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Asked and Answered

   
Revised June 30, 2011
6S What is the meaning of the green tag in the 5S Red Tag System?
  What is a "Green Tag System"?
Cash-to-Cash Cycle Why use COGS to compute days payable? Shouldn't we use Annualized Materials Cost?
Heijunka How do you determine the number of cards to have?
Inventory Turnover Can you explain the concept of "Month-Supply"?
  Can you clarify which method to use in computing turnover?
  Why do you not give people a number range for turnover so they can decide what is good or bad?
Kaizen What is Kaizen?
  What is Kobetsu Kaizen?
  Does using Kaizen mean using Just-in-Time?
  Which companies are using Kaizen?
  Can Kaizen be learned in a week?
  How do I go about applying Kaizen across our factory?
  Where do I start in applying Kaizen to a specific work process?
  How do I prioritize work processes for improvement?
  How do I judge whether a Kaizen event is worth doing?
  What is a "Paper Kaizen," "Trystorming," and "Paper Dolls"?
Leadership What is the difference between leadership and management and what type of leader offer the best support for a person with initiative?
PDCA Please explain PCDA and how it fits with Kaizen?
People How do you encourage honesty and integrity in people at work?
  How do you handle people downtime?
Measurement When do I use the Machine Analysis Sheet versus the Process Analysis Sheet to measure waste?
Quality Explain the Deming Quality model?
Value Stream Mapping Could you define Value Stream Mapping and say how it can help us in a spare parts warehouse?
Work Processes What is the difference between takt and cycle times?
     

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5S Red Tag System

Question: I used your Kaizen tool kit at my last position. My current employer was asking what a green tag signifies in the 5S Red Tag System. I couldn't remember. Can you tell me what it is?

Response: Thank you for your question. I hope you have a chance to use our book and tool kit at your new position as well and that it supports your continued success.

The Red Tag system uses color coded tags to signify the status of items found in a workplace. A red tag means the item is not needed anywhere and can be disposed of immediately. A yellow tag means the item is not needed in the work area in which it was found, but may be needed elsewhere. It should be moved to a central location for further evaluation by the 6S team. A green tag mean the item is needed in the area in which it was found. It stays. A white tag means the item in not being used currently, but may be needed within next 6 months. It is moved to a central area and, if not used in 6 months, it is disposed of.

Check out Don Roll's article on 6S at our web site. It's a really good. An Introduction to 6S - Don Roll

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6S Green Tag System

Question: I am reviewing the 6S Checklist presented in Don Roll's article, An Introduction to 6S. I notice that under the "Safety" category it says "Is a green tag system in place?" Could you tell me what this "green tag system" is?

Response: Thank you for your question. Whereas the Red Tag System described above relates to "sort" step in the original 5S system, the Green Tag System relates to "Safety," the element that is added to make the 6S system. It is used to ensure that equipment is safe for use. It prescribes that each piece of equipment is inspected for compliance with safety standards with regard to its construction and current condition. The system uses Green, Yellow, and Red tags. A Green tag means the equipment passed inspection and is safe for use. The Yellow tag means that the equipment is safe to use if certain requirements are followed. This tag will have the following information on it:

1. The unusual or potential hazard marked on the reverse side of the tag.
2. The preventative measures that must be taken prior to use to mitigate the hazard marked on the reverse.
3. The name of the client company representative authorizing the use of the Yellow tagged scaffold. (From http://ehs.sc.edu/Guides/C16.htm)

The equipment should be corrected to be fully safe and returned to Green Tag state. The Red tag means the equipment is unsafe to use and should be removed from the work place either for discard or repair.

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Cash-to-Cash Cycle

Question: I appreciate the information provided on your web page related to Cash to Cash Cycle Time calculation. However, this calculation is different than that used by SCOR. For the SCOR calculation of Days Payable,we use Annualized Material Costs. I like the simplicity of your calculation but I'm not sure if it should be taught as part of Lean. Your thoughts and comments please.

Response:  Using COGS may not be the ideal denominator in the Days Payable Outstanding (DPO) calculation, but neither is materials cost. Both metrics have a degree of distortion in them, as I explain below. I like COGS because it allows you to compare DPO's and related cash cycle metrics between different companies and industries. Also, COGS is a commonly reported item in financial reports, whereas material cost may not always be reported as it is a subset of COGS.

Probably the most important thing to consider when establishing metrics is to select metrics that are integral to your business intent, provide accurate information reliably, are sensitive enough to detect change over time, are lean in their implementation, and are documented and implemented consistently. While Womack does not look favorably on benchmarking per se, I do think that the ability to compare a metric across businesses is a "plus" as you can detect businesses that seem to be doing better and identify them as possible sources for learning.

With that said, there would certainly be opportunities to isolate the cost used in the DPO calculation so that it precisely fits the type of business one conducts. For example, a company could segment its payables between material suppliers, service providers, etc. Segmenting the vendors allows you to select all the appropriate which supply costs and use them as the denominator. This would measure payables to suppliers precisely.

Absent such specificity, I believe that either materials cost or COGS can be used in the DPO calculation. I suspect your concern is that COGS can be inflated by the cost of goods and service supplied internally--but, of course, they are payables as well. On the other hand, annualized materials cost does not include the cost of contracted services whether personnel or utilities or other. In some industries, this is a great deal of money. So, each has a distortion with the degree of distortion in each varying by industry. As I said above, the ideal would be segmenting payables by supplier type so that employee labor, for example, might be extracted and a "pure" and complete externally sourced cost computed. I guess the best advice is use the metric that least distorts payables for resources supplied externally, assuming all other desirable features of a metric are equal. I like COGS because it is readily available, does permit cross-industry comparison on the same basis, and for the other reasons mentioned above.

Heijunka Cards

Heijunka is a Japanese term that refers to production smoothing in which the total volume of parts and assemblies are kept as constant as possible throughout the value stream. A Heijunka box is a visual scheduling mechanism that distributes work into small time increments and ensures level work load.

In a dual kanban system, the heijunka box contains production kanbans or signal cards. How do you compute the numbers of cards in a heijunka box? One example of the use of a heijunka box is in leveling production and shipping. For our purposes, let's assume a box per product produced. It is filled with kanbans. Each production kanban signals the start of a production cycle that pulls a minimum product lot size. A withdrawal kanban from shipping triggers the pull of a production kanban.

The issue is how many kanban cards should be in the heijunka box?

The key factors to consider are:

  • Customer demand for product over a given period of time (usually one shift for one line)
  • Lead time to produce the product lot size (replenishment rate; use the same unit of time as you used in representing customer demand - e.g., hours)
  • Safety stock expressed as a percentage of demand during lead time (if the total demand is 100 units and the safety stock is 10 units, then the safety stock value you should use is .10)
  • Production lot size

Here is a formula offered by Professor Herbert Tuttle, University of Kansas.

To compute the number of kanban cards, use the following formula.

Number Cards Needed = [(Customer Demand x Lead Time) x (1+Safety Stock)] / Production Lot Size. If the computation produces a fractional result, then round up.

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Kaizen Defined

Thank you for your inquiry. Kaizen (pronounced ki-zen) is a Japanese word constructed from two ideographs, the first of which represents change and the second goodness or virtue. Kaizen is commonly used to indicate the progressive long-term betterment of something or someone (continuous improvement) as in the phrase Seikatsu o Kaizen suru which means to “better one’s life.” The term Kaizen is used in three ways. The first use is consistent with its literal meaning. The second use is as a companywide management program that establishes a culture focused on continuous improvement of all processes and work places through the elimination of waste. The third use is as the label for a group of methods that improve work processes.

A Principle of Conduct—Striving for Perfection

In its first use, Kaizen means the pursuit of perfection in all one does. In this use, the term is applicable across the areas of one’s life and represents a guiding ethic for conducting a life.

