Hope all of you had a happy holiday and are ready for 2013! Last year I wrote about defining your 2012 objectives and putting them into actionable events. I hope that as you review your objectives and actions, you were able to complete each one. If not, and they are still important to you, determine why you weren’t able to accomplish, define whether or not they are still achievable and if the answer is yes, place those at the beginning of this year’s list.
For those of us who are responsible for achieving increased profits, I wanted to address the process of value stream mapping. A value stream includes all activities to bring a product from your vendor’s raw material into the hands of the customer. It includes all activities from Sales through the receipt of dollars for your product. Any part of the process that takes time and resources but does not add value to the product is waste!
Statistics show that 60% of operations activities do not add value to the customer. VSM provides the key to
n Reduce lead times
n Improves product quality and space utilization
n Reduces rework/scrap and inventory levels
n Reduces indirect labor costs
Value Stream Mapping (VSM) serves as a personal magnifying glass and provides you with the tools to stand back, identify the waste in your business and to streamline processes to get rid of wa$te.
First, question how you currently run the organization. How are sales measured? Are they measured by actual orders received and shipped? In which case, you can invoice and receive monies. Are they measured by what is forecasted by the sales person? Does the product actually ship or is your warehouse filling up?
Order Entry: Are orders tracked through the system based on need date or ship date? Does everyone know? Is the computer set up correctly to reflect?
How do you measure performance or do you? Do you determine the sales accuracy of your sales people? Do they understand that under-ordering or over-ordering will impact the levels of inventory on hand or the amount of wasted money spent on expediting and premium freight?
New Product Design is the key to your customer retention and growth. It is the number one process to measure (your) business performance. Are all players at the table at the genesis of the new product - Sales / Engineering/ Producing Plant or Service provider/ suppliers / customer? Have you evaluated the amount of old items that needs to be used up to avoid obsolesce and all the costs surrounding this waste? Do we know the real date of the new product, part or service or will we upset and/or lose customers with a late introduction?
Purchasing/Inventory Management’s responsibility is to eliminate extras (they cost money in transporting, storage, and space). This means we must evaluate our decisions to insure that we carefully order only what we need. Working hand in hand with Sales people will assist in scheduling (only) needed parts. This means that standards must be set for sales people and suppliers.
Once we understand how the stream should flow we need to evaluate the work involved in meeting our value stream objective. Use a storyboard to facilitate “seeing” the process. A picture is worth a thousand words and visualizing the process negates the denial factor. What you will almost always learn is “gee, I had no idea….”
First, we must specify (remember, magnifying glass evaluation) the current process stream. How does your organization really work? Each step of each activity must be documented. I always suggest using post-it notes as they are easy to move around as you begin to evaluate the waste in the process. Once each step is documented – go back to the first one and evaluate the following:
- What is the labor cost per action – break labor down per step/action.
- How many forms do we need to use for each action – what is the cost of printing the forms? Are they 100% useable or old and need to be replaced? Can you combine several of them to save costs?
- How many times does the paperwork move from one desk to another before actually being actioned – quantify the labor costs as well as the potential loss of customers.
- Does your IT system enhance or delay your process – what has it cost you in customers? What has it cost you in low productivity (and more errors) from your frustrated employees?
Once each of the steps has been quantified in the process, sum to arrive at the total stream cost. $ TOTAL _______________
Now, define the process stream if everything worked right. (labor, steps process, movement process, IT process) What will be the anticipated value of each? Quantify each step as you did before. Arrive at a sum total for this process stream.
$ TOTAL _______________
Now, you are in the position to quantify your savings
Step 1. (the old way) List the cost of old stream $_________________
Subtract
Step 2. (the new way) List the value of new stream $_________________
Enter your total Activity Based Cost Savings (labor, steps process, movement process, IT process)
Value Stream Cost Benefits Dollars $ _________________
Evaluate your strategy for eliminating waste in the process to insure success
ò Define waste / AOP (Areas of Opportunity)
ò Define process owners
ò Develop Value Stream PITs (Process Improvement Teams)
ò Schedule progress meetings between all process owners (internal / external) to insure understanding, buy-in or consensus!
As non-value streams are eliminated and streamlined solutions are implemented, remember to update the storyboard to show continued progress. Invest those saved dollar$ on value-added education, capital equipment, and/or ergonomic equipment and furniture for your employees. Provide cost reductions to your customers on your products and/or services without losing a dime! The short term effort is well worth your long term objective.
WHERE WILL YOU BEGIN?
