Summary by Hsin-Yi Chen
Master of Accountancy Program
University of South Florida, Fall 2004
The main purpose of this article is to explain the systems and controls that are best suited to the lean company. According to the authors, there are three major lean management issues that need to be considered:
1. Developing an appropriate management focus,
2. Organizing by value stream, and
3. Costing by value stream.
This article (Part I) covers only the first two issues concerning the steps related to organizing the enterprise by value stream.
Developing an Appropriate Management Focus
A lean company places emphasis on creating value for customers. Value is added through many different processes rather than by one specific process such as production. For example, in the case where a customer places an order, value is added from taking the order, manufacturing products, shipping goods, collecting payment and after-sales services. The chain of these processes would become a value stream for sales (See Exhibit 1). A lean company recognizes the connections along the entire stream of the work performed in order to achieve a smooth flow of the product to satisfy customers; in other words, to create value for its customers.
This is the key difference between the management focus of the lean company and the traditional company. The traditional management concept focuses on organizing or managing the company by production departments. Thus, in a traditional organization structure each department is designed to be efficient rather than to produce a smooth flow of work to serve the next process or department. According to the authors, the primary purpose of management in a lean company is to identify the value stream in order to improve the flow of work required to meet customer needs, i.e., a demand pull flow rather than push.
Organizing by Value Stream
When lean manufacturing matures within the company, there is a need to manage the value stream. Thus a manager would be assigned with the profit and lost responsibility related to the value stream. The growth and improvement strategies revolve around the value stream because it provides the visibility for managing continuous improvement. The Simplicity of Value Stream Organization
The lean company strives for simplicity of operation. Thus within a lean organization there would be only three or four value streams with a clear cut line of responsibility. A traditional organization would have a complex organization chart, hundreds of cost centers and thousands of transactions to keep track of people. It is obvious that managing with the value stream perspective really simplifies management.
Value Stream as the Focus forImprovement
For each value stream there would be a continuous improvement (CI) team to review the value stream performance measurements and make improvements on time. The CI team within the value stream can see the entire flow of the work, thus the improvement benefits the whole system rather than a single process.
Implementing the Value Stream Organization
Implementing lean manufacturing can include implementing value stream management at the same time. Basically, there are three stages in the progression (see Exhibit 2).
At stage 1, lean manufacturing is first introduced and a pilot lean cell is implemented. There is no need to change the original organization chart in the short term.
At stage 2, lean manufacturing widely spreads in the plant and product groups, crossing organizational lines within the plant as each lean cell is linked into the value streams. At this stage it is necessary to manage by value stream and assign both production and support people to each value stream. Support people are important to the value stream because they make sure that the services are there to maintain the rate of production. The authors provide an example of support functions that need to be more available to a lean value stream:
1. Production Control – to manage the size and number of
kanbans required to achieve value stream target rates of production.
2. Transportation – to ensure that the right materials and tooling are at the right cells and at the right time.
3. Procurement – to ensure that materials are received from suppliers in the right quantities and on time.
4. Manufacturing Engineering – to ensure the focus on continuous improvement.
5. Maintenance – to limit equipment downtime, especially in a constraint resource.
There may be a problem of assigning people to value streams due to a shortage of people. It may be necessary to have a person serving in many value streams for the short-term, but for the long-term cross training would become necessary to solve this problem.
It might appear that implementing lean manufacturing with the value stream concept would require additional people, e.g., several production planners rather than a single production planner. However, this potential problem can be solved in two ways by:
1. Eliminating unnecessary administrative tasks, for example, production planning would not be needed when an effective pull system is in
2. Cross training can help in providing support skills in every value stream. Thus, no additional people would be needed and each value stream would have all the required skills.
For complex organizations, they may find that a matrix management structure (people still report to their functional bosses, but are assigned to work in particular value stream teams) is a convenient way to adopt lean manufacturing without disrupting the organization. A medium or small size business can simply forego its original structure and adopt a new one to reflect value stream management.
The authors provide some rules of thumb as guidelines:
1. When implementing lean manufacturing and value streams, move ahead step-by-step.
2. A value stream should contain between 25 and 100 people. When the stream contains too many people, it will not be able to maintain the small-team focus required. When there are too few people, it will not be able to maintain an effective operation.
3. A value stream should represent a significant part of the business. A business usually has three major value streams and a fourth one to combine all the other functions that do not fit in.
4. A key idea of value stream management is to have the majority of people working in the major streams, with only a few additional supporting departments to maintain the smooth operation of the business.
Note: The second article in this set is Baggaley, B. and B. Maskell. 2003. Value stream management for lean companies, Part II. Journal of Cost Management (May/June): 24-30. (Summary).
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