A Management Principle That Creates Business Success

In this second use, Kaizen represents the element of continuous improvement that is a fundamental part of the Quality Model for leading a company to commercial success. In a business context, it is expressed in all activities, personal and teamed, that develop and use learning to make processes better at satisfying customer requirements. In this use, Kaizen has its origins in the fifth of W. Edwards Deming’s 14 management points: “Improve constantly and forever the system of production and service” (Deming, 1982, p. 49). It is commonly expressed as “continuous improvement.” Deming represented continuous improvement as the repeated application of the cycle of Plan, Do, Study, Act (PDSA) to all business activities in the pursuit of making them ever better in delivering value to customers. Its use as a business strategy inside the United States is usually incorporated under the adoption of Deming’s Quality model (e.g., as part of Total Quality Management) or as an element within the Lean Enterprise model described by Womack and his associates (Womack, Jones, and Roos, 1991; Womack and Jones, 2003). Outside the United States, the term Kaizen, on its own, more frequently refers to a comprehensive companywide management program best represented by the work of Masaaki Imai (1986). This program establishes a culture focused on the continuous improvement of all processes and work places through the elimination of waste. As stated by Imai, this use of Kaizen means “everyday improvement by every person, everywhere” (Imai, 2010). The creation of this culture begins at the top with management. Every manager models and teaches the commitment to continuous improvement by applying it to his or her role and to the systems and processes he or she controls. It spreads across the various functions that constitute a business—executive, administrative, and operational. It is owned by every individual who, as with each manager, seeks ways every day to improve the performance of his or her role and who participates actively in the improvement of the work processes the worker implements and the work places he or she operates within. When used in this manner, the term Kaizen umbrellas many other concepts and tools such as customer orientation, total quality control, QC circles, suggestion systems, standardization of work, cooperative employee management relationships,and total productive maintenance (Imai, 1986, p. 4). While Imai identifies Japanese management culture as the origin of this approach, in fact it mirrors precisely, but incompletely, the teaching of W. Edwards Deming who brought to the leaders of Japanese industry in the early 1950s these very concepts. He also elaborated the rationale for this approach to business success in what he termed his “system of profound knowledge.” For a detailed explanation of Deming’s thinking see Deming Revisited: The Real Quality Model.

Kaizen as Methods for Work Process Improvement

In its third use, Kaizen identifies a group of methods for making work process improvements. The methods that have been placed under the label Kaizen are varied and range from suggestion systems (Teian Kaizen) to planned events conducted in the workplace that systematically uncover waste in a work process and eliminate it (Gemba Kaizen). In this latter use, Kaizen's origins are in World War II. Kaizen, then known as Job Methods training, was a simple and effective process that enabled workers—initially supervisors—to devise ways to greatly improve the yield from work processes. Its development was spurred by the World War II necessity to produce very much more of everything that was needed for the war effort, faster than anyone ever had done in the past. Before going further into Kaizen's origins as a method for making improvements, let's clarify the varieties of methods that now fall under the label Kaizen.

Different Versions of Kaizen

Many terms are used to refer to Kaizen methods -- Kaizen Blitz (or Blitz Kaizen), Gemba or Point Kaizen, Kobetsu Kaizen, Kaizen Teian, and Flow or Kaikaku Kaizen. Sometimes Kaizen is just making suggestions for improving a work process (Teian Kaizen). The suggestions are reviewed by management and those that are accepted are executed. Most times it involves actually making a work process improvement at the work site, as it did in its original form as Job Methods Training. In this use, Kaizen refers to a special activity—one that is planned and done over a period of days to eliminate waste in a component of a value stream. The special event is performed in the Gemba—meaning, "where the real work is being done"—e.g., on the shop floor or at the point where are service is being delivered. The term Kaizen can also be applied to Quality Circle type continuous improvement activities. In this use, a problem from a last shift, for example, is analyzed, an improvement is uncovered, and the change is made in the context of regular worker meetings.

Most times, Kaizen refers to incremental improvements which, nonetheless, frequently results in changes that people experience as dramatic. There is, however, Flow Kaizen. This type of Kaizen application seeks radical improvements in the structure and flow of the extended value stream at the business level. It focuses on the top-level view of the extended value stream and identifies improvements at that level. For example, it identifies waste in the ways input resources are acquired or transferred to the production process. It identifies waste in the sequencing of value stream components or even in the presence of unnecessary components. It will identify waste in how outputs move from the production system through distribution channels to customers. In essence it evaluates the structure and flow of value from suppliers through production to customers.

In general, all Kaizen's focus on perfecting business operations and have these features. They,

1. Involve the people who implement the value stream or work process being improved
2. Focus on making improvements by detecting and eliminating waste
3. Use a problem solving approach that observes how the work process operates, uncovers waste, generates ideas for how to eliminate waste, and makes improvements.

Some versions of Kaizen incorporate other improvement tools within them. For example, we may apply 5S within a Kaizen event (or 6S as we call it) or principles of Quick Change or Total Productive Maintenance (TPM) in eliminating the waste we detect that is associated with machine use (e.g., set-up, machine down time due to breakdowns). Some versions of Kaizen focus on a small component of a large work process while others focus on an entire value stream (e.g., Flow Kaizen and Kaikaku Kaizen). Some use employees from outside the target work process as members of the Kaizen team that makes improvements (we do) while others just use employees of the work process itself. The "special event" versions of Kaizen use an up-front planning process to decide where inside a business to apply Kaizen. The "non-special event" type Kaizen is executed by the work process employees on a daily or weekly basis, as a regular part of their jobs. This Kaizen approach does not have such a planning process.

Blitz Kaizen is one approach to doing a special event type Kaizen in the work place. As a Gemba Kaizen, it is the the type of Kaizen we implement (Kaizen Desk Reference Standard). It emphasizes involving employees in the business broadly and specifically having the employees do the Kaizen. It typically emphasizes using cross-functional teams so that all the crafts involved in a work process are represented. It uses a fixed time cycle (usually 5-days) to do the Kaizen, preceded by a period in which the event leaders learn about the work process, plan the event, and prepare people and the setting for the event.

Here too, though, there are differences. Not all Gemba Kaizen approaches are the same. You can read a detailed description of an actual event completed according to our approach on the web (Kaizen in Action). Also, you can read an overview of the process and see a process map of our approach online. Other descriptions of Kaizen events are listed in the Share/Learn area of this web site.

Our approach differs from the Blitz approach described in the book "Kaizen Blitz," as that approach has a fixed set of activities that one might do the first time through a work process (e.g., it starts with 5S and sets up Kanbans on Day 1) but not every time you would apply Kaizen to the work process. Our approach can be reapplied continuously to a work process and will fit just fine. Also our approach is described in much greater detail and can be replicated by others more easily.

Nonetheless, Gemba Kaizen approaches do tend to have these activities: map the work process, do measurements to detect waste, and involve the team in uncovering the reasons for waste and generating ideas for eliminating those reasons. The team makes changes within the event itself and it measures the benefits the event produces. It generates a new work standard that incorporates the improvements developed during the event that will guide workers in the future. And, there is a wrap-up session that shares with the plant personnel what was done, what results were produced, and what ideas were uncovered which could be worker on later to make still more improvement.

We hope this is helpful to you and would appreciate your feedback as to whether that is true so we can improve in supporting people in their learning. You may find additional information about Kaizen, including its origins and role in Lean, in articles listed on our Share/Learn page.

References

Deming, W. Edwards (1982). Quality, Productivity and Competitive Position. M.I.T. Center for Advanced Engineering Study, Cambridge:MA.

Huntzinger, Jim (2002). The roots of Lean. Training Within Industry: The origin of Kaizen. Association for Manufacturing Excellence, 18, No. 2. pages 9-22. Available on line at: http://www.tdo.org/twi/RootsofLean.pdf, viewed February 10, 2005.

Imai, M. (1986). Kaizen. The key to Japan's competitive success. New York, NY: McGraw-Hill Publishing Company.

_______ (2010). Definition of kaizen. Retrieved 1/1/2013 from http://www.youtube.com/watch?v=jRdTFis4-3Q

Vitalo, R.L. (2013). Deming revisited: The real quality model. Hope, ME: Vital Enteprises. Retrieved June 17, 2013, from http://www.vitalentusa.com/learn/deming_revisited.php

Womack, J.; Jones, D.; & Roos, D. (1991). The Machine That Changed the World. New York, NY: HarperCollins Publishers.

Womack, J. & Jones, D. (2003). Lean thinking. (Revised and Updated) New York, NY: Free Press.

