How to Define Value in VSM
In creating a value stream map of a manufacturing or service process, it is critical to define who is the customer of that process is and what is perceived to be value to the customer.
The customer may be internal or external. An internal customer is the downstream phase of the process under consideration in the mapping; the external customer is the end user of the goods or services produced.
Understanding what constitutes "value" is crucial. Defining value accurately ensures that organizations focus their resources and efforts on delivering products and services that customers truly need and are willing to pay for.
How do we define value and what steps need to be taken, to bring the process to expend energy and resources to make only that value flow?
1. Value from the Customer's Perspective
Value is defined from the customer’s perspective. Whether it’s a product feature, service, or specific functionality, if the customer isn’t willing to pay for it, it isn’t value.
Kano's model helps define product and process development priorities, focusing on what generates the greatest perceived value. The model divides the attributes of a product or service into three main categories:
Must-be (Essential): basic characteristics that the customer expects and that, if missing, generate dissatisfaction.
Performance (Performances): characteristics for which satisfaction increases in proportion to the quality or quantity offered.
Delighters (Enthusiasts): unexpected attributes that positively surprise the customer, greatly increasing satisfaction even if not requested.
Another way to define what is value or not for the customers (either internal or external) is the survey with an eventual completion of the Value Proposition Canvas that helps to design and refine the value proposition based on customer needs. It consists of two main sections: Customer Profile and Value Proposition
2. Differentiating Value-Added from Non-Value-Added Activities
Operations in the process that do not directly contribute to creating and delivering customer value are defined as wastes; these wastes are clustered in the acronym TIM WOODS: Transportation, Inventory, Motion, Waiting, Overprocessing, Overproduction, Defects, Skills not used. These wastes consume resources without generating value.
These wastes consume resources without generating value and should be avoided or minimized as much as possible.
One example is limiting unnecessary inventories or bringing the phases of the same value stream closer together to reduce the time for transportation from one operation to next.
There are activities that are not valuable for the customer but are still mandatory, such as financial or fiscal management activities. These kinds of activities are called semi-value-added and should be reduced, optimized, or automated as much as possible.
Value stream map is a highly effective tool in visualizing some non-value activities in the flow of materials or information.
3. Aligning Business Processes to create the Flow of Value
Once value is defined, all operations should be aligned or reviewed to continuously improve the flow of value. Lean tools and methods such as VSM, Kaizen, and kanban help ensure that the process and the flow is orientated to customer needs.
The value stream management approach focuses, for every single value stream, on the management, analysis and improvement of each stage of production or service, from initial customer request to final delivery. This also involves reorganizing the objectives, structure, and organization chart of companies' functions by value stream.
Defining value is the base for any process optimization. By viewing value through the lens of the customer, splitting between value-added and non-value-added activities, and aligning internal processes to maximize value, businesses can achieve operational excellence.
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