Key Metrics of the Extended Value Stream

Key Metrics of the Extended Value Stream


Many organizations have mapped their door-to-door or internal value streams. These show material and information flow for a given facility. Taking the door-to-door concept up one unit of analysis, the extended value stream stretches across several organizations and facilities from raw materials to the end user. A lean extended value stream has the following characteristics:
Everyone in the value stream knows the takt time and rate of customer demand.
There is little inventory in the system, and there is a standard amount of inventory in the system based on the variability and availability of processes.
Lead-time is minimized.
Transportation is minimized.

There are several key metrics that will set a baseline and assist in developing goals and an action plan to reach the goals. This article attempts to help the reader gain an overview of some of these key metrics:
Value-Creating Time: Within a value stream, the time the material/product is physically being changed in such a way that value is added to the product.
In-Plant Time: Within the extended value stream, the time the material/product is in the factories/plants (but not necessarily being physically worked on).
Transport Time: Within the extended value stream, the time the material/product is moving between facilities.

Total Time: The total lead-time from raw materials to the end user.
Total Time = In-Plant Time + Transport Time
Value % of Time: % of Total Time that is value-creating.
Value % of Time = Value-Creating Time/Total Time X 100%
Value % of Steps: % of total steps in a lean extended value stream that are value-creating.

Inventory Turnover: The ratio of annual sales to average inventory, which measures the speed, that inventory is produced and sold.
Inventory Turnover = Annual Sales / Average Inventory
Product Travel Distance: The total physical distance that product travels in a lean extended value stream (between facilities).


About the Author
Darren Dolcemascolo is an internationally recognized lecturer, author, and consultant. As Sr. Partner and co-founder of EMS Consulting Group, he specializes in productivity and quality improvement through lean manufacturing. Mr. Dolcemascolo has written the book Improving the Extended Value Stream: Lean for the Entire Supply Chain, published by Productivity Press in 2006. He has also been published in several manufacturing publications and has spoken at such venues as the Lean Management Solutions Conference, Outsourcing World Summit, Biophex, APICS, and ASQ. He has a BS in Industrial Engineering from Columbia University and an MBA with Graduate Honors from San Diego State University.

Seven Wastes of the Extended Value Stream

Seven Wastes of the Extended Value Stream


Most people who have had any exposure to lean thinking have heard of “The Seven Wastes.” Taiichi Ohno, the former Chief Engineer at Toyota that popularized the Toyota Production System, is responsible for identifying the seven wastes of manufacturing. As he observed activity on the shop floor, he identified the following wastes:
Overproduction
Transportation
Unnecessary Inventory
Inappropriate Processing
Waiting
Excess Motion
Defects

In 1996 James Womack identified an eighth waste, the waste of underutilized employees (with respect to their ideas/minds), in the book Lean Thinking.

The idea of the lean value stream is to continuously work to eliminate the sources of these wastes based on their relative contribution to key lean metrics. Many organizations have reached the point in their lean journey in which they are working to create a lean extended value stream. That is, they would like to work on the value stream that includes their suppliers and customers. This value stream stretches from raw materials to the end user. One key to successfully achieving a lean extended value stream is to understand the types of waste one might find in the extended value stream. This article attempts to help the reader understand the implications of the seven wastes for the extended value stream.

1. Overproduction – Overproduction simply means producing more than what is actually needed by an upstream process or customer. On the shop floor, this generally occurs because changeover times are high, equipment is unreliable, the process is unreliable (causes defects), and standard cost accounting metrics are used. In the extended value stream, overproduction certainly occurs for some of these same reasons. However, probably the biggest reason for overproduction is poor information flow (communication) between facilities. Improved information flow between facilities is one of the key characteristics of a lean extended value stream.

