Value by Product
Value is determined by the customer-at the very least, it is an item or feature for which the customer is willing to pay. Customer value is the difference between realization and sacrifice. Realization is what a customer receives. Sacrifice is what customers give up, including what they are willing to pay for the basic and special product features, quality, brand name, and reputation. Value thus relates to a specific product and to specific features of the product. Adding features and functions that are not wanted by the customers is a waste of time and resources. Furthermore, attempting to market features and products that customers don't want is a waste of time and resources. Assessing value is externally oriented and not internally generated. Only value-added features should be produced; non-value-added activities should be eliminated.
Value Stream
The value stream is made up of all activities, both value-added and non-value-added, required to bring a product group or service from its starting point (e.g., customer order or concept for a new product) to a finished product in the hands of the customer. There are several types of value streams, the most common being the order fulfillment value stream. The order fulfillment value stream focuses on providing current products to current customers. A second type of value stream is the new product value stream, which focuses on developing new products for new customers. A value stream reflects all that is done-both good and bad-to bring the product to a customer. Thus, analyzing the value stream allows management to identify waste. Activities within the value stream are value-added or non-value-added. Non-value-added activities are the source of waste. They are of two types: (1) activities avoidable in the short run and (2) activities unavoidable in the short run due to current technology or production methods. The first type is most quickly eliminated while the second type require more time and effort. Exhibit 16-1 visually portrays an order fulfillment value stream for one of Allen Autoparts' family of aluminum wheels. This particular value stream only has one manufacturing cell; other value streams may have several cells.
A value stream may be created for every product; however, it is more common to group products that use common processes into the same value stream. Allen Autoparts, for example, must establish at least five value streams: one for each product line and one for new product development. One way to identify the value streams is to use a simple two-dimensional matrix, where the activities/processes are listed on one dimension and the products on a second dimension. Exhibit 16-2 provides a simple matrix for the four wheel models: two aluminum models and two steel models. In this case, two value streams are indicated. Where each is made up of two product models (notice that products C & D have two different processes required when compared to A & B).
Once value streams are identified, then the next step is to assign people and resources to the value streams. As a rule of thumb, each value stream should have between 25 and 150 people. As much as possible, the people, the machines, the manufacturing processes, and the support activities need to be dedicated to the value streams. This allows a sense of ownership and provides a means of direct accountability. It also simplifies and facilitates product costing. In a sense, the value stream is its own independent company, and the value stream team is responsible for its improvement, growth, and profitability.
Value by Product
Value is determined by the customer-at the very least, it is an item or feature for which the customer is willing to pay. Customer value is the difference between realization and sacrifice. Realization is what a customer receives. Sacrifice is what customers give up, including what they are willing to pay for the basic and special product features, quality, brand name, and reputation. Value thus relates to a specific product and to specific features of the product. Adding features and functions that are not wanted by the customers is a waste of time and resources. Furthermore, attempting to market features and products that customers don't want is a waste of time and resources. Assessing value is externally oriented and not internally generated. Only value-added features should be produced; non-value-added activities should be eliminated.
Value Stream
The value stream is made up of all activities, both value-added and non-value-added, required to bring a product group or service from its starting point (e.g., customer order or concept for a new product) to a finished product in the hands of the customer. There are several types of value streams, the most common being the order fulfillment value stream. The order fulfillment value stream focuses on providing current products to current customers. A second type of value stream is the new product value stream, which focuses on developing new products for new customers. A value stream reflects all that is done-both good and bad-to bring the product to a customer. Thus, analyzing the value stream allows management to identify waste. Activities within the value stream are value-added or non-value-added. Non-value-added activities are the source of waste. They are of two types: (1) activities avoidable in the short run and (2) activities unavoidable in the short run due to current technology or production methods. The first type is most quickly eliminated while the second type require more time and effort. Exhibit 16-1 visually portrays an order fulfillment value stream for one of Allen Autoparts' family of aluminum wheels. This particular value stream only has one manufacturing cell; other value streams may have several cells.
A value stream may be created for every product; however, it is more common to group products that use common processes into the same value stream. Allen Autoparts, for example, must establish at least five value streams: one for each product line and one for new product development. One way to identify the value streams is to use a simple two-dimensional matrix, where the activities/processes are listed on one dimension and the products on a second dimension. Exhibit 16-2 provides a simple matrix for the four wheel models: two aluminum models and two steel models. In this case, two value streams are indicated. Where each is made up of two product models (notice that products C & D have two different processes required when compared to A & B).
Once value streams are identified, then the next step is to assign people and resources to the value streams. As a rule of thumb, each value stream should have between 25 and 150 people. As much as possible, the people, the machines, the manufacturing processes, and the support activities need to be dedicated to the value streams. This allows a sense of ownership and provides a means of direct accountability. It also simplifies and facilitates product costing. In a sense, the value stream is its own independent company, and the value stream team is responsible for its improvement, growth, and profitability.
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