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Kobetsu Kaizen

Kobetsu Kaizen uses a special event approach that focuses on improvements associated with machines and is linked to the application of Total Productive Maintenance (TPM). It begins with an up-front planning activity that focuses its application where it will have the greatest effect within a business. It defines a project that works through a problem-solving process. It analyses machine operations information, uncovers waste, uses a form of root cause analysis (perhaps the 5 Whys approach) to discover the causes of waste, applies tools to remove waste (e.g., Quick Change), and measures results. We cannot say, based on our reading, who participates in their projects—whether its a core of people drawn from the workplace to work on such projects or the actual employees who work with the machines.

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Kaizen and Just-in-Time

Kaizen and just-in-time are related, but Kaizen is used even where production is not "just-in-time."

Kaizen
Kaizen (pronounced ki-zen) is the Japanese word for continuous improvement or striving for perfection. Kaizen strives toward perfection by eliminating waste. It understands waste to be any activity that is not value adding from the perspective of the customer. By value adding, we mean any work done right the first time that materially changes a product or service in ways for which a well-informed and reasonable customer is willing to pay.

Methods of Kaizen
Kaizen eliminates waste by allowing workers to uncover improvement opportunities and either suggest or make changes. In common usage, the term Kaizen may refer to different kinds of improvement activities. In Japan, some use the term to refer to a process that gathers suggestions for improvements from employees. Others use the term to refer to periodic meetings of employees who brainstorm improvement ideas and immediately select and make an improvement. Still others add to the activities of Kaizen observation and measurement of the work process and of the results the Kaizen activity produces.

Common Elements of Kaizen
What all Kaizen methods have in common is that they (1) involve, at a minimum, the workers who execute a work process, (2) focus on improving the performance of that work process, (3) seek to make incremental improvements, and (4) are intended to be repeated over time. Kaizen may be applied in any work setting on any work process that is standardized and it will add value to that work process. You may view our process for doing Kaizen by clicking on this link - Kaizen Process.

Just-in-Time
Just-in-time is an approach to production that ideally reduces inventory levels to zero by establishing pull. Pull initiates production activity based on customer demand. In a sense production is triggered by a customer request for the product and that request cascades back through the production line triggering each operation to occur and, ultimately, from the production line to each supplier who then delivers new amount of input. The path to just-in-time involves understanding your customers perspective, standardizing your work processes, streamlining your work processes, establishing flow (a balanced production line that operates at takt), and introducing pull. Kaizen is used to streamline or drive waste out of the work process both before and after "flow" is established and as an ongoing approach to continuously improving the work process itself.

But, as I say, you can apply Kaizen within a "just-in-time" setting or outside of one. What they have in common is that you need the customer's perspective, a standardized work process, and a commitment to drive waste out of your system.

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Companies Using Kaizen

Chris Bujak of Air Products and Chemicals, Inc. offers this list of companies who have shared information about their use of Kaizen. The list is only representative of the very large number of companies employing Kaizen. Click here to View the list.

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Can Kaizen Be Learned in a Week

Question: I am interested in Kaizen and, in my present job, I am responsible for motivating Kaizen in our company, a computer products manufacturer. I want to systematically spread basic knowledge of Kaizen and how to implement it throughout my company. I have a limited training time (one week is ok). Can this be done?

Response: Thank you for your question. The Kaizen process is not difficult to learn. As with every skill, however, mastery comes more slowly through application, reflection, and discovery of new ways to improve.

We have a combination of two courses that require just seven days total that will take a person from no prior knowledge of Kaizen through to having completed a simulated event. The skills people learn include Working With Others (Kaizen is a teamed effort), Gathering Practical Knowledge (it speeds learning the remaining content), and Mining Learning From Performance (it allows each person to continue his or her learning past the formal training). We combine the teaching of these three skill sets into one two-day class (Kaizen Basics). Students apply the skills in learning about Kaizen and how to detect waste. Our Leading Kaizen Events course teaches how Kaizen is done. Across five days, students master how to do the various tasks that accomplish a Kaizen. There is much content to learn over the seven total days of training, so every class demands good energy and sustained effort throughout the day. Learning sometimes requires study in the evening as well. The Kaizen Desk Reference Standard guides learning how to do each technical task of Kaizen. This guidebook is a resource to which students can continue to refer after training to support their Kaizen work. It is very detailed and provides steps, tips, examples, and forms. The tool kit that comes with it also supports doing Kaizen. The classes include lecture, discussion, demonstrations, exercises, and other learning activities that are in addition to the book.

As to mastery, the trained person usually requires two to three events to solidify his or her learning. In each event, the person either leads or co-leads depending on how confident they feel. We have an assessment instrument that learners use to judge their own performance and that the Kaizen instructor also uses to provide feedback.

So yes, you can learn this skill through training that is a little more than a week. We have the training materials we use and we license these materials also to companies who then use the materials to train their own people. We can assist in setting up such a program in your company, should that make sense for you.
Here are some links that may be helpful to investigate.

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Value Stream Mapping

Question: Could you define Value Stream Mapping and say how it can help us in a spare parts warehouse?

Background
Womack defines value stream mapping as describing the "set of activities that goes from concept to launch, order to delivery, raw material to delivery at the customer." The map describes all the steps required to go from start to finish of each of these key business value streams.

Using the maps, you systematically evaluate which operations in each add value from the customer's perspective and eliminate those that do not add value and you can redesign out. For the remaining components that do not add value, you identify lean tools that would eliminate waste inherent in the operation and prioritize the opportunities for waste removal you identify. This process requires that you have documented the customers' value—that is, the features of the product or service output that the customer considers worth paying for. The first map you produce is referred to as a "current-state drawing." The improved value stream that you will produce by making the changes you identify is referred to as the "future-state drawing."

For Womack, one anchors their business in a firm and valid understanding of the customer and focuses continuously on the work processes or value streams that together satisfy the customer. From his perspective, the three key value streams for any business are:

  1. Concept to launch or the product development value stream. He refers to it as the "problem solving loop" where a business conceives its solution to customer needs.
  2. Order to delivery or the order fulfillment value stream. He refers to this as the "information management loop" where the business acquires an order, processes it through its systems to end with the ordered products or service delivered to its customer and payment received.
  3. Raw material to finished product or the production value stream. He refers to this as the "physical transformation loop" where the business constructs the product or service output the customers receives. It is end-to-end—meaning, it maps the flow of raw materials from suppliers into the business, its transformation through your business, and its exist and delivery to the customer.

Here is a brief summary of the key steps in Womack’s approach to implementing Lean.

  1. Establish value from customer's perspective—meaning, analyze the customer's needs, requirements, and expectations and determine what product or service features the customer finds important enough to his or her success to pay for.
  2. Define the value stream.
  3. Eliminate waste - Streamline the value streams by pruning away any operation that fails to add value and reducing the value stream to just those operations that satisfy a customer value.
  4. Establish continuous flow—meaning, move the product through the design, order, and production streams with no wait states and at a pace that matches customer demand. This aligns lead-time and cycle time to takt time, the rate at which customers require your output. Continuous flow results in the shortest cycle time, highest quality, lowest cost, and most value for the customer.
  5. Establish pull—meaning, identify and implement changes that make the business value stream operate only when a customer seeks a product or service output.
  6. Pursue perfection—meaning, continuously detect and remove waste, adding ever more value to the process.

Common Use
Most commonly, value stream mapping refers to the end-to-end visual depiction of the flow of raw materials through a business and ending with the final product or service outputs reaching the customer. It also depicts the flow of the information that triggers and controls these operations. In essence, it is the physical transformation loop described by Womack.

Value Stream mapping is more than just "mapping" in that the exercise includes a second component—the analysis of waste in your business operations. Once the value stream is mapped, you have documented important information about its current performance in "data block" associated with each operation and inventory site. This information, along with your documented description of customer values, is used to uncover waste, assess the size and significant of waste elimination opportunities, and plan the application of lean tool events within a work site.