2. Transportation – Moving product does not create value; this is amplified when examining the extended value stream. Unnecessary transportation is generally caused by making supplier selection decisions based on single points in a value stream rather than seeking to optimize the entire value stream. Proper selection of supplier/facility location is critical to a lean value stream.
3. Unnecessary Inventory – For the extended value stream, unnecessary inventory is generally the result of poor information flow and batch processing. Suppliers often hold inventory to support a lean customer; this ultimately gets passed on to the customer in the form of higher pricing and/or poor quality. Sometimes, suppliers and their customers are holding redundant inventory. Extended value stream mapping will expose this waste.

4. Inappropriate Processing – In the door-to-door value stream, this usually refers to using larger scale equipment than necessary; it also refers to building in rework to a process. In the extended value stream, it can also refer to using the wrong suppliers and/or the wrong process. With regards to rework, many times organizations rework parts after they come in from a supplier simple because of poor communication between facilities.

5. Waiting – This waste refers to operators waiting for machines as well as product waiting (inventory). This waste is generally the same for the extended value stream as the door-to-door value stream.

6. Excess Motion- Generally, this waste applies to production personnel having to move out of their work area to locate tools, materials, etc. Like the waste of waiting, this is essentially the same for the extended value stream as the door-to-door value stream.

7. Defects- This waste refers to defective product and information (paperwork). Its unique application to the extended value stream is defective product moving between facilities. This results in additional waste in the form of excess inventory and rework.

8. Underutilization of Employees’ Minds/Ideas – This waste could be changed to “Underutilization of Suppliers’ and Customers’ Minds/Ideas.” Organizations rarely approach their customers and suppliers to leverage their know-how with respect to manufacturing processes, information processing, and product design. This is a very important waste of the extended value stream.
“The seven wastes” is a powerful tool for implementing lean manufacturing in a facility. When analyzing the extended value stream, one must consider the seven wastes with a slightly different paradigm.



About the Author
Darren Dolcemascolo is an internationally recognized lecturer, author, and consultant. As Sr. Partner and co-founder of EMS Consulting Group, he specializes in productivity and quality improvement through lean manufacturing. Mr. Dolcemascolo has written the book Improving the Extended Value Stream: Lean for the Entire Supply Chain, published by Productivity Press in 2006. He has also been published in several manufacturing publications and has spoken at such venues as the Lean Management Solutions Conference, Outsourcing World Summit, Biophex, APICS, and ASQ. He has a BS in Industrial Engineering from Columbia University and an MBA with Graduate Honors from San Diego State University.

Toyota's Extended Lean Enterprise

Toyota's Extended Lean Enterprise


Many organizations are progressing in their Lean journey with the goal of developing into a true Lean Enterprise. To build a strong lean enterprise companies need to develop a world-class supplier network. Toyota has spent decades investing in their extended network of partners and suppliers, with the principle of challenging and helping them to improve. Most companies seem to focus on new information technologies and price squeezing with their suppliers instead of following the extended lean enterprise model of enabling and partnering with their supplier network.

Auto industry suppliers consistently report that Toyota is their best customer but also their toughest. The US auto manufacturers have a reputation for being tough; however, "tough" is defined as unreasonable or hard to get along with. In Toyota's case, "tough" is defined as having high standards of excellence, with the expectation that their partners will rise to those standards. US companies and Toyota have similar quality methods and procedures with extensive standards, auditing procedures, and rules. What sets Toyota apart is that suppliers view US manufacturers as coercive while Toyota is viewed as enabling.

Over the last few decades Toyota created a strong supplier network in Japan that has distinguished them from other automakers. As they moved to build the same network in North America with US suppliers, their demanding but fair partnership approach has received positive reactions. The principal measure of supplier relations in the American auto industry is the OEM benchmark Survey that is published by John Henke of Oakland University. Suppliers rank auto manufacturers using 17 measures from trust to perceived opportunity. In the 2003 survey Toyota ranked first followed by Honda and Nissan, while Chrysler, Ford and GM were fourth fifth and sixth. The survey also showed that Toyota's scores had improved over 7% over 2002. Another automotive supplier survey published annually comes from J.D. Power. The 2003 survey found that Toyota, Nissan and BMW are the best North American automakers in promoting innovation with their suppliers. Chrysler, Ford and GM were all rated below average.

