Lean and Customer Value...In the lean organization, activity is carefully managed to minimize any form of waste and to maximize efforts towards meeting the demands of the customer. In meeting the demands of the customer, the critical aspect is to ensure there is a clear and accurate understanding of what the customer perceives as VALUE. Every organization will have a range of customers, frequently customers will have directly conflicting demands, however every business needs to ensure their lean program, is based on delivering customer value. The first step in delivering customer value is understanding the current and future wants, needs and demands of customers. This will take account of potential changes in the external operating environment (technology, legislation, competition, etc., …), the changing expectation levels of customers and internal changes within the organization itself.
How can a business delivery customer value, where customers have conflicting demands?
Consider an auto-mobile manufacture with a broad range of customers. Some who want high performance vehicles, which may have relatively low fuel economy and other customers who value economy and efficiency in fuel consumption. Clearly no single model of vehicle will satisfy both sets of customers, therefore, a manufacturer will provide a range of vehicle models to meet specific customer expectations. In developing the business, the product development, manufacture and sale of each model of vehicle will follow strict lean approaches in terms of minimizing waste, minimizing transportation, waiting, reprocessing, etc., costs. However, the specific model design will address the specific customer requirements for “value”.
Key focus of the lean philosophy – Value Maximization, Waste Minimization.
All activity within an organization can be broken down into “Value adding” “Waste” and “Incidental”.
Value added activity – Activity that directly increases the value of the product or service in the eyes of the customer. It is essentially, what the customer is paying for.
Waste – Activity or use of resources that does not add any value to a product or service.
Incidental activity – Activity that does not directly add customer value, but which is currently necessary to maintain operations (e.g. the Human Resource function within an organization is essential, however, the customer is not seeking good HR policies when they purchase say a flight ticket).
You would expect that the objective in any organization which is focussed on lean and customer value, would be to maximize the “value added activity” and minimize both the “waste” and “incidental” activity.
When we consider “value”, that value is defined by the ultimate customer, not by the manufacturer. It is a statement of what is important to the customer. This is both the conscious value expectation of the customer, i.e. this usually involves quality, reliability, cost expectations, but “value” also includes those expectations of the customer which they may not be aware they even expect. For example, prestige, association, affluence, etc..
For example, when purchasing a pair of football boots, you clearly want good comfortable, reliable boots. However, you may also want the same brand or style as your favourite football player. So how does this fit into the provision of “value” by a manufacturer. Consider a business where the marketing department actively develops an association between the style of football boot and specific football clubs and players, to develop the link in the mind of the customer. In this example, the marketing activity of an organization, could be considered “incidental” activity, yet it is vital to ensuring the customer obtains value. In fact, the marketing may have shaped the customer’s value expectations, therefore the marketing department may be adding significant value to the product if not indeed being the greatest value contributor within the organization, if customers are prepared to pay a significant price premium for the product due to the marketing efforts.
Therefore, when we consider the value stream, incidental activity may or may not be value adding. The customer service function, may be incidental to an organization, but may be value adding in the eyes of the customer. The complaints function, may even be value adding, if by addressing complaints effectively, the customer’s perception of an organization and its products or services improve.
The key challenge for any organization, is to truly understand their customer and to be able to communicate the customer expectations throughout the organization. It is not sufficient for only senior management, or say the R+D function to understand the customer. The line managers, process engineers, quality improvement team members, must understand the customer and retain the customer expectations in mind as they implement on-going changes and improvements in products and processes. If staff involved in on-going change do not know the customer value expectations, then they cannot conceivably be expected to deliver those value expectations as they implement change within the organization.
Only when “value” in the eyes of the customer is clearly understood by all within an organization, can that organization truly expect to deliver “value” to the customer.
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