If you had to sum up lean processes you would likely say “lean creates great customer value and flows very fast”. Lean companies organize around these 2 of the 5 principles of lean thinking. They create a physical and management organization around value streams. An organization where a single dedicated team is very close to the customers, serves the customers, and very close to their suppliers.
This is the 4th article of our Lean Management System series. The plan is to show how a complete Lean Management System works. Here’s the overview chart:
Problems of a Vertical Organization.
Traditional companies often do the opposite of a value stream organization. They do not flow fast because work has to move from one department to another. They are more focused on their own internal efficiency than the value created for the customer.
Sales is run differently from production and the measurements of the sales people are contrary to those of production. Purchasing works independently so as to get the lowest costs. They antagonizes suppliers for low prices, they buy huge quantities to get “economies of scale”. Accountants sit in a distant office and provide unintelligible measurements like variances and overhead absorption. These measurements are useless to the people in production and drive anti-lean behaviors.
These traditional methods are not necessarily bad. They were designed to support 1950’s mass production which is based the Taylorist † methods from the 1920’s. Their focus is on efficiency rather than customer value and flow. Lean is mostly the opposite of traditional management. Lean organizations arrange their business around the flow (material flow and information flow) and the value to the customer. The organization chart below shows how this often works.
These Diagrams Describe the Benefits of a Value Stream Organization
If you organize your business around the value streams that create the value for the customers, you will be able to serve your customers better, increase the value, increase the sales, remove waste, improve the flow, and increase the profitability of the business.
This is a quote from the ground breaking book “Lean Thinking” by James Womack and Daniel Jones”. †† This book first coined the term “lean” and provided a clear structure for achieving lean thinking in production companies.
“As you get the kinks out of your physical production, order taking, and product development, it will become obvious that reorganizing by value stream is the best way to sustain your achievement.”Lean Thinking, by Jim Womack & Dan Jones
Does This Sound Too Simple?
Most important things in life are not quick and easy, and most do not fit nicely into a single, simple model. This is true of value stream organizations, and there are a number of different ways to approach organizing value streams†††. Here are some of the common obstacles to establishing a value stream organization.
- Our sales people are organized by geography and not by the value stream product families. This is quite common. This means that the sales teams will continue to work as separate departments. This means that marketing is the closest the value stream gets to the customers.
- Marketing must take on the role of voice of the customer and liaise closely with the sales people.
- An effective “Sales, Operations, and Financial Planning” (SOFP) process becomes even more important.
- The production processes within the value stream share equipment. Shared equipment is called a “monument”. In the early stages you have to work around this and cooperate with other value streams for the scheduling of the monument. Over time the monuments are replaced by right-sized equipment for each value stream. This is sometimes quite a long time, so the value stream managers must cooperate to maximize the value to the customers.
- Often there are not enough people with the appropriate skills to populate each of the value streams. We never add additional headcount when moving to a value stream organization. In the short term it may be necessary to have some people working in more than one value stream. Over the long term people are cross-trained so that all the tasks are done by people working full-time in the value stream.
- Occasionally it is very difficult to know which products or product families should be assigned to each value stream. The product families within a value stream are determined by the items that take similar flow through the process. If these items are not easily identified, then there are analysis tools that can help to identify the common flow products. (If you do not have one, call the BMA Inc. office 609 139 1080)
- Sometimes companies have a large number of different product families with different flows. Usually the company will need to combine several product families so as to have a value stream that is a reasonable size for the organization, and the value stream manager will control more than one flow.
- Usually the company’s accounting system is set up for the detailed, job-shop style reporting and value streams do not fit into the current cost and profit centers. One way to address this is to keep the traditional accounting system but change the cost and profit centers. A much better approach is to introduce Lean Accounting where the financial reporting is always provided at the value stream level. This is called Value Stream Accounting.
The Bottom Line
Lean flow and customer value are created through identifiable value streams. To maximize value, flow, improvement, and profits it is best to organization your business around the flow. Do not worry if you can not design the “perfect” value stream. Make a start as best you can. Some companies start in the factory and then move out towards the customers and the suppliers. Others go “cold turkey” and implement the whole lot over a weekend, and then pull together the ragged edges over time.
Which ever way you want to go remember the important lean adage “progress over perfection“.
Here is a section from a case study of Steffes Corporation††††. Steffes is one of our long-term customers and provides products for off-peak heaters get systems, oil field equipment, and custom metal fabrication. Steffes has been spectacularly successful over the last 7 years using lean thinking and methods to grow the top line and the bottom line of their Income Statements.
According to Joe Rothschiller, President, Steffes Corporation:
“Value Streams allow managers to closely align expenses with demand and customer value. The value streams must be as comprehensive as possible.
A lot of companies have the general and administrative functions separate, and the only places they put value streams is the manufacturing plant. We don’t do that. We went with 100% – everybody in our company is in a value stream. Each of our value stream managers is a division manager and has final responsibility for everyone in his/her value stream. They have their own sales, their own inventory, their own purchasing, and their own accounting.
There are three prerequisites for successful lean adoption:
1. 100% management commitment.
2. Structure the organization by value stream.
3. Implement Lean Accounting across the company.”