"By mapping your value streams, identifying non-value adding activities and focusing on those processes likely to benefit most from the application of lean principles, your firm can begin applying lean concepts to eliminate waste...those activities that do not directly contribute to meeting your customers' needs."1

Value Stream Mapping Essentials

Purpose
Mapping
To visually describe the stream of activities that supply a business with its raw materials, transform them into its finished products or service outputs, and delivers them to its customers. It also depicts the flow of information that controls these activities.

Mapping and Analysis
To uncover, size, and prioritize the opportunities for eliminating waste in your business operations and maximizing value from the customer's perspective.

Benefit

  • Allows people to focus comprehensively on all the operations that should be adding value for the customer.
  • Enables you to evaluate what business operations do add value and which do not.
  • Provides a road map for where to target improvement efforts so that you continuously improve in eliminating waste and adding value to your customers.
  • Start When
    Once you have documented your customer's needs, requirements, and expectations and determine what product or service features the customer finds important enough to his or her success to pay for.

    Input

  • Customer values and expectations (if you do the analysis as well)
  • Knowledge of the performers and operations that execute the value stream you will map and information flow that controls its execution
  • Information about each mapped operation's current performance with respect to features (include each relevant item):
    • Batch size
    • Changeover time
    • Cycle time
    • Distance traveled
    • Machine up time
    • Number of operators
    • Number of parts feeding into assembly
    • Number of product variations
    • Number of skills and classifications
    • Rework or Cost of non-conformance (CONC)
    • Scrap rate
    • Standardized work quality
    • Value added ratio within process
    • Working time (hours & shifts)
  • Skill in detecting what is waste and what is value adding
  • Output

  • Value stream map
  • List of prioritized opportunities for eliminating waste, each with an estimated potential for eliminating waste
  • Other information depending on how you do the value stream mapping exercise
  • General Approach
    Once the value stream map is documented, you apply your understanding of the customer's values to detect operations that do not add value. You analyze information about the performance of components to uncover what waste exists and estimate what improvement opportunities exist. This permits you to prioritize where to apply lean tools like Kaizen to eliminate waste, increase value, and advance business success.

    Applying Value Stream Mapping to a Warehouse Context
    Generally, Value Stream Mapping (VSM) is used to map an entire business' value stream. It builds a big picture view of an entire business. Work process mapping, such as we document in the Kaizen Desk Reference Standard (see Step D1-S1. Build a Description of the Target Work Process, pages 197–213) is used for mapping component processes within a business. As we conduct the mapping, we gather similar information about each operation as is done in VSM and we can analyze the presence of waste in the work process by applying the detection of waste skills also documented in the Kaizen Desk Reference Standard (see pages 219–220, 229–231, and elsewhere). We often evaluate waste off the work process map alone when doing office work processes. We also use a walk through to evaluate waste in the work process (Step D1-S2. Walk Through the Target Work Process, pages 115–239) and of course we measure waste using process observations (Task D2. Evaluate the Target Work Process, pages 269–309).

    As to a spare parts warehouse, we need more information to understand just what you are referring to. For example, we imagine that you are an inventory site for finished goods, probably located geographically close to a customer group so that your company can satisfy customer needs in a timely manner. Is that correct? Or, are you a freestanding distributor that buys from parts manufacturers and sells to local repairs shops and parts dealerships? Whichever you are will make a difference. If you are the former, the entire warehouse operation is a component of a larger business. The mapping approach in the Kaizen Desk Reference Standard (see Step D1-S1. Build a Description of the Target Work Process, pages 197–213) should work fine. We assume that you do not control shipments to your site and that a department in the manufacturing group determines those shipments. We assume that your main operations are receiving, storing, processing shipping orders, pulling products for orders, packaging shipments, and shipping products. Again, we are only guessing here, but if we are close, then you would use the Kaizen Desk Reference Standard (see Step D1-S1. Build a Description of the Target Work Process, pages 197–213) to map this "end-to-end" set of operations and the different performers who execute them. You can use the processes we describe to uncover waste and reveal opportunities for streamlining your business.
    You should be aware, as you may already be, that a warehouse function, like the one we imagine you are, is considered all waste from a lean perspective, since it does not materially change the product your company supplies customers. That being said, you can still use our methods to reduce to the minimum the non-value adding activities within your component.

    If you provide more information about your warehouse operations, we can be more specific in offering ideas.

    Mark Reed reports that he did a Kaizen event on a warehouse in Taiwan based on the design for the warehouse—the warehouse itself had not yet been built. The event reduced the estimated labor hours required to operate the "to-be-built" warehouse, its space and equipment needs. The same application could be used in an existing warehouse.

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Takt, Cycle, and Lead Time

Question: What is the difference between takt and cycle times?

Response: Thank you for your question. There are three times to consider when thinking about a work process-takt, cycle, and lead time

Takt time is the rate at which a unit of product must exit a work process to satisfy customer demand. Takt time is computed by dividing the number of product or service output units customers demand over a given period of time (e.g., a day or week) by the total available production time for the period. For example, if customers demand 240 widgets per day and the factory operates eight hours per day (480 minutes), takt time is 30 widgets per hour or 1 widget every two minutes. If customers want two new products designed per month and the company operates 160 hours per month, the takt time is a new design every 80 hours.

Cycle time is the rate at which a unit of product exits a work process. A unit is one completed output but not always one item. For example, a unit of output might be a pallet of cylinders or a carton of eggs or an approved grant application.

Lead time is the time it takes one piece to move all the way through the work process. Lead time equals cycle time plus the time a unit of output-in- progress waits along the production line.

Summary:

Takt time - rate of output needed to satisfy customer demand.
Cycle time - rate of output the work process produces.
Lead time - time it takes one piece to move all the way through the work process.

The desire is to have these three "times" be equal, as this implies no waste occurring in the work process and that you are producing just what is needed, when it is needed, and at the least cost.

In an bottle-necked work process, for example, you can match cycle time to takt by loading up pieces of work-in-progress at downstream workstations so that operations on the other side of the bottle neck can keep operating. This inventory of work-in-progress (WHIP) is waste and costs money, but your work process may well exit products at takt. You could detect the problem by looking at lead time and by noting that a unit going through the work process took much longer to get out of it than the cycle time indicated.

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How Do I Go About Applying Kaizen Across Our Factory?

Question: I'm working as Manager tool room. We produce moulds for PVC pipe fittings and exports to different countries. We are on the process of implementing ISO QMS. I'm very much interested in implementing Kaizen in our factory, but I do not know how to start and continue. Due to lack of system we loose too much time (muda) manufacturing. Please advise.

Response: For guidance in applying Kaizen across a factory, we suggest:

1.   Think about what you want to achieve. It sounds like you are leading the use of Kaizen based on what you see in the workplace - namely, waste that lengthens cycle time and adds cost. It also sounds like you are giving the task of using Kaizen to uncover and eliminate waste to yourself. Read the article Leading a Kaizen or Lean Initiative: First Task. Use it to formulate precisely what YOU want YOU to achieve by applying Kaizen. This will provide the reference point for deciding where to apply Kaizen and for measuring whether you are accomplishing what you seek to achieve.
     
2.   Study the beginning steps for introducing Kaizen. This is important since you stated something in your e-mail that makes me think you may not have work standards established as yet. Read this article: How Do I Begin to Use Kaizen to Improve a Work Process? It explains what must be in place and why before you start applying Kaizen. If you do not have work standards yet, this article has a link to another article that you can use Kaizen to build work standards (Building Standardized Work Processes) and that will help you satisfy ISO QMS.
     
3.   Before doing any Kaizen events, get and study the book Kaizen Desk Reference Standard. It is a complete, step by step guide for planning, implementing, and following up on doing Kaizen in the workplace. Also, read actual case examples of Kaizen being applied so you can see how an event is done. There is one extensive write-up in the book itself. We have several more listed in the Share/Learn area of our web site.

In summary, Do "1" to fix clearly what you want to achieve. Do "2" to understand how to proceed. Do "3" to learn how to do Kaizen events.

Read first. Think about what you read. Let me know what you learn about how to begin your initiative from these articles. I can give you feedback through the Ask an Expert service and clarify issues, should you have any.

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How Do I Begin to Use Kaizen to Improve a Work Process?

Question: How can I apply Kaizen to improve our automation testing process?

