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Value Stream Mapping: How to Identify and Reduce Waste
© 2016 All Rights Reserved Brown Smith Wallace LLP
A key concept of lean methodology is determining the ‘value’ of each major process step. Value is defined as any step that transforms a product or service and that the customer is willing to pay for. All other steps are defined as ‘non-value-added’ and are forms of waste to be reduced or eliminated.
By this definition, the value-added time of a typical process is often below 10% or even 1%. That seems too low to be true, but remember that value is determined by the customer. Think about it from your own personal perspective: when you purchase an item, you want it to meet your expectations for function, quality, price and delivery time. You really don’t care about the internal processes of the manufacturer, such as how many departments or factories they have, or how much inventory they maintain between each process step.
In lean theory, when you order an item, the manufacturer builds it and ships it to you. In practice, this is done by having the production schedule synchronized to customer orders instead of maximizing the machine utilization at each process step. That traditional approach creates a lot of in-process inventory that is actually a form of waste. It also leads to other problems and, therefore, should be minimized to the extent possible.
Value stream mapping is a tool that can help you identify and reduce waste in any business process such as in manufacturing, distribution, and even office and service environments.
WHAT IS THE VALUE?
The value-added time of a typical process is often below 10%.
The following pages include examples of value stream maps. You can see that the majority of the time is non-value-added, which is where the largest opportunities exist for process improvement and cost reduction initiatives.
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Example 1: Business Loan Approval Process
This value stream map shows a business loan approval process and includes the steps at each local branch and at the corporate office.
The total process for each loan has 1.78 hours of value-added time out of a total process time of 24 days (576 hours), which is well below 1%.
The cycle time of each step is the average time for each loan in hours. The steps with big differences between cycle time and value-added time will have large work-in-process inventory queues and should be targeted for improvements in throughput.
The goal is to have each step be capable of meeting the customer request rate at the branches and at the corporate office.
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Image source: asq.org
Example 2: Distribution Order Fulfillment Loop
In this distribution example, the total lead time (LT) per order is 2.9 hours (172 minutes), while the sum of the value-added steps for process time (PT) is 22 minutes.
The value-added time (called Activity Ratio here) is only 12.8%.
Using the average quality at each step (%C&A), only 81% of orders get through the process completely and accurately filled. That means almost 20% of orders have defects, which is another form of waste, and the time to resolve those issues is also non-value added time.
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Example 3: Manufacturing Production Process
This manufacturing example shows the steps of the production process with cycle times and several other metrics listed. The value-added time is shown directly below each production step. The time between those steps is the non-value-added time in this process.
The total cycle time, called Lead Time, is 5+10+7+4+4+4 days for a total of 34 days. This is the sum of the waiting time for each part between all the manufacturing steps.
The manufacturing steps are the value-added steps, which make up only 130 seconds out of 34 days—well under 0.1%.
The quantities of in-process inventory are shown below the ‘I’ symbols and, in this case, are 4 to 10 times higher than the customer demand rate.
In this process, the focus should be on reducing the work-in-process inventory to more closely match the daily customer demand rate.
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Image source: strategosinc.com
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Contact: Todd Snover
Lean Six Sigma Black Belt, PMPBusiness Process & Systems Group
[email protected] 314.983.1244
314.983.1200 | bswllc.com | [email protected]. Louis, MO | St. Charles, MO | Glen Carbon, IL
Brown Smith Wallace is a Missouri Limited Liability Partnership© 2016 All Rights Reserved
Whether your company is experiencing a growth spurt or facing more competition in the marketplace, there are many reasons to reevaluate your company’s business processes. Business process improvement helps organizations redesign their existing business processes to improve efficiency and flexibility.
Our approach to process improvement and technology implementation addresses your organization’s needs and the scope of resources required to bring the greatest value to your organization.