The rewards for Toyota's investment in building a network of highly capable suppliers are obvious. Their quality that has distinguished them as a leader in the industry is a direct result of their excellence in innovation, engineering, manufacturing, and overall supplier reliability. But the investment can also pay off in other ways as seen in 1997 when a potential crisis threatened to halt Toyota's production.

Aisin is one of Toyota's largest and closest suppliers. Toyota usually dual sources most parts but was using Aisin as a sole source. Aisin produces a part called a "p-valve" which is an essential brake part used in all Toyota vehicles worldwide. In 1997 Aisin was producing around 32,500 parts a day, which was about 2 days of production inventory for Toyota. On February 1, 1997 a fire destroyed their factory and threatened to leave Toyota without any parts in 2 days. Two hundred of Toyota's suppliers self organized in an attempt to get production of the valve started in two days. Sixty-three companies pieced together engineering documentation, used their own equipment, set-up temporary lines to make parts, and as a result Toyota did not miss a day of production. A new information technology system or a coercive environment did not keep production running, but long-term relationships and an enabling environment did. To reach the level of a true Lean Enterprise with suppliers, an enabling environment needs to be created.



About the Author
David McBride is co-founder of EMS Consulting Group (http://www.emsstrategies.com), a Carlsbad, CA based engineering and management consulting firm. David has a BS in Mechanical Engineering from Ohio State University. He has a successful track record in the development and implementation of FMEA and Design for Manufacturability programs at several organizations and has greatly reduced Manufacturing costs through the utilization of Lean Manufacturing, Kaizen Events, and Manufacturing System Analysis. He has also been highly successful at developing and executing New Product Introduction processes, and Staffing and Capital Equipment Plans.

The End of an Era

James P. Womack

When General Motors filed for bankruptcy yesterday it marked the end of an era. The first truly modern, manage-by-the-numbers corporation, created by Alfred Sloan in the 1920s, was laid to rest as a viable concept. But what comes next?

This is not just a question for GM or large enterprises more generally. Yesterday also marked an end of the lean narrative that has been unfolding for thirty years, ever since GM first began to decline in the recession of 1979. David (in fact a team of Davids) finally felled Goliath just as Goliath was finally paying attention to the lean message. So we need to consider what happens next for the Lean Community as well.

What's Next For GM?

At the beginning of 2009, GM had three major weaknesses. It had too much legacy debt – bondholders and retirees. It had compensation costs for current employees that were too high to compete with transplant operations in North America. And the money it received for its products in most segments of the market was far below average, partly as a legacy of decades of defective products and partly due to losing the pulse of the public on what the company and its products should mean for customers.

Ironically, GM also had considerable strengths. It had competitive factories in terms of productivity and quality and a competitive product development process when it could focus its energies. (E.g., the new Chevy Malibu.) After failing for 15 years to learn lessons from NUMMI (its California joint venture with Toyota), GM had in recent years developed a competitive and consistent global manufacturing system and rationalized its global product development organization. It had even taken impressive steps to lean its internal business processes. But -- as in the case of its cast-off parts supplier Delphi -- lean came too late.

The bankruptcy re-sets the trip odometer. The legacy debt has been written down to a manageable level and compensation costs for current employees will now be much more competitive. In addition, the company is dramatically retrenching toward a reasonable portfolio of brands with production capacity appropriate to its realistic share of likely market volumes.

So what is the problem? Simply that GM has now explained what it is not. It is not Saturn or Saab or Pontiac or Hummer. (Or Opel or Vauxhall either, although surely the new Opel will be a supplier of fully-engineered cars for GM for a long time to come.) And GM is not a significant manufacturer in the U.S. outside of the Midwest. And GM is not, from a profitability standpoint, mainly a finance company. And GM will not have a dealer net blanketing every area of every city across the continent.

But what a company is not is of no interest to consumers. If General Motors is no longer "your father's GM" (to paraphrase its advertising line in the last years of Oldsmobile) or "the company that let you down" (as CEO Fritz Henderson phrased it at yesterday's news conference), then what is it? Why should any new customers care to shop GM products, much less pay the top-of-the-segment prices GM needs to flourish? And who can define what the new, appealing GM is?

