In this article James Sandfield examines why we are obsessed with cutting waste instead of defining value. He gives his seven values to counteract the seven wastes.
Lean literature discusses 7 wastes but rarely proposes a list of customer values.
This omission is curious, is it because value is too hard to define or is it because the lean community is obsessed with waste and thinks value is just a consequence of having less waste than the competitor?
I would like to propose a list, as value is something you should build into your process, during standardised work activities. This would ensure you deliver something which is valued by customers.
The 7 values I would like to propose are:
These 7 values are not the opposite of the wastes. They are just part of the same metaphorical lean strategy coin. Like the 7 wastes they overlap and contribute to each other; there is no absolute separation.
This overlap happens when you deliver the right product at the right price with the right service with the minimum waste. You will need to use the Joy of Standards to minimise waste whilst you maximise value.
Correct price is the first value defined as without the correct price you will not have customers. You can have the best product in the world, but, if it is too expensive then customers will select competitor’s products and if it is too cheap then competitors will get higher margins and investors will abandon you.
Timely response is also important and can determine what your customers are willing to pay. They will pay a premium or praise your organisation (sometimes) for a fast service. Conversely customers do not always value a service which is too fast (or too slow) and conflicts with their expectations. The trick with timely response is to understand which response time will delight your customers. Empower your people, with standardised work, to make just-in-time reliably happen without stress, waste and defects.
Valued products and services need to be provided. If your customers find features or aspects of your product or service which are consistently and obviously better than your competitors then they will choose you more often. Make sure you make these features clear and recognisable. The Microsoft Windows 7 computer (made by HP) I am typing on today has many differences to my wife’s MacBook Pro (made by Apple) and the difference a potential consumer will value are the hardware, software, aesthetic and ergonomic features these computers contain (not just the $1,000 price differential that is charged in the local store).
If you believe that the market determines the prices, then lean agrees. Lean says profit is not cost plus margin, lean has a different equation for price; it is a counterintuitive calculation to guide an organisation.
Profit = a fair price to the consumer less costs
Organisations should therefore use the Joy of Standards to increase value / reduce cost and increased profit will be the consequence. This is how lean organisations avoid the risk that their desired margin puts their product above the market price; they also avoid a shrinking market share as there is continuously more value within their products (at a price that market forces dictate).
Flexible solutions are also a balancing act; too much or too little is a problem, like Goldilocks (in the fairytale) you will have to find something that is just right. This is because flexible solutions create complexity in your organisation but can also create new or happier customers. You will have to choose the level of flexibility suitable for your organisation. This selection will boil down to one double-barrelled statement: how much growth will you get from this complexity and how will you remain competitive on costs and service when delivering this complexity? If your answers are not clear, then your flexibility decision should lead you away from tailored solutions until these answers do become clear.
These flexible solutions do not need to be restricted to a single proposition. Different market opportunities exist: Highly flexible, tailored solutions which you are in a unique position to provide, command a high market price. Inflexible, mass production solutions which competitors can make, command a low market price.
The trick with flexibility is to ensure you do not have the costs of the former when you are providing products of the latter. The trick with lean thinking and standardised work is to start offering the former with the costs of the latter and watch your profit margins and market share grow.
Reliable supply is a basic requirement of your customers, in 10 years of lean, I have seen this as the most commonly missed item of an organisation when providing products and services to customers. Lean reduces inventory of finished goods and reduces work-in-progress within your office, distribution centres and manufacturing facilities, counterintuitively, this will actually make your supply more reliable. You will be able to predictably and reliably provide what your customers want.
Reliable supply is not limited to reducing inventory, it also relates to how your organisation plans and sells its products and services. This is where your customers will see you as reliable as they do not visit your factory and distribution centre to see how reliable you are being on finished goods and work-in-progress.
Ethical supply is not just a new and trendy word. Ford doubled people’s wages, Unilever built Port Sunlight and Tata is majority owned by charities. This corporate social responsibility is not new; it is part of ethical supply.
If your organisation is leading in its industry, on the ethical perspectives that matter, then you will not experience the negative fallout from boycotting, strikes and social media attacks. It is a simple win-win situation in today’s interconnected world. Promote optimisation in your organisation, through lean thinking, which makes you environmentally conscious, community orientated and accountable for your supply chain; your competitors will be green with envy, ruthlessly cost-cutting, cutting corners and left without customers or investors.
Trusted quality is part of the DNA in all respected organisations. Your reputation for recalls, fraud and market manipulation is expensive to repair and inconsistent with your organisation’s articles of association. You must ensure that you not only sell and provide appropriately but you also sell and provide better than you did yesterday, only the Joy of Standards (with standardised work and continuously improving standards) can guarantee this.
The alternative to trusted quality is to stay stuck in the 1980s with a rule book to throw at suppliers and / or failing employees. This may save a few directorial nose bleeds, but over the long term it will not save your organisation.
In summary: When you understand the 7 values you will deliver the right product at the right price with the right service with the minimum waste. You will need to use the Joy of Standards to minimise the waste whilst you maximise that value.
This post is an authorised extract from The Joy of Standards available on Amazon in paperback, Kindle and iPad (Kindle App).