Response: It would be helpful to have more information about the work process you seek to improve. Nonetheless, here are the basic steps you need to take to apply Kaizen to any work process. Take these steps, share what you find, and I can offer additional assistance.

Once you have identified a work process on which you want to apply the Kaizen method, there are basic steps you need to take to apply Kaizen to any work process. Take these steps and you will launch your effort in a way that is most likely to succeed.

1. Determine whether there is an existing work standard for the process you want to improve. A work standard is a written description of how the process should be done. If there is no written work standard, then your first step is to create one (see Building Standardized Work Processes). Without a work standard, you have no baseline performance to improve and no meaningful way to apply Kaizen.

If you have a documented work standard for the process you seek to improve, then you will apply Kaizen to make this standard method more value-adding and less wasteful.

2. Identify what measures exist that tell how well the process is currently operating. You need to understand the current level of success of each work process you seek to improve so that you can measure whether you have improved it and, even before that, to detect where to focus your improvement efforts.

When you have gathered the work process measures, list them in a table. For each measure, record what is the target level of success for that measure and what the the current level of success is.

Work Process Measure
Target Level of Success
Current Observed Level of Success
List Record Record

If there are no measures for the work process you seek to improve, then create them. You cannot improve a work process unless there exists ways to detect how well it is operating for the business.

3. Learn about your target work process. Get and study the work standard. Walk the work process with someone who is very knowledgeable of it. Try to describe the work process using the guidance in the section titled Step D1-S1. Build a Description of the Target Work Process (begins on page 197 in the Kaizen Desk Reference Standard). Have your draft descriptions reviewed by the expert to confirm that you understand how the work process operates.

4. Identify the operating measures (unit cost, cycle time, throughput, utilization, defect rate) which most affect business results (customer satisfaction, sales revenues, profits, market share) and which are currently at less than desired levels of performance. If there are none, then identify the operating measures most relevant to achieving the company's priority business results. It is these measures you will target for improvement by uncovering the waste that is compromising the work process's level of success.

5. Document a scope for the proposed application of Kaizen. A scope defines the focus, boundaries, and expectations for performing a Kaizen event. Use the guidance in section Milestone A. Document a Scope for the Kaizen Event (begins on page 67 in the Kaizen Desk Reference Standard). Record the scope information using the Scope Document provided in the Kaizen Tool Kit.

When you have taken these steps, study the Kaizen Desk Reference Standard for additional help. It contains guidance that steps you though the entire process from beginning to end. It also contains the Kaizen Tool Kit that has 62 electronic tools to assist you in performing Kaizen.

Feel free to share what you find using this web site's Ask an Expert service and ask any questions that arise for which you need assistance.

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Honesty and Integrity in the Workplace

Question: First thank you for your response. You are the only one who has responded to my request for help. I was wondering if you knew any ways by which a company could improve the honesty and integrity of employees in the workplace?

Response: A basic principle of relating in western cultures is "reciprocity." Briefly, people tend to relate to others as others relate to them. If I show respect and valuing for you, you are far more likely to show respect and valuing for me. Therefore, in all human relations, your first step in eliciting a behavior from others is to model that behavior in your relationship with them. Here are six essential actions that, if taken, model respect and valuing and create conditions that will elicit honesty and integrity from all persons in a workplace.

Communicate Decency and Respect
The respect for property is contingent on the respect for the person who owns it. If I wish an employee to respect what I own, I must respect him or her as a person and the space and resources with which the employee works. As an employer, I model this behavior in very many ways. I do it by simply greeting people by name each day or whenever I encounter them, showing interest in who they are and what they doing, and recognizing their labor and contributions to the business. These can be done by learning and using a simply set of skills—attending, observing, greeting, listening, and responding to what some one else has said. The more effectively I communicate interest and understanding in my employees, the more valued they experience themselves by me. The more I establish such behavior as the norm of conduct by all my managers and supervisors, the greater the effect of this atmosphere of decency on each and every worker and the more likely it is that employees will reciprocate with respect and valuing for leadership and for the business within which we are participating. With respect to the skills for showing interest and understanding, consider the interpersonal skill programs of Robert R. Carkhuff (The Art of Helping in the 21st Century, Amherst, MA: HRD Press, 2000]). These programs can be modified for use in businesses and have demonstrated measurable benefits to productivity (Carkhuff, R.R. Interpersonal Skills and Human Productivity. Amherst, MA: Human Resources Development Press, Inc., 1983).

Teach the Skills Needed to Work Together Effectively
Building on this, teach all the members of the business in how to effectively work together to accomplish the business's tasks and goals. Simple skills like the Working With Other skills eliminate sources of friction that waste resources and, specific to your concern, alienate people. An alienated employee has less regard and less resistance to acting detrimentally to the business. Here, look at our Work With Others Training Program (link). This program has been proven to improve productivity as well as elevate employee morale (Using WWO to Elevate Morale and Productivity)

Create a Workplace That Is Clean and Orderly
Decency must also be communicated by attention to the physical setting in which people work. Is the workplace clean? Is it orderly? Is it free of harmful noise, safety hazards, and pollution? Does it have the basic amenities (a clean lavatory, a place to have one's meal)? A workplace need not be fancy, but it must show the same respect and valuing of the person that one communicates in direct contact; otherwise, you reveal yourself as disingenuous and undermine the principle of reciprocity. For improving the workplace, consider a program like 6S (An Introduction to 6S). This tool not only makes the setting respectful of the people who operate within it, but it actually returns improved business results.

Involve Your Employees in the Business
Take the next step in showing respect for all employees by involving them in the business more fully. At a bare minimum, keep them informed about its goals, plans, and current level of achievement. Solicit their ideas about how to improve the business. Get their feedback on issues that affect their work. These simple involvement activities also pay off in better business results when leadership acts on the information and ideas it receives. Here again, there is a union between decent and respectful behavior that elicits a reciprocal response from employees and producing measurable business benefits. See, for example, Using Working With Others Training Sessions to Drive Employee Involvement.

Be Fair and Equitable to All
The next step in showing respect for employees is to be fair and equitable in all dealings with them. This includes how you as an employer address issues of pay, incentives, awards, development, and promotion. At a minimum, offer pay and benefits that are comparable to your competitors. Even better, find ways to allow employees to share in the benefits produced by the improvements they make to the business. Systems like FairSharingsm (The Harrison Group, LLC, 325 Main Street, Yarmouth, ME 04096, 207-846-3005) develop performance scorecards and tie a variable component of pay to achievement and to the actual dollar benefits those achievements produce. Irrespective of pay, remember that small monetary awards (a $15 dollars gift card) and even non-monetary awards (certificate of appreciation) are significant ways to honor the contributions of employees.

Set and Uphold the Expectation for Honesty and Integrity in the Workplace
Once you have established a consistent model of respect, valuing, and fairness—then also establish the expectation for honesty and integrity in the workplace and in all dealings with customers and the community. This expectation needs to be communicated clearly and consistently along with the consequences of failing in satisfying it. A first failure in satisfying this expectation should be handled by documenting what happened, exploring why it happened, and taking action to enable the person who failed to correct and improve his or her behavior. If this effort fails, then the person must be let go. The expectation of honesty and integrity must apply to all levels in the organization—leadership, management, supervisors, and employees. And it must be applied consistently. It will do no good to demand honesty and integrity from your employees while you soak your customers for every dollar they have or cheat them in satisfying one or another expectation to which your company committed. Any breach of consistency in your behavior as an owner, invites a similar breach of consistency by anyone in your company.

Summary
Elicit honesty and integrity from all members of a workplace by leveraging the principle of reciprocity.
Be decent and respectful toward workers (attend to them and greet them by their names).
Show interest and understanding in what they do.
Recognize their efforts and contributions.
Establish the same behaviors from every manager and supervisor.
Teach all employees how to work together constructively.
Carry respect for the employee to the physical workplace itself.
Involve employees in the business.
Be fair and equitable in all dealings including issues of pay, incentives, awards, development, and promotion.
Set and enforce the expectation for honesty and integrity in the workplace and in all dealings with customers and the community.

