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Stories From The Field

Stories From the Field # 4 - April, 2004

Value Streams for Plants With Many Product Families
by Brian H. Maskell, President BMA Inc.

Working with a company recently opened up a new wrinkle in the best way to design value streams. As we've said before, there are no hard and fast rules on what a value stream should look like - but there are important principles. These include:

- 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.

 
#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 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 as close to the customer as possible and as close to the suppliers as possible.

The Problem

The company makes a wide range of related products, but each product family has its own cell. The products are made from raw material through to finished and packed goods within the single cell. This production plant had already established 14 "value streams" before we began work with them. But these value streams were really single cells each.
When we first started to demonstrate Value Stream Costing to the team, they were dismayed. They could not see how they could collect summary direct costs for each of their "value streams". And it was impossible for each cell to have its own dedicated support people. They saw this as a costing nightmare, replete with complicated and confusing cost allocations.

The Solution

The solution to this problem was already set up within the company. They had already established three business units with a Business Unit Manager and a support team. To create a viable yet simple management reporting structure we used the business units.
Each business unit contains 4 to 6 product families each with its own production cell. Value stream costs, income statement, and box scores are reported by business unit. The Business Unit Manager and his/her team carry all the responsibilities of a Value Stream Manager. They must grow the business, increase value for the customers, eliminate waste, and return more profit.

Production costs are gathered for each cell (materials, machines, cell personnel, etc.) and the support costs are gathered by business unit. These support costs include the support people, facilities costs, supplies, consumable tools, travel, and other costs. Each week these are consolidated into a business unit income statement. Every month the business unit income statements are consolidated to provide a company-wide income statement. The company-wide income statement will also include costs that are outside of the 3 business units. The "overhead" costs are collected as if they were another business unit.

A Box Score is also created for the business units as a whole with business unit performance measurements, income statement, and capacity usage. The box score also shows the average cost for products within the business unit. Each cell also calculates a weekly average cost for the products within the cell, but this average includes only the direct cell costs.

This approach - while not using a "classic" value stream organization - fully supports the purpose and principles for establishing a value stream team, while at the same time providing realistic cost and performance information for managing and growing the business.

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