The goal of a Lean enterprise is to reduce lead times through the elimination of waste. Or to put it slightly different, a Lean enterprise focuses on efficiently delivering value to the customer. Both of these statements are short and simple and focus on the need to eliminate waste from any and all systems and processes.
Waste is anything that the customer does not value. And in this case, we are specifically referring to the external paying customer, as they are the ones who keep us in business. There are eight generally agreed upon categories of waste:
7. Over Processing
8. Untapped Involvement
These eight categories of waste help us to systematically evaluate the value stream and to look for opportunities to improve processes. They also relate back to the customer because it is the customer who defines what is valuable. Once they have defined the value, everything else is considered waste and must be reduced and ultimately eliminated.
Value to the customer is an interesting topic on which many volumes have been written. Value is defined as what the customer is willing to pay for. However, what they are willing to pay for has some constraints around it, commonly known as the 5R’s. The customer wants the:
1. Right part (or service)
2. At the Right Quality
3. In the Right Quantity
4. At the Right Time
5. At the Right Price
If all of these conditions are met, the customer will find value in what the enterprise has provided. In some cases, the enterprise can exceed the customer’s expectations around one of the 5R’s and the customer is ecstatic. This is often referred to as the WOW factor. It is also great when the enterprise can do this without incurring additional cost.
Processing is the act of converting raw materials or data into something the customer values. Therefore, by definition, processing contains the actions that customers are willing to pay for. Everyone is familiar with the childhood story of Goldie Locks and the Three Bears. Goldie Locks was wandering through the woods when she came upon the empty home of the Three Bears. Goldie Locks proceeded to go inside and to make herself comfortable by sitting in their chairs, tasting their food and sleeping in their beds. With everything of the Bears’ that she tried, she discovered that one was too much, one was not enough and one was just right. This same idea applies to the wastes associated with processing. In addition to over processing, you can also have under processing which is potentially worse than its more common counterpart.
Over processing is when the enterprise exceeds the customer’s requirement around one of the 5R’s and the customer doesn’t notice or care. One example would be heated cup holders in the back seat of a sports coupe – the only reason the vehicle has a back seat is basically for insurance purposes. Another example is software that has additional unadvertised features, like hot keys, that the customer doesn’t even know about.
Over processing a product or service costs money to develop, design, source, build, document and maintain the unnecessary feature, and the enterprise doesn’t get anything back for its investment. The time and money that was wasted in over processing could have been used towards other value added efforts.
Under processing, on the other hand, is when the enterprise has failed to hit the 5R’s. Under processing is easy to say but hard to identify and quantify. It is not always obvious that a company is not meeting their customers’ expectations; the customer just doesn’t come back.
Over processing has direct costs that are easily associated with it, like material and labor costs. Additionally, it’s easier to ask “Are we doing too much rather than not enough?” when an enterprise is being directed to reduce cost. Furthermore, under processing can actually appear to be a cost savings due to avoided direct costs. If the process is delivering quickly and running smoothly it must be okay? Right?
In a recent discussion with an executive from a manufacturing company who supplies components for precision applications within the defense and high tech industries -- the executive brought up issues they had with a recent outsourcing project. Many of the issues boiled down to a lack of due diligence prior to making decisions. In other words, the data was under processed. They made decisions quickly and the project moved along efficiently, until the product showed up and it did not meet the company’s expectations and required significant rework. In this case, the under processing had an obvious impact in time and money. In other cases, the customer might just keep you as a tier two supplier and never throw any new business your way. For this enterprise, they are now working to define and standardize on more robust outsourcing process.
While analyzing processes, facilitators and participants are trained to ask themselves where are we doing too much and what should we stop doing that the customer does not care about? In reality, they are only asking half the question. They should also be asking if we are doing enough and what are the gaps we have in maximizing our value to our customers? This highlights the need to communicate with the customer and truly understand what value the enterprise provides to them.
Hitting the 5R’s on the mark will maximize the enterprise’s value to the customer. In trying to address over processing you must be careful to not swing the pendulum to the other extreme and create a situation of under processing. The enterprise must understand what value they provide to their customer and identify the gaps of excess or inadequacy. There is a sweet spot to processing and hitting the balance of the 5R’s. As you look for opportunities to eliminate waste, remember Processing and the Porridge Principle. Not too much, not too little, Just Right!