among lean project team members! It can be even worse between lean practitioners and front-line workers, whether they are in a factory, warehouse, retail store, or office.
Think about it from this perspective: How would you feel if someone told you ‘What you do all day long is not a value-add activity’? That is the reason it is important to make a distinction between the person performing an activity, and the activity itself.
Yet despite the difficulty of defining value, it is a key skill for any successful lean practitioner. In the book Lean Thinking by Womack & Jones (1996) they proposed a basic approach to implementing lean that consisted of a five step process. The authors stated that “Specifying value accurately is the critical first step in defining lean thinking”.
In other words, before you can move forward in applying various lean concepts it is important to begin with a clear understanding of what constitutes a value-add – and non-value-add – activity. In the book mentioned above the authors address this topic further by noting that:
“Value can only be defined by the ultimate customer. And it’s only meaningful when expressed in terms of a specific product (a good or a service, and often both at once) which meets a customer’s needs at a specific price at a specific time.”
Several years ago I investigated the topic of value in order to make a presentation at an engineering conference. What I discovered was that different writers had different explanations of value-add. Consider these definitions from that research:
Value is added by changing the form of something or by moving it closer to the customer
Activities that must be performed to meet customer requirements
Value-added time may be thought of as any time spent on actually transforming the product toward its final configuration.
Value-added steps (or activities) are those that matter to the customer (external or internal); all others are nonvalue added. If there is disagreement over whether a step is value or nonvalue-added, it is best to err on the side of calling it value-added.
Any activity that increases the market form or function of the product or service. (These are things the customer is willing to pay for.)
The overarching themes seen in these definitions are two-fold:
1) Change to materials OR information
2) Something for which a customer will pay
In other words, if an activity results in a change to materials OR information AND if a customer would be willing to pay for that activity, then said activity should be classified as value-add. Examples in the world of manufacturing include tasks such as cutting, welding, assembling, and painting. In terms of service processes, examples include checking in a person at a hotel, answering technical questions via a helpdesk, mowing a lawn, and assisting a customer with the use of a new product. In the world of transactional processes, examples of value-add activities include capturing customer requirements, analyzing data, writing reports, making key decisions, and communicating needed information.
Of course, there are always some activities that fall into a ‘grey zone’ in terms of value-add. In the manufacturing arena two examples are tooling costs and setup charges. Many firms routinely charge fees associated with activities associated with these two process steps. Yet neither of them result in a physical change to materials.
Another such example is inspection. In some industries a supplier is required by contract to inspect their product before sending it to the customer. So in essence the customer is willing to pay for this activity. Yet inspection does not result in a physical change to a product. In office processes inspection or review activities are very common. Such steps are often put in place due to some problem that may have occurred months or years ago.
So should these tasks that fall into the ‘grey zone’ be classified as value-add activities? From a lean purist standpoint, I would say no. But from a practical standpoint I would be willing to accept that they are value-add. At the end of the day, it is more important that you agree on a definition of value-add at your firm, and are consistent in how it is used.
In Part 2 of Defining Value we will explain a fundamental lean measure to use when examining the level of value-add in a process: Process Cycle Efficiency. Also covered is an explanation of this measure in terms of both typical and world-class firms for various types of business processes. Finally, Part 2 will include a discussion of how to categorize activities performed due to regulatory and similar requirements.