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About Value

Value is defined by the customer. Quite often, manufacturers cannot provide appropriate customer value. In many cases, senior business managers in the United States have lost touch with the customer. They desire customers to purchase products at reasonable prices in order to keep the company profitable. They attempt to increase the performance of the firm while reducing costs.

What is Value (from a German mindset)?

The German mind set is more product feature and process oriented. The technical people (engineers) are in control of the businesses. Thus, the Germans are very strong technically. Therefore, features and enhancements are of utmost importance. However, some of the new, complex enhancements have failed to attract the customers’ interests. Often, the German mind set is that the customer is not sophisticated enough to understand the new features. The Japanese define value in the context of where the value is created.

As the proportion of the product made on the Japanese homeland increases the greater the value that is retained at home for their society. Customers, in general, do not define value based on where it is made. Customers want their needs to be satisfied quickly. As the yen strengthened, the previous advantages of Japanese companies using Japanese suppliers disappeared. This has resulted in a weakening of many Japanese companies.

The customer wants:

  • Specific products with specific capabilities at specific prices.

Specifying value is the first step in lean thinking

New methods must be developed to communicate with customers, to get closer to them, and to find out what they want. Once the value is determined, a firm must go back again and again to determine if they really have the right answers. The target cost of the product may be determined after defining customer value. This target cost is more than the “market cost” of the product. The market cost is typically the manufacturing cost of the product plus the selling expenses and profit. In lean thinking, the target cost is the mixture of the current selling prices by competitors and the examination and the elimination of mud (waste) through lean methods.

This analysis results in a target price which is below current selling prices. Each firm in the value stream is reluctant to disclose too much information to the other firms, for fear of price concession requests. A voluntary alliance of the members of the value stream must be developed in order to eliminate the mud hidden in the value stream. The value chain is at a high operating level.

A generic value chain involves the key components:

  • Human resources

  • Technology

  • Procurement

  • Inbound logistics

  • Operations

  • Outbound logistics

  • Marketing

  • Sales

  • Service

The discussion and analysis centers on methods to differentiate the firm. However, an organization gains competitive advantage by performing certain strategic activities better or at a lower cost than its competitors. The value stream (or chain), as used in lean manufacturing efforts, goes into greater detail. It involves a single product stream, which is analyzed for reduction of waste, reduction in cycle time, or improvement in quality. A value stream map is created to identify all the activities involved in the product. This includes the various suppliers, production activities, and the final customer.

The activities are viewed in terms of the following criteria:

  • It adds value, as perceived by the customer

  • It adds no value but is required by the process

  • It adds no value, and can be eliminated Value Stream

Conner identifies the steps for documenting the value stream mapping as:

  • Product development:

identify customer requirements, methods of delivery, and typical quantities.

  • Process design:

Perform a walkthrough of the process, recording each step. Start from the shipping dock and work back through the process to the receiving dock. Make a note of machine times, cycle times, operators, and changeover times, WIP, available time, scrap rate, machine reliability, etc. Record the current status on an " x " sheet of paper.

  • Planning:

Develop a future state map.

  • Value Flow

Traditional mass production is often accomplished by the batch technique. The objective is to produce many units of a specific part at a given time, in order to maintain the production efficiency of the machines and the overall efficiency of the departments. However, optimization of the individual operation unknowingly leads to sub-optimization of the process as practiced by non-lean companies.

The lean effort requires the conversion of a batch process to a continuous flow process. In some cases, converting the batch process to one piece flow is ideal. Some of the obstacles to overcome include:

  • The plant has always done it in batches or lots

  • The plant has a multitude of departments and functions

  • The plant can’t afford quick changeover tooling

  • The plant has high momentum, inflexible machinery

  • The plant machinery would be expensive to move

Ideally, in a continuous flow layout, the production steps for single piece flow without WIP are arranged in a straight line, U-shape or cellular sequence. Inside this flow, the work of each station and operator must be performed with reliability. When the machinery is performing as expected, there are zero breakdowns. This is the concept of TPM (Total Productive Maintenance).

The quality level of each operation is very high, near perfect, using a variety of defect elimination and detection techniques. The activities required for production should be in a steady, continuous flow, no batches, and no WIP. There should be flexibility to meet the present needs. The work of people, functions, departments, and firms will require adjustments to the value stream to make it flow, and to create value for the customer. Instead of creating a product in response to an estimated sales forecast, the plant manufactures the product as the customer requires it. This is the pull system in action. This results in many positive things for the Organization:

  • Cycle times decrease (concept to launch, sales to delivery, etc.)

  • Finished inventories are reduced

  • Work-in-process (WIP) is reduced

  • The customer stabilizes their ordering

  • Pricing is stabilized

  • Most mass production manufacturing firms are in the push production mode

Each operation produces as much as possible and sends it onto the next operation. The goal is to maximize machine efficiency with a maximum amount of in-process inventory sitting around the plant. Contrast the above manufacturing firm with the factory that is dependent on the pull of the market. The receipt of a customer order initiates activities. Each operation produces parts as needed through a signal from downstream. There is a minimal amount of WIP in the process stream. This arrangement enables flow through the plant, using the principles of lean thinking. Quality, machinery downtime, absenteeism, etc., are all of concern.


The customer is searching for a value-added product. The pursuit of the first four principles of lean thinking allows the firm to move towards perfection. Solving customer value problems, working the value stream, converting to flow, and making pull occur, will help in eliminating mud (waste). As the process continues, more mud is eliminated, and perfection seems possible.

Perfection is accomplished via:

  • Product teams working with the customer to find better ways to specify value, enhance flow, and achieve pull

  • Using collaboration between the value stream partners (suppliers, distributors, customers, employees) to uncover more value

  • Using technologies to eliminate mud

  • Developing new products

  • Lean thinking principles are the cornerstones to higher performance and economic growth

Some possible improvement results from lean thinking are:

  • Improvement Area vs Reduction Improvement

  • Labor productivity

  • Throughput times

  • Inventories

  • In-house scrap

  • Safety injuries

  • Product development time

  • Capital investment

It may take years to apply lean thinking principles in a company, and even more time to apply lean thinking in the entire value chain. If a customer changes their requirements, the shop will not have units in a queue in partial stages of production. The shop will be able to shift production requirements and provide the first units rapidly. The necessary quality, machine, personnel, materials, and supplier resources must be coordinated and made available as needed. The layout of the line or cell is a starting point.

The line should be examined as necessary to:

  • Improve cycle times

  • Reduce product defects

  • Correct long changeover times

  • Address equipment reliability issues

The design responsibility:

Which department or group is responsible for this design? The person responsible for FMEA preparation. The date the FMEA was prepared and any necessary revision level. The subsystem or component part number being analyzed.

  • The component function

  • The potential failure mode

  • The potential effect of failure

  • The potential cause of failure