What Do You Mean When You Say Add Value?

 

Lean Thinking is a mental process that enables us to perform more efficiently.  Basically, we study how we do something and then eliminate all wasteful steps.  James P. Womack describes five steps in the Lean Thinking process that will lead us to successful operations. Note that these steps can be applied to whatever process is being considered such as when an attorney makes a will for a client, a dentist fills cavities in a patient’s teeth, or someone makes widgets on an assembly line.

  • Determine what the customer wants.  That is, what is of value to the customer?
  • Describe the process that you use to transform your raw materials into the product that the customer is seeking.
  • Review the process and make it flow.  That is, make it continue without interruption by removing all waste and keeping only what is of value.
  • Have the customer “pull” the product from you so that he gets it when he wants it.  Note that in the example of the attorney and the will, the customer pulls the product since it is customized.
  • Keep refining and improving the process.

That all sounds quite easy.  In fact, it sounds as easy as making money on wall Street: buy low and sell high.  We find that executing the procedure is not as easy as it sounds.  One of the difficulties encountered happens when we get to the point where we’re reviewing the process and we have to decide what activities add waste and what activities add value.   That is, which activities should we include and which activities should we eliminate.   It’s an important question because it’s not always obvious.  Furthermore, the answers will depend on the individual organization.  Every organization is unique and has different characteristics and requirements. As a result, there is no “one size fits all” process.  We are thus compelled to change the way we think and attack each situation differently with Lean Thinking.  There are many paths to being “Lean” and I believe that it doesn’t matter what path one takes as long as the organization reaches the goal.  Some paths will be easier for some organizations than they are for others.  The principles remain the same while the processes can vary.  For example, a company with excessive machine downtime may want to start with a TPM (maintenance) program.  In another organization, reducing set up times may be the factor which “breaks the logjam” to lean.  Many departments use a 5S activity to get people to realize how much waste is around them.  Once people see that they can make four widgets in a day instead of two by merely not walking over the same area looking for parts and tools, the light goes on.

When the value stream has been written down, we can see all the activities that lead to our final product.  It is at this point that we must determine what steps to exclude. We’re told that, for example, assembling parts together adds value to the product.  That makes sense because this activity actually is making the product.  But what about all the activities that lead up to final assembly?  Moving parts to the assembly area, for example, is considered wasteful.  Although we may be able to accept material handling as being a wasteful activity, some of us (the material handlers) have a difficulty with that concept. Don’t we have to bring parts to a common location in order for assembly to even occur?  Why then, is that wasteful?  We have even more difficulty with something like inspection being called wasteful.  Should I not inspect my product to reduce the possibility that it might arrive at the customer in a condition that he doesn’t want?  These are only some examples of all the activities we do.  Since we’ve been doing many of them for a long time, it can become difficult to separate what adds value and what doesn’t.

In order to help us out of this quandary, we are given some rules to follow.  First there are several types of waste.  Books on Lean Manufacturing list seven types of waste which can be seen on the manufacturing floor, Seven is not a magic number, but is rather one way of categorizing wasteful activities.  As it turns out, an eighth waste has been added. The eighth waste is not taking advantage of people’s thoughts (wasting good ideas).  The eight wastes that are commonly listed then are:

  1.  Overproduction
  2.  Waiting
  3.  Transportation
  4.  Overprocessing
  5.   Inventory
  6.   Motion
  7.   Rework
  8.   Underutilization of people

 

In addition to our list of wastes, we’re told that some are worse than others are because they have a greater impact by creating other wastes.  This puts a further priority on the “wastes” and gives us more rules to go by.

Also, since the Lean journey is a long one, we must be patient and realize that we cannot eliminate all waste immediately.  Therefore, activities are classified into three categories:

  1.  Those that add value
  2.  Those that add waste, but cannot be eliminated immediately (type 1), and
  3.  Those that add waste, and can be quickly removed from the process (type 2).

 

Our inspection department likes #2 because although their activity is considered wasteful, we viewed it as being required for the near future at least.  The question of which activities are defined as wasteful still remains.  We could specify a given activity in a given process and ask an expert to determine whether or not it’s wasteful.  That’s not a practical solution since the number of manufacturing processes is extremely large and the number of unique activities is even larger.  When we have agreed on a process and we ask someone to evaluate his or her activities and determine whether or not they add value, the first question is: What do you mean by “adding value”?  If people thought their activities didn’t add value, they wouldn’t do them in the first place since people really like to be productive.

