May 27, 2016
All too often, people confuse value with the finished product or service for which they’re willing to offer their resources or money. However, value is not completely defined by the finished product; instead, value is defined primarily by what went into making the finished product.
What are you willing to pay for? This is the million-dollar question that all businesses need to be asking themselves, and it is also one of the key questions at the heart of a lean journey. What are our customers willing to pay for?
To help explain value, I’ll use a fast-food hamburger meal as an example. Initially, people would say they’re willing to pay for the burger and fries presented on the tray or to go; however, there’s more to it. Are you will to pay for cooking the patty and fries? Of course you are. Are you willing to pay for them to put it together for you? Of course. But are you willing to pay for waiting in a line? Not me. Are you willing to pay for wrong orders? Nope.
In the eyes of a customer, 95 percent of your time is considered nonvalue. What?! Why? As I said earlier, most customers confuse value with only getting a finished product or service; they just want the thing they ordered. When you know that value is defined by everything that went into the finished product, then you can discuss the steps/resources needed to make the widget and how each adds value to the completed widget.
“What are you willing to pay for? This is the million-dollar question that all businesses need to be asking themselves, and it is also one of the key questions at the heart of a lean journey.”
So, if value is defined by the customer, then we need to be sure we are always adding it. Moreover, we need to involve everyone in driving nonvalue tasks, costs, processes, and resources out of the business. There are more than just the two forms of value; value comes in four forms:
Value — Things a customer is willing to pay for. In order for something to have value, progressive and value-added changes need to have taken place—it was done right the first time, and the customer was willing to pay for it. With an extreme example from the burger explanation, if a customer wants to assemble their own hamburger, then the step of someone assembling the burger for the customer would not be adding value for that customer.
Nonvalue — Things that are not necessary, absorb resources, prevent processes from flowing, and a customer is not willing to pay for. In lean, these are the various forms of waste and their presence in your business and processes. The forms of waste—as originally defined by Taiichi Ohno—are waiting, overproducing, overprocessing, transportation, motion, inventory, and defects. Unfortunately, most forms of waste get “tucked under the rug” because it’s easy to ignore them and just assume that they’re part of your business. Defects usually get the spotlight because they are so easy to see, but I say all forms of waste are equally detrimental to your business. Learn the wastes, find them, and eliminate them. This is lean.
Business value — Things the customer probably doesn’t want to pay for, but you choose to do anyway because they are necessary for your business. These are usually the things that attract and retain employees—having a nice work environment, training and development plans, reward and recognition programs, etc. It is very important not to confuse business value with nonvalue.
Regulatory — Things you are required to do by bodies such as government, third-party auditors, and so on. One could argue that this form of value is the same as business value, but I like to break them out because these things are usually under external control from your business. Business value, on the other hand, is completely within your circle of influence.
Now that you know of the forms of value, go looking for them. Where you find value, celebrate. Where you find nonvalue, eliminate. Where you find business value, make it flow. Where you find regulatory value, master it.
Mike Nunn is vice president of operations at Ideon Packaging and is Lean Black Belt–certified. He can be reached at 604-524-0524, miken@ideonpackaging.com, or followed on Twitter @mikednunn.