The Irony In All This

Every action required to elicit honesty and integrity from employees will produce an improvement in business results. Being decent and showing interest and understanding elevate morale and make the workplace more engaging. Providing people the skills to work together effectively makes the human interactions within your organization efficient and enables them to yield better business results. Applying 6S to the workplace eliminates waste and hazards that detract from business operations and results while the improvements 6S makes create a setting that is desirable to be in. Initiating employee involvement results in gathering ideas that are valuable to improving your business and will add energy and excitement to doing work. Establishing the expectation for decency and integrity in your business from everyone and consistently enforcing that expectation with humanness creates your business as an island of sanity in what is frequently a less-than-sane or decent world. Every step benefits the business as well the people who power the business, yet few companies are willing to implement these steps despite the empirical evidence as to the monetary as well as human benefits they produce.

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Converting People Downtime to Productive Time

Question: Between our drivers catering aircraft, they have pockets of downtime. I am looking for best practices for dealing with "downtime" along with a practice of tracking it. Most sites discuss machine downtime, but not associate downtime.

Response: Thanks for the inquiry. There is a real parallelism between the issues of people uptime and downtime and machine uptime and downtime. For example, fitness and well being programs are analogous to preventive maintenance for machines -- both sustain uptime and prevent downtime from occurring and avoid the costs associated with breakdowns.

To covert downtime to productive time, you need to uncover or create productive work in which people can engage. There is no magic formula here.

The first place you should look is within their current jobs.

1. Are there catering setup activities they can extract from the downstream work of catering aircraft and do between jobs?

2. Are there vehicle maintenance tasks that drivers can perform during this downtime?

3. Are there safety related tasks that drivers can perform during this downtime?

4. Are there personal setup activities (e.g., training/learning, fitness and well being, administrative tasks, certification activities) they can use the downtime to complete?

5. Can they use the time to apply Kaizen to their own jobs (e.g., a mini quality circle with other drivers or related workers or a personal Kaizen where the driver evaluates and mines learning from his or her last performance of the job and recommends improvements to tools, processes, or preparation)? These improvements ideas may be doable by the driver during these down periods or can be fed to others for implementation during a special Kaizen event. (Thinking is always the most productive way people contribute to businesses.)

If you can use any of these ideas you need to realize that they add value only if they release other employee time for doing customer-valued work or somehow benefit a customer value directly. For example, if the improvement generated by the driver actually advances how well you satisfy a customer value, then it is value adding.

The next place to look in outside their current jobs.

1. Can you cross-train people to perform other roles that productively contribute to serving customers (either catering customers or other customers your company serves)?

2. Can you develop an offshoot business activity that will add revenue to your company and leverage the available labor not being utilized?

As to monitoring downtime, look for a method that flows from the work already done as opposed to installing some new accounting procedure. For example, I assume you currently track catering instances (job number, start and end time, driver and catering team identity). Is all the time between these instances downtime? Can you use this approach either for precisely measuring downtime or to generate a "good enough" estimate? If you need to add an accounting element, try hitchhiking on an existing one. For example, are there job tickets pulled and re-filed after each catering instance? Can you add something to these tickets or to the process of pulling them or re-filing them that would give you the information you need with as little a "footprint" of effort as required? In thinking this through, do not hesitate to use some of that driver downtime to benefit from their ideas and to check out the doability of any idea others come up with.

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Machine Analysis Sheet versus Process Analysis Sheet

Question: Please clarify when and how to use the Machine Analysis Sheet in your Kaizen Tool Kit.

Response: All work processes are a sequence of operations that transfer a given input into a desired output. A performer does each operation. This may be a person or a machine or a teamed effort between them.
For no fault of the performer, each operation, including each task in that operation, may be value adding or waste. The work standard may require a human performer to do an operation in a manner that is wasteful. Similarly, the design embedded in the machine may create waste in its operations—excess wear (similar to ergonomic issues with people), travel, transport, unnecessary operations, etc.

The two analyses sheets (both are MS Excel spreadsheets with macros) record the tasks executed by the performer and whether each activity is value adding or a type of waste. Each sheet then automatically computes the amount of waste by category and the amount of value added activity in the work. (They compute other information as well.)

Both sheets are structured in the same way so that you do not have to learn to use two different tools. We use the Process Observations Data sheet and analyze its contents with the Process Analysis Sheet when people are the predominant performers of work. We use the Machine Observations Data sheet and analyze its contents with the Machine Analysis Sheet when the work we are improving in predominantly implemented by machines. Guidance for when to use each is provided in the Kaizen Desk Reference Standard (pages 272, 273, 275-76, 277-79, 282-83, 291-93).

You can use the Machine Observations Data Sheet and Machine Analysis Sheet to evaluate the value-added and waste associated with a particular machine apart from its work process. You might do this if the machine had a significant impact on cost or cycle time and was dynamic in nature (many components, moving parts, multiple operations, etc.). You would include on the Machine Observations Data Sheet the human activity associated with setup. Be sure to list the performer when recording each task—e.g., Operator loads input tray, Machine sorts input by size. With these observations, you may uncover better ways to configure the machine, ways to reduce setup, or ideas that could fuel a better machine design.

A final note: You will notice that each analysis sheet record the cycle time for each activity you list. You do not record a "Start Time," just an "End Time" for each activity, even the very first activity. This is because the Start time for the first activity is "0:00:00." You are measuring time with a stopwatch. When you click it on at the beginning of the first activity, it stars at zero. When you mark the end of the first activity, its will have a readying (e.g., "0:02:37"). It is this reading that you record. You do this for each activity. The spreadsheet's macros are set to take this serious of cumulative expended time and compute the individual time each activity required.

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Prioritizing Work Processes for Improvement

Question: I have tabulated the processes that need to be improved in our office. But our management says everything is urgent. How do I prioritize them?

Response:

We recently published an article that directly addresses this issue. Read, Sequencing Work Processes for Improvement. It is available on our Share/Learn web page.

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Inventory Turnover Metric - Month-Supply

Question: Hi, I find your article on Inventory Turnover very useful. Can you explain the concept of "Month-Supply" - I heard this used by some inventory planners. Specifically, the formula used was COGS/ Total COGS Shipped in a month. I am not sure if this is the correct formula.

Response:

I will respond to "month-supply" and the ratio you report separately. I have not seen the specific ratio you have mentioned in your question, however, that does not mean that it could not be used to measure the efficiency of a company that uses capital in relation to inventory.

"Month-Supply"

Month-supply appears to estimate the average amount of inventory on-hand. If I am correct, here is another way to compute the same metric using inventory turnover.

Inventory turnover tells you how many times during a reporting period that you flush inventory from your production system. If your COGS during the month is $100 and your weighted average inventory is $10, then you turned your inventory over 10 times during the month. On a 30 day month, this would imply that, on average, you have 3 days of inventory on hand or 1/10th of a month's supply of inventory. I am not sure if this is the formula or concept that the inventory planners you mention are referring to, but this certainly would give you how many month's supply you have on hand. The lower you are able to maintain inventory levels, the less capital resources you lock-up in inventory and the better off your company is likely to be. Again, I am not sure if this is the metric these inventory planners are referring to by "months-supply", but I think from your e-mail that this may be what you are searching for from an inventory management standpoint.

"COGS/ Total COGS Shipped in a Month"

As to this particular formula, I have not seen it before. But, here is some clarification about its meaning. Since COGS, the numerator in your ratio, includes shipments (the denominator) and changes in inventory1, the ratio you mentioned above would essentially reflect how your inventory changed during the reporting period since having "shipments" in both the numerator and denominator strips its effect leaving you just changes in inventory. For example, if beginning inventory is greater than ending inventory, the formula you specify would give you a ratio greater than "1" and would indicate that you have improved your inventory position. Conversely, if ending inventory is greater than beginning inventory, your ratio would be less than "1" and would indicate that you have reduced your inventory position. Although this ratio can indicate changes from one reporting period to the next, it must be looked at over multiple periods to ensure that it is not just a timing difference in inventory levels that in effect reverses out the next month.

With that said, I have not seen the ratio as you report it in your question, however, that does not mean that it could not be used to measure the efficiency in which a company utilizes capital in relation to inventory.

I hope this helps.

