Why You Need to See the Entire System

Seeing the Whole Value Stream by Dan Jones and Jim Womack provides “a method to understand the current state of a value stream for a product and to envision future states that progressively reduces waste, variation, and response time, resulting in lower cost and better value for the customer,” says John Shook.

In an introduction to the expanded second edition, Shook emphasizes lean’s true nature as a holistic business system. “Everything is connected,” says Shook, “so the practice of point optimization invariably squeezes costs and waste in one location only to find that they pop up elsewhere in the system.” The following Dan Jones essay from the book details the bigger picture when mapping a value stream, and, “elevates value-stream thinking to total-system thinking.”

**********

This final essay expands the scope of analysis to all of the value streams supplying materials for a complex component. Collectively these are the supply system for this product, a system that needs to be as lean as possible, both through and between every facility along each value stream. The question that emerges once this analysis is completed and the value streams are improved through future states 1 and 2 (as described in this workbook) is where across the world each of the facilities should be located. This was the key task of the ideal-state analysis presented for the wiper value stream.

Seeing the System

Another very powerful use of extended value-stream mapping is to track the path of all of the important parts that go into a product being delivered to a customer. The pattern that emerges will show the consequences of the manufacturing and sourcing strategy that guided the design of the product and its supply system. More importantly, examination of the current-state system may reveal opportunities for rethinking the global configuration of the supply system for the next product generation. This is the point at which it is easiest to make a major leap to an ideal-state configuration.

Recently, a global automotive supplier of a forged, machined, and assembled component delivered to an auto assembler in the USA began to design the next generation of product. The firm decided to take a fresh look at the supply system for all the key sub-components back to raw materials.

It assembled a cross-functional team from operations, procurement, supplier development, planning, and finance to collect the data and map each value stream in the current supply system using the methodology described for the wiper blade in this workbook. The maps were posted on a big wall in their procurement department. In this case, many of the facilities were part of the same corporation, so the cross-functional team was able to get most of the information they needed from internal suppliers.

The completed system-level map covered a whole wall and contained similar data boxes to the current-state maps for the wiper blade—recording processing time, raw materials, work-in-progress, finished goods, transport time, transport batch size, delivery schedule adherence, production batch size, changeover time, production interval, yield, parts per million, demand amplification, etc., for every activity.

It is easy to get lost in all this detail and it is very helpful to summarize the main features of the system in a system-summary map (below), showing the main time lines (the amount of raw materials, work-in-process, finished goods, and transportation time) needed for each of the extended value streams in the supply system and the main information flows that trigger these activities. These are summed into the total lead time for each value stream.

The conclusions they drew from the detailed analysis of each value stream on the wall and the system-summary map were:

• The key parts for this product are made in 14 factories in 9 countries on 4 continents and necessarily travel thousands of miles on their journey to the customer.
• It takes between 26 weeks (182 days) and 90 weeks (630 days) to perform the 10.5 hours of processing time to forge, machine and assemble the part.
• The cost of all the inventories along the value stream totaled 9.5% of total contract value. Once you have a delay, the customer builds this into their safety stock for the life of the program.
• The cost of special air freight to respond quickly to changes in demand from the customers was also 9.5% of total contract value, while total transport costs 3.0%.
• A lot of top management time was spent responding to and sorting out issues and problems with the customer and with distant suppliers, many of which were part of the group.
• Information flows are difficult to align across cultures, with different timings, languages, and information systems.
• Supply streams crossing currencies carry much greater risk, both of windfall gains and losses.
• Long lead times also make it harder to introduce new product designs, accompanied by difficult discussions on who will bear the cost of obsolete stock in the pipeline.

These long lead times, extra shipping costs, and extra inventories are a reflection of this firm’s decision at the time the value streams were first configured to create large “focused factories” to gain scale economies in each manufacturing step (forging, machining, and assembly in this case.) The scale imperative in many cases resulted in the selection of one plant to perform a given operation for products delivered to customers around the world.

The other key element in location strategy at the time these value streams were configured was to utilize low-wage labor whenever possible in China, Brazil, and Mexico for customers in high-wage locations. The advantages of high scale and machining efficiencies at company plants in Germany, Spain, Japan, and the UK and of low wages in China, Mexico, and Brazil had been judged greater than the disadvantages of long lead times, lack of responsiveness to changing customer demands, and large in-process inventories.

Analyzing the System

The current-state wall map combining many value streams caused a lot of discussion, debate, and analysis, which did not please some of the managers responsible for creating it. However, once the system map was on the wall there was no getting away from thinking about this supply system as a whole in light of the new product generation being planned. The result was many questions, starting with why the lead times were so long. Once the team began to ask why all the delays and inventories were necessary they began to see the biggest opportunities for an ideal state for the next generation.

Although it was clear that there was still scope for reducing batch sizes and speeding the production flow in plants where WIP was less than 2 weeks, the biggest opportunities lay in the plants in China and the UK, plus those plants supplying the UK. This is where the team decided to focus their internal plant-level lean activities. But to improve lead time further they worked with their shipping companies to reduce shipping lead times from 6 to 3 weeks. 

The system-level map also provoked an analysis of the information flows that trigger this physical flow, both in terms of batching and lead times but also in terms of volatility. How much did customer demand vary and why, and how much system-driven amplification was being passed upstream? What was driving the need for special air freight and how much management time was spent responding to changes in customer demand and supplier shortages?

The system-level map was also useful for tracking the location of the main quality problems and scrap. Finally it also provoked an analysis of the costs of running this supply system, as it was now possible to see much of the costs, rather than piece price and slow freight costs at one part of the system, which were the traditional basis for location and procurement decisions.

In the end, top management concluded that based on the discoveries of the supply-system team, it needed to rethink its manufacturing and sourcing strategies for the next generation product. The principle decision was to trade off wage costs and focused factory efficiencies against lead times, inventories, and responsiveness by localizing production of the new product within the region of sale. This product is now entering production with key timelines and performance indicators summarized in the future-state map. The difference between the two maps is striking, with only one type of specialized steel tube still being sourced from outside the region, in this case from Germany.

Reflections

Mapping extended value streams at a system level is very powerful for several reasons:

• For the first time it shows all the participants the consequences of the way the current state works and elevates the discussion to consider system-wide goals instead of just trying to optimize each part of each value stream in isolation.
• Posting the detailed maps on the wall of a meeting room becomes a reference point for all subsequent data and analysis, and changes the context for discussions about improving the situation.
• Time is an extraordinarily powerful way of summarizing the way any system operates. Delays and inventories in the physical flow are but a manifestation of the way the current system is run. A focus on time guides the analysis of the causes of the variation in the system that in turn leads to overburden and slack that manifests itself in waste.
• Seeing the whole system and the sources of variability that destabilize it helps management to focus efforts on improving the pieces of the system that will make the biggest contribution to improving overall system performance and cost.
• Improving a supply stream often involves actions at one place that may even add costs and go against individual performance targets at that point. But these costs are outweighed by benefits at another point in the system, sometimes in another company. Extended value-stream mapping and system costing enables these potential conflicts to be surfaced and resolved, rather than remaining obstacles to cooperation.

Act Now: Make 2021 the year that you target your continuous improvement efforts to where they will have substantial and sustainable impact on quality, costs, time to market, and more. Enroll in the workshop, Learning to See Using Value Stream Mapping, which will teach you how to use value-stream mapping, a fundamental lean management tool that creates “blueprints” for applying other techniques such as kaizen events most effectively. Go here to enroll in this go-at-your-own pace, web-based workshop faithfully based on the innovative content in the landmark Learning to See workbook that introduced value-stream mapping to the world.