Managing Value, Part 4: Production
Tim Yoder -
President & Founding Partner
Every business has a common purpose -- creating value. In each blog entry, I have been focusing on one key management question:
"Can deliberately managing to add value to the final product impact each link on the company’s value chain?"
The first three entries focused on acquiring resources and inventory control. The next function on the value chain is production. The easy answer here is that everything we do in production creates product value. In general terms this might be true, but in reality it is not entirely true, and if we hold too tightly to this view we could miss opportunities for improvement that might increase value or reduce cost.
The production process is incredibly unique from one industry to another and even from one company to another in the same industry. There is no way to address the uniqueness of each situation in this blog. Instead, I am going to focus on two general topics that can be applied in virtually unlimited circumstances: innovation and continuous improvement. Webster defines innovation as "the act or process of introducing new ideas, devices, or methods that are more effective or meet new requirements."
That sounds great - innovation is the key to creating and increasing product value in the production process. So why are some companies so good at innovation and others frankly terrible? Innovation requires taking risks and being willing to fail on the way to success. Organizational culture has everything to do with whether or not employees feel empowered to take the risks associated with being innovative. The first “slide-outs” or the first aluminum frames in the RV industry never would have happened without a culture that embraced risk-taking and creativity. I visited a manufactured housing plant several years ago where instead of building on trailers and rolling the units down the line, the units were built on an “air-glide” system! Besides being incredibly innovative, the system provided huge benefits and cost savings to the production process. Innovation creates competitive advantage, but often that advantage is not sustainable over time. That is where continuous improvement can help. I like to think of innovation as creating value where continuous improvement removes waste by focusing on the processes that do not add value.
Kaizen is a Japanese business model for implementing continuous improvement that has become popular in the US, especially in manufacturing. Kaizen uses cross-disciplinary teams made up of management and operational staff to do “deep dive” analysis of a particular business process. The team analyzes each step of the process, breaking them down to the simplest level, identifying inputs, process steps, and outputs. In many cases, the team will do time studies and detailed cost/benefit analysis to determine measurable metrics for each step of the process. When the team identifies steps they want to change, the metrics they have developed are used to measure successful improvement. During the 1990s, I worked for two different automotive manufacturers that used Kaizen techniques. One company discovered that due to how the manufacturing process evolved over time, they spent way too much time moving material around during manufacturing. They started creating manufacturing cells and pre-staging inventory, creating a dramatic time and cost savings. The second company identified machine setup time in between product runs as a significant time and cost drain. This company found that if they were more deliberate about scheduling volume runs of like products for particular sets of machinery, they could have a dramatic impact on setup time -- again saving significant time and money. Whether using innovation or continuous improvement, companies need to include employees at all levels and foster a culture that encourages creativity and managed risk-taking.