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Judging Whether a Kaizen Event is Worth Doing

Question: Anybody have a quick or simple list of criteria for what kinds of opportunities make a good team-based Kaizen event? I am also interested in what makes a good goal statement.

Response:

There is a detailed guide in the Kaizen Desk Reference Standard for precisely the assessment you want to make. It is in a chapter titled "Milestone B. Analyze Whether to conduct the Kaizen Event ." It has go-by's for estimating cost and benefits. There are check sheets and other tools to help you make the assessment. At the end of the chapter, page 142-143, they bring it all together in one summary rating form. But its best to read the chapter because it guides you in making correct summary judgments. The assessment deals with five factors: Focus, Business Case, People, Resources, and Timing. Focus addresses the selection of the work process you will improve. The Business Case section deals exactly with estimating the return on the investment made in doing the event (ROI). It's real practical guidance with examples.The People factor addresses who will be available to participate and how aligned everyone is on doing the event, making improvements, etc. Resources deals with making sure that what you will need for the event (information, space, materials, etc.) will be ready and available. Timing checks whether the date set for the event is reasonable given operating demands and required prep time.

Also check out the method they have for defining a mission and goals for the event. The case examples available online show many examples of goals (see links below). They do goals in two stages. First, they do a scope document for the event and from that information they generate tentative goals. Also, they use the information from the scope to evaluate whether the event makes sense to do. Then, in the first day of the event, they do a walk through to gather first-hand information about waste and opportunity. The team uses this to revise the goals if necessary or, as happens more often, fix them with more precise quantitative targets. All their event goals have quantitative improvement targets. There is a chapter on measuring improvements as well.

Here are some links if you want to check them out.

Kaizen Desk Reference Standard

Sample Events

1. Kaizen in Action - A complete description of a teamed Kaizen from idea through to reporting results

2. Core Staging and Setting Kaizen

3. Improving Product Shipping

4. Kaizen in Action in Asia

5. Office Kaizen with Customer Involvement

They put up more and more as time goes by, so check out their Share/Learn area. That is where they post all the case examples.

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Computing Inventory Turnover

Question: Some people use Inventory/COGS*Days in Period as Inventory turnover. You use AVERAGE Inventory/COGS*Days in Period.
What is the right answer? My two accounting textbook say different things as well.

Response:

Whenever possible, you should use the average inventory to take into account inventory fluctuations that often happen in business. If you use inventory at a single point in time, you could misinterpret the data as the COGS is based on a costs accumulated over a period of time, not at a single point in time.

For example, let's assume you have an item that you make that costs $10 to make. If you start out Month 1 with zero inventory, make 100 units during the month, and sell 75 units during the month, this would leave you with 25 units in inventory at the end of the month. In Month 2, you produce 150 units and sell 150 units during the month which would leave you with 25 units in inventory due to prior month ending inventory that is carried into the month. Let's further assume that in Month 3 that you make 50 units and sell 75 units reducing your inventory to zero at month-end. In this example, the turnover ratio could be calculated two ways as you mentioned:

1) Average Inventory Method

Month 1: Inventory Turnover = [(0 + 25 units) / 2 x $10] / [75 units sold x $10] x 30 days = 5 days
Month 2: Inventory Turnover = [(25 + 25 units) / 2 x $10] / [150 units sold x $10] x 30 days = 5 days
Month 3: Inventory Turnover = [(25 + 0 units) / 2 x $10] / [75 units sold x $10] x 30 days = 5 days

2) End of Month Inventory Method

Month 1: Inventory Turnover = [25 x $10] / [75 x $10] x 30 days = 10 days
Month 2: Inventory Turnover = [25 x $10] / [150 x $10] x 30 days = 5 days
Month 3: Inventory Turnover = [0 x $10] / [75 x $10] x 30 days = 0 days

As you can see, these two methods produce very different results in Months 1 and 3 due to the end of month and average inventory methodology used in the numerator. However, the average inventory method clearly gives you the most accurate answer. Since most financial statements are prepared on a monthly basis, it would be likely that most people would simply take the beginning and ending inventories and divide by two to get the average inventories. However, if you work within the company or business unit and have access to daily inventories, using a weighted average of all 30 days would give you more accurate results.

I hope this helps and thanks for the question. For more guidance about inventory turnover, read the article, Inventory Turnover, in the Share/Learn area.

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Leadership Versus Management

Question: What is the difference between leadership and management and which type of leadership is best suited to an individual who likes to work on their own initiative?

Response:

I am not sure why you are asking your first question—whether it is simply to clear up the meaning of these two words or to resolve some concern you have about what you are experiencing in your workplace. I will assume that it is the former, but let me know if I am wrong and I will offer other ideas.

Leadership and Management Compared

We prefer to think of leadership and management as being two functions that everyone should be able to do. I will explain why later, but here is the meaning of these functions.

Leadership

The leadership function is about envisioning, enabling, and ensuring the accomplishment of some endeavor. Within a business context, the "endeavor" is a business enterprise. It envisions a purpose to pursue and makes it concrete by describing a vision of what it will achieve. It establish a core set of values that guide the pursuit of that purpose. It develops an approach to realizing the purposes and making the vision a reality without violate its core values. This is the business's strategy or business model. It then enables the achievement of this direction by involving others in supporting this direction and marshaling all the human, intellectual, and material resources needed to accomplish it. It ensures that the direction is realized in several key ways. It monitors the market environment in which the business operates and the business's progress and results in accomplishing its purpose. It evaluates results against vision and intervenes when needed to correct problems or identify and leverage opportunities. Throughout all its operations, leadership learns and applies that learning to rethink the direction and approach, refreshing the resources engaged in accomplishing it.

Several points are important to keep in mind about leadership. First, the leadership function begins with a blank slate. This means it is always envisioning the future. This future represents a "worthy" advancement of its current state. ("Worthy" is personally defined.) The current direction is a hypothesis about the best future. It modifies that "hypothesis" based on new information and understanding. Second, the leadership function may be performed by an individual or a team. There is no need for a single "leader." Indeed, given the supposed complexity of today's commercial realities, a team should better accomplish the function. Third, leadership is a function every person must be able to perform. The differences are about the scope of what we envision, enable, and ensure. For example, each person must envision, enable, and ensure his or her own life. "What direction shall I pursue?" "What rules will I live by as I pursue it?" "What is the end sate I wish for myself and those I care about?" "How do I prepare myself to accomplish this end?" Etc. Every life is an enterprise—indeed, we would say a commercial enterprise in that we grow to accomplish our purposes through exchanging resources with the world around us.

Management

Henri Fayol (1841-1925) is credited with systematizing the management function. Fayol managed a large coal mining company in France and began publishing his ideas about the organization of work. By 1925 he had developed his definitions of the management function. He identified five major duties—plan, organize, direct, coordinate, and control. Our version updates this thinking, especially with regard to "direct."

Unlike the leadership function, which begins with a blank slate, the management function begins with an enterprise already defined and a mandate to accomplish some component activity in its service (e.g., production, engineering, finance, human resources, computing). The management function takes this mandate, operationalizes goals that accomplish it, designs systems to realize these goals, resources these systems, readies and deploys these resources, supports their operation, and ensures that the mandate assigned to it is accomplished. As with leadership, it learns and applies that learning to rethinking everything it does to realize its mandate. In fact, one can argue that the management function performs many of the activities as leadership, but within a smaller scope (a component of an enterprise, not the entire enterprise) and with a number of "givens." These givens are the parent business's intent (purpose, values, vision), its strategies for accomplishing this intent, and the mandate ("Accomplish this...") provided to the activity that the management function oversees. The systems that the management function designs, resources, and supports must be consistent with the parent business's intent and implementing strategies. For example, if customer focus and high employee involvement are two elements of the enterprise's strategies, every manager must design systems that do the work of their functions in a manner that is consistent with and reinforces these two elements of strategy.

As with the leadership function, our perspective is that everyone must be able to implement the management function. Once we conceive a direction for ourselves, for example, we must actualize that direction. We must break it down into personal "mandates" and accept and accomplish each. That is the management function.