Some say that a value-added activity is any activity that gives the customer what he wants at the lowest possible cost. This is a good definition for a person who has a solid grasp of lean thinking concepts.  However, it may not be clear to a person who has one foot in the mass production framework.  Consider inspection, for example.  A lean thinker would know that inspection does not add value because if  the design were done correctly, and if  the parts were made correctly, and if  the parts were assembled correctly, and if … all the time, inspection would not be necessary.  A person who is not yet a 100% lean thinker may have some trouble with all the ‘ifs’..  When asked if one understands why inspection does not add value, my experience is that often people will reply in the affirmative out of expediency or perhaps for some other reason.  I have therefore been looking for a definition of “adding value” that anyone can use as a gauge against whatever activity he or she wants to consider.   So let’s define a gauge of what it means to add value to a process.  The definition should be something that anyone who knows the product (what the customer sees as value) can use to check whether or not a given activity adds value.

           Here then, is a statement that can be used to determine whether or not an activity adds value:

A value-added activity is any activity that helps to physically transform the raw materials into the final product in a positive way.

 

Think of a product.  Say it’s an electric toaster.  If you are making the toaster, your raw materials probably are sheet metal, chrome (if you do the plating), paint, glass, wire, insulators, maybe a circuit board, and so forth.  Any activity that takes the sheet metal and physically changes it to the final shell of the toaster is value added.  So cutting, bending, and coating are value added.  Moving, inspecting and setting up dies are waste because they don’t physically transform the sheet metal into its final form.  If a mistake is made and the piece is cut too long, that operation is waste.  The rework to cut it to its proper length adds value.  There are many steps in the value stream from the raw materials to the customer’s hands.  The purpose of lean thinking is to eliminate as many of them as is possible and to reduce the remaining ones.

To help see this, let’s look at an extreme example – Lean Production in the 24th century.  Star Trek, The Next Generation was a television science fiction program set in the 24th century.  Technology is to the point where machines can disassemble matter (including humans), transport them through space and reassemble all the molecules in the proper order.  Although they cannot create life, they can assemble inanimate objects from an inventory of molecules and atoms.  They have a machine called a replicator that can produce anything you ask it for based on the type of replicator you’re talking to.  For example, if you ask a food replicator for a hot fudge sundae with chocolate ice cream, the machine will access the proper molecules and assemble them in the form of a hot fudge sundae (dish and spoon included).  [Actually, I understand scientists are actually working on this technology now and have gotten to the point where they know it’s possible.]  The point is that this is the epitome of Lean Manufacturing.  All of the intermediate steps have been deemed wasteful and have been eliminated. Everything from spreading the fertilizer on the grass, milking the cows, producing the cream, etc. is eliminated. The world and everything in and on it consists of 112 different elements. The difference among all of the things in our world is determined by which atoms are included and how they’re put together.  Obviously we’re not to the point of assembling hot fudge sundaes from carbon, hydrogen and oxygen atoms yet, but if we keep that model in mind it will give us a clearer picture of the ultimate goal.  Knowing our present technology, we should have a clearer idea of what is value added and what is waste.

Although we don’t have replicators (yet), some organizations have eliminated or reduced some steps in their value chain. Selling a retail product has classically been done through distributors who sell to outlets.  It has been thought that distributors are necessary in order to make a product in New England and sell it in California.  Dell Computer, however, has eliminated distributors from their value stream by selling directly over the internet.  One can select the features, obtain advice, place an order and even follow the order through the production process on line.

Referring to Womack’s taxonomy, above, once we have defined the process and eliminated as much waste from it as is technologically possible, we then refine the process.  This is the continuous improvement part of Lean.  One way to begin refining the process is to reduce the number of steps (if that reduces the amount of time).  Combining steps, changing methods and/or materials are ways of refining the process.  The key point is that no process is written in stone and therefore one question to always ask is: Is there a shorter way of doing this?  Note also that although the sequence of thinking is always the same, the time period can vary greatly.  A process can be defined, waste reduced and refined in one day.  Alternately, you might have to use the process a month or a year before major refinements are obvious.

