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Stories From The Field

Stories From the Field # 3 - March, 2004

Value Streams for a Retail Products Manufacturer
by Brian H. Maskell, President BMA Inc.

The design of value streams is one of the most important practical aspects of lean management. Over the next few months we will include a number of examples of how lean value streams can be designed.
There is no "right" way to design a value stream but there are principles that should be taken into account. These include:

#1: Using Target Costing to Increase Customer Value.
#2: Quoting Decision Without Standard Costs
#3: Value Streams for a Retail Products Manufacturer
#4: Value Streams for Plants With Many Product Families
#5: Make-Buy Decision Using Value Stream Costing
#6: Making Money from Lean Improvement
#7: Making Pricing Decisions based on Lean Accounting
#8: Value Stream Costing & Decision-Making Lead To Significant Business Growth
#9: One Company Learns About Quoting & Sourcing
#10 Making an Accounts Payable Service Center a Little More Lean


- The value stream should contain products with similar production or operational flow.
- As far as possible, Include all the people and processes that support the production or operational process.
- The value stream should be a reasonable size. A good rule-of-thumb is between 25 and 150 people; although this "rule" has been successfully violated quite frequently.
- As far as possible, the people should be assigned 100% to a single value stream with little or no overlap.
-Minimize the monuments. A monument is a machine, process, or department that is shared across more than one value stream. -Most companies have monuments owing to their history of purchasing machines and organizing the company around traditional manufacturing thinking. As far as you can, you should minimize the monuments within a value stream, and use lean pull methods to limit their effect.
- Extend the value stream outward as close to the customer as possible and as close to suppliers as possible.

The "ideal" order fulfillment value stream would include sales and marketing people, purchasing, customer service, scheduling, materials handling, various production operations, maintenance, engineering, tooling, other support processes, shipping, invoicing, and cash collection.
In reality very few companies can set up "ideal" value streams. There are often good reasons why sales and marketing, for example, are organized differently from production. Often support departments such as customer service or maintenance need to support more than one value stream. But the closer you can approach the "ideal", the better.

Another big issue is the organization of the people. It is not always necessary to dismantle the company's traditional departmental organization to create effective value streams. Many lean companies maintain their departments and create a matrix organization whereby people with the department have "dotted line" responsibility to the manager of the value stream in which they work. Others do go the "whole hog" and set up a new organization around the value streams with almost everybody assigned to a just one value stream. Both approaches are widely used by successful lean companies.

An Example

We have been working with a company that manufactures and distributes high-volume consumer products to retail stores.
On the one hand, there are relatively few primary products and they are manufactured in production plants dedicated to each family of products. On the other hand, there are 1000's of finished sku's that are sold to retail outlets. The basic products are packaged in many different quantities and styles of packaging; there are special "promotional" packs; some customers require their own branding while others prefer the supplier’s brand - which is very well known and promoted. For their larger customers the company has dedicated packing equipment and distribution processes.

While packing and distribution processes differ from one customer to another, there are many similarities across customers in terms of their distribution needs. The basic product is the same but the methods of packaging and distribution vary according to the kind of retailer.

The company's value stream design is as shown in the schematic below.

The basic products have value streams organized by the specific products being manufactured. Dedicated production equipment has been put into place so that each plant has 3 or 4 primary value streams producing a single family of products with the same production flow. These production value streams stop at the point where the basic products are manufactured. The company has defined a second kind of value stream that is focused on the customers. These marketing value streams start with the packaging process, move through the order fulfillment and warehousing process, and through to the customers' retail locations.

Some of the marketing value streams are dedicated to a single large customer. Others are focused on retail customers with similar needs, like supermarkets and pharmacies for example. These value streams (somewhat) regard the manufacturing locations as suppliers despite their being part of the same corporation. The basic products are supplied to marketing value streams from more than one production plant and the marketing value stream packages and distributes the products to the retail stores.
The marketing value streams contain sales and marketing people, logistics and warehousing processes, packaging and promotional design, as well as packaging plants making the finished products.

Each packaging plant houses several value streams and the processes differ according to the needs of the customers served by the value stream. A retail "warehouse" outlet, for example, requires very few sku's, has large quantities in each pack, requires delivery by pallet-load to the stocking point of the retail store. A supermarket or pharmacy usually requires a very wide range of products, frequent promotional packs (with season themes, for example), and has relatively little shelf space. The products are delivered more frequently, are delivered in mixed boxes (often the customers own crates) and are kept in the stockroom at the back of the store. The logistics needs of these different kinds of customers are very different and require different physical flow, as well as different kinds of customer support, marketing, and administration.

This company's value streams do not fully fit the definition of "ideal" but they certainly meet the needs of lean flow, customer value focus, and the pursuit of perfection.

Bringing Value Streams Together

As the "ideal" value streams are truncated owing to the practical needs of the operation, it is important to have routine methods to bring the "ideal" value stream together.

One important method is Target Costing that drives change, improvement, and product introduction from the starting point of customer value right through to the suppliers and their suppliers.

Another is an effective Sales, Operations, and Financial Planning (SOFP) process. SOFP brings (usually monthly) the entire value stream together from sales and marketing, through product design, through logistics and manufacturing, to the primary suppliers, into a highly effective cross-functional planning processes designed to quickly establish a jointly-developed "game plan" for the coming months. This planning processes ensures the two major parts of the value streams are working together coherently despite being organizationally separated.

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