So what are the 5 Value Principles?
And, why should we follow them? Well firstly, they are designed to keep a business honest and focused in the right direction. They are Guiding Principles. However it is not just about the “What”, it’s also very much about the “How” and “Why”. The application of these principles is crucial for a business success. So, what are they?
1. Specify Value by Offering
So, what is Value? How do we define Value? When you think about it, it’s surprising sometimes how difficult a questions this is to answer. People tend to forget seeing Value from the customer’s perspective. Lots of companies have lost focus on what value they actually provide for their customers. Business is not static and in this day and age especially, getting and retaining business is not simply about picking up the phone to administer a sales order. Customers make you work for their money now and make you work hard – if you are not paying attention, they will go somewhere else.
Coming back to our earlier question, “What is Value”? Simply put, Value is only the actions / processes that the customer is willing to pay for, the assembly process for a product, a bank holding your money in an account etc. So, with that, any other processes in your business are technically not adding value, and with that costing your business money.
Many companies don’t know the answer to this question, “Why”? This is because they forget to ask their customer. They don’t engage with them, and they don’t understand their specific needs and wants. While we’re on the subject, how does your business process customer complaints?
In this first principle, there is a great opportunity to cement your relationship with your customers, understand their needs, and in some cases help them understand and develop their own. Be an extension of your customers business in support and service and proving YOUR value is a lot more than just delivering a product, at the right cost, right quality, right quantity and all at the right time. Business is about relationships, and the more intertwined they are, the more you will understand what value you need to be providing to your customer.
2. Integrate the Value Stream
What is your value stream, and what is Integration? A lot of companies have a narrow vision of what they believe Continuous Improvement can do for them. The stereotypical viewpoint is that Continuous Improvement can only work on the shop floor or operational aspects of the business. That’s the lowest form of Continuous Improvement. Other companies might know more and know that they can improve effectiveness and efficiencies in the support functions. However, both companies are still not realising the true potential of Continuous Improvement and will therefore only achieve pockets of improvement.
Continuous Improvement is not confined to your 4 walls. We’ve already discussed adding value to your customers.
However, are you not customers to your suppliers?
And, are they not customers to their suppliers and so on?
Are you all not a part of the same chain that wants the same thing?
Which is growing your business with your existing clients?
So, how can you help each other in ways that will result in a better service, reduced lead times and reduced costs and perhaps there are other things you can provide to your direct client that will make their jobs simpler?
In Continuous Improvement we don’t talk about a traditional Customer-Vendor relationship. We talk about Supply Partners that work together to achieve a shared vision / goal.
With that, the Value Stream starts with you first supplier and ends with your last customer. The integration of the Value Stream is creating the virtual extended enterprise where everyone works together to ensure they continually improve their services to each other, reduce costs, reduce lead times and improve quality as required.
3. Make the Offering Flow
Typically when you first Map your process, you will be surprised at how little flow there is! Why? Traditional methods call for large batching to be carried out before the batch can move onto the next stage. This keeps people busy, keeps efficiencies up and sounds like everyone should be happy. Unfortunately, that’s not the case. Batching hides so many issues, which we won’t get into here. However, in essence batching greatly increases your lead times to your customers and also the amount of work you have to do to get there. There is so much waste hidden before your process begins to flow. In fact, some would say there is 90%+ waste in the system! Developing and implementing strategies to continually improve your flow will lead to substantial savings and improved service to your customer. There is no “One Size Fits All” here – different companies have different issues and working methods, so understanding your specific bottlenecks and problems are the key to improving.
4. At the Pull of the Customer
This is about understanding the demand from your customers and delivering only what they want. However, there is another dimension to this which can cause huge problems for companies (when I say huge problems, sometimes they don’t realise they are problems at all and just accept the situation as part and parcel of the process without challenging them).
We talked previously about working in large batches, so what is the knock on effect of this? Here is an example. Say your customer orders 5,000 products from you but what if your production batch is 10,000 parts? What happens to the 5,000 they didn’t order? They go to stock and sit there. You’ve paid to have them produced, for all the raw materials, the labour and now you are going to pay for them to just sit there and add no value. So, while you’re only delivering what the client wants, it’s at a huge cost to the business. Do you think this is sustainable? What happens if all of a sudden your customer doesn’t want this product anymore and it becomes obsolete?
What if we can develop a system that flows in tangent with customer demands so that you are only producing at the pull of the customer? This is where flow really teaches you strategies to become really effective at what you do.
However, there is another set of criteria we need to consider here – Forecasting, and how do we deal with it? To protect themselves and their customers, companies traditionally build to a Finished goods stock that could amount to millions of $ worth of product sitting there, as you guessed it, doing nothing. We call this ‘Just in Case’ manufacturing.
Wouldn’t it be ideal to just build and place directly into a container that will be shipped out that evening? Most companies are too afraid to take on such bullish strategies. However, many companies have implemented these strategies successfully, and while not feasible for every style of business, the goal should be to get as close as possible to a system that reflects the principle itself! Some Sectors have no choice but to produce product like this – Dairy / Food / Agriculture and any industry that have tight Best Before Dates.
It might be worth learning a few things from these industries!
5. In Pursuit of Perfection
This principle is all about adopting the previous 4 principles, and once adopted successfully, how can you go back and make them more effective. How can you continually improve on these principles? Do you think this sounds difficult? In reality, it’s simpler than you would think. As you make improvements, other wastes always become more visible. Waste comes in many forms and under many layers and there will always be something to improve on. There is a reason why this principle states ‘In Pursuit of Perfection’ as you will never reach it. However Continuous Improvement is not a once-off process. It is continuous improvement, thus continually improving on what you are today.
How can you make tomorrow better than today?
This is the philosophy that Continuous Improvement holds with great respect and pride, and companies who can adopt these principles are the ones that will not just survive, they will thrive. Make Continuous Improvement part and parcel of everyone’s day to day work, thus developing a culture of Continuous Improvement.
In adopting these 5 Value Principles, you will actually be changing the mindset of people, changing the culture and motivating and empowering your team. This is what you want! The more your team are empowered and motivated, the higher your performance will be, and continuous improvement will become ‘Just the way things are done’.