There are two advantages of viewing processes with the "value added" definition above..  First, it enables anyone to check whether or not he or she is adding value.  Second, no activity is sacred.  If you are adding value, there is usually a way to improve the process.  If you are not adding value, it is only a matter of time before someone realizes that your job can be eliminated or reduced. Knowing this, ask yourself if what you’re doing is physically transforming the raw materials into the finished product.  If it does, you’re creating value.  Now ask yourself the second question.  Is it possible to reduce the number of steps you’re presently doing?  On the other hand, if you’re not physically transforming raw materials into the finished product, you’re not adding value. By default, therefore, you’re creating waste.  Checking for type 1 and type 2 waste is relatively easy.  If you stopped doing what you’re doing, would the final product be satisfactory to the customer?  Eliminating waste with small changes is a type 2 while type1 waste requires larger changes in order to be removed from the process list.

Putting this thinking into perspective makes us realize that all changes take some time to occur and thus we probably will not see a mass exodus of personnel in the near term. Also, Lean Thinking does not advocate a reduction of personnel as much as a reallocation of personnel.   For example, the elimination of a central stockroom would free up the attendants to help out on the shipping dock because of the increase in throughput.

One example of this is can be seen in automobile upholstery.  Initially, auto upholstery consisted of some padding (probably horsehair) and a leather cover that had been dyed a color (probably black).  The cover was stitched around a frame and captured the padding. The padding changed to cloth and then to plastic foam which is used today.  The covering continued to be leather, but cloth was used as an option and later plastic was also an option.  As foams were developed, it was discovered that a skin forms on the outside of the foam when it cures and now that skin is the “covering” we see.  Still later, dyes were added to the foam so that the coloring process was included in the foaming process.  Later on, arm rests were molded into door panels that reduced the number  of parts on the assembly time. 

Another example from the human side of the equation is the reduction of management and the resulting flatter organizations.  This brings up the question of the non-production side of the organization that is usually considered indirect, overhead, burden,etc.  Lean Thinking considers these functions to be just as vital and vulnerable as those that are in production.  Each product that a customer buys must be thought of (engineering), made (production), made aware of to the customer (marketing), sold to the customer (sales), tracked for profit (finance), and overseen (management).  Dell Computer Corporation is thought of as being fairly Lean.  Customers view the products and purchase them online and can track the manufacturing progress until they are shipped a few days later.  As lean as Dell is, it still incorporates all six activities into its organization. All six of these functions have a product and a process that they use to make that product.  For example, someone must find out from the customer what product is required and then the product and its processes must be designed and that information must be communicated to production.  Say that function is called engineering.   Engineering’s product is the idea of what the customer wants communicated in such a way that production can make it.  Evidence of engineering’s product would be drawings, bills of material, working models, etc.  Anyone in the engineering organization can then ask if a given activity transforms raw materials into the final product that would be drawings in this case.  The same questions used in the production example can be used here.  Does the activity transform the raw materials into a product.  If yes, can the activity be changed to save time.  If the activity creates waste, can it be eliminated easily or is it going to be harder than that.  An example of this was seen with the advent in the ‘70’s and ‘80’s of computer aided drafting.  Previously, the product idea would be transferred to production via much paper work.  Computer automation of the drafting and the machining process reduced a lot of that paperwork and shortened the time between idea conception and delivery.

Computers are not necessary to eliminate waste from the engineering or finance or sales departments.  We must define the product that we are passing on to our customer and the process we use to make that product.  We then ask if what we do transforms the raw materials we use into the product.

References:

Lean Thinking

P 52 – The Techniques of Flow

  1. Focus on the actual object
  2. Ignore the traditional boundaries of jobs, careers, functions
  3. Rethink work practices to eliminate backflows, scrap, and stoppages so that the design, order and production can proceed continuously.

 

P20

  1. add value
  2. no value, but unavoidable waste (type 1)
  3. immediately avoidable waste (type 2)

 

Two questions in using the definition:

  1. does the activity transform the raw materials along the stream in a positive way?  This will eliminate: material handling, inspection, mistakes,
  2. is this step necessary because of the process or because of known technology?

 

P 38 defining value as something perceived by the customer – what does he know