Sloan's great genius in re-creating General Motors in the 1920s (after its second trip through reorganization – yesterday marked the third in 100 years) was to provide a compelling explanation of how GM fit into every American's life. He presented a complete range of vehicles from a used Chevrolet as a first car for the low income buyer to a fully-equipped Cadillac for those who had succeeded financially. And GM products were carefully arrayed in a status hierarchy with brilliant attention to the look and feel of each product in relation to American tastes. Indeed, as it gained massive size, GM was often the arbiter of American tastes.

So far the only message about what GM is is the Volt, its extended-range hybrid. Perhaps this is a start, although with enormous risks given the flux in technologies and in political and public perceptions about climate change and energy dependency. But even if it is a start, it is a very small start. Who can comprehensively define "your son's GM", "the GM that never lets you down"? And what freedom will they have to do so?

It is easy to blame GM's recent management for its troubles. But the senior GM managers I have known – almost all of whom had strong finance backgrounds --were remarkably competent at running the company in the financially oriented, manage-by-results way that had produced success for generations. So the problem is not the individual competence of mangers but GM's irrelevant conception of what management needs to do. In simplest terms, where is the new Sloan, the leader able to rethink GM's management and purpose and make it relevant to Americans again?

And supposing the new Sloan (or Sloans) can be found. What freedom will this person or team have to run the company in a way that restores its former glory? This is truly a central question because the U.S. government, as the new owner, is sure to be enormously conflicted:

Should the company be immediately and completely "right-sized" for its new place in the world? (This would be the best way to boost share prices so the government can sell the stock to recoup its massive investment. And it would be the best way to help Ford and Chrysler as well, by eliminating excess capacity.) Or should GM stimulate employment in a deep recession and placate the union by minimizing cutbacks? It can't do both.

Should GM focus in the next few years on the big pick-ups and SUVs that account for all of its profits? (This would be another excellent way to boost share prices so the government can recoup its investment.) Or should GM take a dramatic turn toward highly fuel-efficient products, which won't sell and certainly not at high margins unless energy pricing is also dramatically adjusted upward toward world levels? (e.g., $5 versus $2 per gallon.) It can't do both.

Clearly the hard part comes now, after bankruptcy, and we will all watch what happens. But let me make an exception for those readers – and there are many – who work at GM and who can take an active role in making it happen. I truly wish you the best.

What's Next for Lean?

For 30 years now the Lean Community has benefited from a strong trailing wind. GM steadily declined as Toyota steadily advanced. All we needed to do was standby and cheer! But this narrative is over.

GM and almost all large manufacturers have now accepted lean as a management theory, although the actual practice is always a struggle. As I noted above, GM was becoming a vastly leaner enterprise just as it collapsed and I have confidence that it will continue to embrace lean principles and methods in the years immediately ahead.

At the same time Toyota has turned out to have flaws of its own in the current financial crisis. It barged ahead with capacity expansion across the world that outran its ability to create lean managers and defied reasonable expectations for long-term market demand. (As I have mentioned in previous e-letters, in the mid-1990s Toyota redefined its purpose from being the best organization at solving customer problems to being the largest, an objective of no interest to any customer.) This has been a real setback for the lean movement.

We in the Lean Community therefore find ourselves in the odd position of winning a battle of ideas without actually getting most believers to fully practice their new convictions. And we have as our ideal organization a company that is experiencing significant management and revenue challenges despite "winning" the great contest between modern management and lean management.

Even as this drama plays out within manufacturing, lean ideas are spreading rapidly to new fields, from the beleaguered financial industry to healthcare to government services. Yet we have not fully defined what lean means in these areas, much less how to implement and sustain it. So the dramatic events of recent weeks are not a time for self-congratulation. Instead, they are a time for modesty and self-reflection – hansei, if you will – as we all struggle with the economic crisis while trying to re-define our own purpose as a Lean Community for the new era ahead.