The value an organization provides can be defined in several different ways. It is the worth place on something and is usually defined as anything your customer is willing to pay for. Customers determine value and although this seems pretty straightforward, understanding how value is created is more difficult.
For something to add value it must change the form or function of a product or service and be done correctly the first time. This is how lean helps us scrutinize every activity of a process to determine whether that activity really creates any value for the customer. We look at each activity and ask if the customer, given the choice, would pay for that activity. The non-value-added activities, called waste, are then eliminated. They include:
- Transportation: the movement of material or information from one location to another.
- Inventory: includes raw material, work-in-process (WIP), finished goods, spare parts, office suppliers, etc.
- Motion: the excessive movement of people searching for things or running back and forth from one location to another.
- Waiting: employees waiting for instructions, material, tow motors, meetings to start, equipment to be repaired, etc.
- Over production: over producing a product or service in excess of customer demand.
- Over processing: giving the customer more than they’ve paid for such as extra inspection, rework, numerous approvals, etc.
- Defects: errors and mistakes that upset the customer.
- Safety and skills: unsafe work environments and not utilizing employees to their greatest ability.
By relentlessly scrutinizing every activity and eliminating the waste associated with them we create more value for our customers in terms of better quality, faster delivery, and lower price. This benefits the organization by increasing efficiency, improving customer satisfaction, increasing profits and ultimately generating additional business.