Type of Leadership That Supports Individual Initiative

To answer this part of your question, I need to understand what you mean by "individual initiative." I have seen many versions of this. Do you mean by "individual initiative" —"assumes responsibility, aligns thinking and doing with the business's intent and strategy, generates and contributes ideas, seeks to explore new ways of accomplishing goals, measures own performance and learns from it?" Or, do you mean," likes to be left alone and allowed to do things his or her way?" The former is the only version of "individual initiative" that is appropriate in a business. Here is why. Each person in a business is a member of a community. No one may work on his or her "own initiative," if that means "without regard for the enterprise's purpose, vision, and values and current approach to accomplishing these." It certainly can't be without regard for all the other people with whom the person's role interfaces. All this means is that one must be responsible with initiative. Stay connected with the enterprise and the people with whom he or she interfaces and engage and involve them in pursuing new ideas. If the enterprise is about something you feel you cannot align with, then leave. Interestingly, these same qualities define the type of leader a person with this type of "individual initiative" needs in order to be maximally productive. Unless such a person's manager is of this type, he or she will constrain their ability to grow and contribute to the business. The manager or leader will do this by not asking for or listening to ideas; not providing information about the business's direction; not providing the person with clear role expectations or feedback on role accomplishment; not creating opportunities for the person to learn new ways or test out new approaches, etc.

So, in summary, seek a person as manager or leader who assumes responsibility for his or her performance, aligns thinking and doing with the business's intent and strategy, generates and contributes ideas, seeks out other people's ideas and credits their contributions, involves others in decision making, sets targets for success, measures accomplishment and uses these results to drive decision making, and learns from all of he or she does.

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The Deming Quality Model

Question: What is Deming Quality Model?

Response:

All Deming-type quality initiatives (Statistical Process Control [SPC] and Statistical Quality Control [SQC], Quality Planning, Total Quality Management [TQM], Lean, etc.) rest on the idea that a company’s success in doing business is a function of how well the company satisfies its customers’ real requirements and continuously improves in the achievement of this result. All Quality approaches share a core set of principles that, when applied, achieve its goal. These are the foundations of the Quality Model (Exhibit 1). The principles are:

1.   The basic input required for business success is an understanding of the customers' requirements.
2..   The end result a business must achieve is to maximally satisfy those requirements.
3.   The engine of business’s success is fully involving its people in problem solving better ways to achieve the end result.
4.   The measure of success is the customer’s satisfaction with your business’s product and service offerings and your demonstration of continuous improvement in the levels of satisfaction you realize (“Improve constantly and forever” - W. Edwards Deming).

Various Quality thinkers have added other thoughts they feel are also critical—e.g., that Quality must be managed and cannot be allowed to happen on its own. I do not include these as basic principles of the Quality Model because these additional principles are really part of every Western model for success. To say that “Quality must be managed and cannot be allowed to happen on its own” is to simply say that you must focus on what you seek to achieve and work systematically to achieve it. This may be a more Western than Eastern concept, but, at least within a Western cultural view, it applies to all endeavors in life. On the other hand, to say that the factor that will determine success in commerce is satisfying the customers’ requirements is not to say something obvious—although it may seem that way at first. There are many business models for success and much practice that says businesses succeed on the basis of making profits. “Making profits” and “satisfying customers” are not equivalent. If I drive toward one, I may or may not drive toward the other or realize it to the same degree. For example, one way companies have succeeded in making huge profits and becoming giants in their industry is by restricting the customers’ access to alternative products or services (e.g., IBM in the 1960s and 1970s and Microsoft since its inception). This is a strategy that is antithetical to Quality; nonetheless, many companies seek to use it and very many more wish they could.

Here are two references you should read for direct exposure to Deming's thinking.

Deming, W. Edwards (1982). Quality, Productivity and Competitive Position. M.I.T. Center for Advanced Engineering Study, Cambridge:MA.

Deming, W. Edwards (1988). Quality and the Required Style of Management - The need for change. Journal for Quality and Participation in March, 1988. Available on line at: http://deming.eng.clemson.edu/pub/den/files/reqstyle.txt, viewed March 23, 2007.

Vitalo, R.L. (2013). Deming revisited: The real quality model. Hope, ME: Vital Enteprises. Retrieved June 17, 2013, from http://www.vitalentusa.com/learn/deming_revisited.php

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Paper Kaizen and Trystorming

Question: I am attempting to put together a Powerpoint presentation on Paper Kaizen and Trystorming. If you could provide me with any useful information I would be most grateful

Response: I'll share what we know and I hope you will get back to us with what you discover. These terms, we believe, emanate originally from manufacturing process design activities where engineers do not have a work process to observe. The tools they refer to are also elements in a traditional Gemba Kaizen, a Kaizen event done in the workplace.

Paper Kaizen

Paper Kaizen is a process improvement activity where in you describe a work process on paper (either one that is operating or being conceived), review the description to detect waste, revise it to eliminate the waste, and describe the improved work process on paper. Some people add a measurement activity in which they gauge the current (or conceived, not yet built) process's status on valued characteristics (e.g., cycle time, throughput, elements of waste like wait time), compare it to the desired state, and revise the work process to achieve the desired state. Some people also add a walk through element where the process improvers walk through the process and get information and ideas from the workers.

As far as we can see, it is basically the front-end components of a Gemba Kaizen event. (See the Kaizen Desk Reference Standard for a detailed description of a Gemba Kaizen event. Also, read descriptions of completed Kaizen events at our web site. Kaizen Case Examples )

This front-end occurs during the first day of the event and involves mapping the work process; doing a walk through to verify the process description, detect waste and get worker ideas; analyzing the waste observed to identify opportunities for improvement and verify that the mission and goals for the event make sense. In a full Gemba Kaizen, the event mission and measurable goals are set before the event. These are confirmed as relevant after the walk through is done. Before we proceed to develop improvement ideas, we do a process observation. In the observation we measure waste and value added time and the distance traveled in doing the process. If we are improving machines, we measure the cycle time of machine operations, the distance the machine travels in executing its operations, and the type of work done (value adding or waste). In any event, these measurements allow us to precisely assess what particular improvements will yield. From the process observation, we develop ways to eliminate waste and then proceed to make and measure the improvements during the event.

As far as we can detect, the paper Kaizen ends with the revised work process being described. Process observations and the actual changeover of the work process to its revised state do not occur. (See trystorming below.)

Interestingly, paper Kaizen is almost identical to the process developed and used by the U.S. War Manpower Commission for maximizing industrial productivity from 1940 through 1945. That process was labeled "How to Improve War Production Methods." It was part of the Training Within Industry (TWI) programs. It taught supervisors the skill of improving work processes. This program's name was changed to "How to Improve Job Methods" (War Production Board, 1945). It incorporated a job aid that reminded the person of the improvement process. This process began with recording the present method of operation including details about machine work, human work, and materials handling—much like a paper Kaizen. It used challenging questions, not unlike the 5WH, to provoke the discovery of improvement opportunities. It provided tips for eliminating waste—e.g., discard unnecessary steps, combine steps where possible, simplify the operations, and improve sequencing. It incorporated operator involvement in identifying waste and developing better ways to do the process. It instructed people to check out their ideas with others, conclude the best way to make the improvement, document it, get authorization, and make the improvement. Its improvements included classic poka yoke solutions like the use of jigs and guides to reduce or eliminate errors. TWI emphasized incremental improvements focusing on the processes closest to the person and making improvements that did not require wholesale redesign of machines or tools. It was this method that became the basis for Gemba Kaizen as practiced by Toyota. Toyota began training its people in TWI's programs, including Job Methods, in the early 1950's. In the 1960's, it ask Shigeo Shingo to boost the sophistication of the Job Methods training program. He added more exactly process observation and time and motion measurement and relabeled the course, the "P-Course." This was later revised into Toyota's Kaizen training program.

We describe using a "paper Kaizen" approach in our book on Kaizen (see Office Applications, pages 393-396). It is useful with office processes, as much office work involves cognitive tasks (tasks done in the head). Direct observation of such tasks is not possible.

Trystorming

It refers to taking an idea and trying it out in practice. If the idea concerns the design of a product, you mock-up the product. If the idea is about a process improvement, you pilot the improvement.
In our Kaizen process, we use the term "pilot" for trying out an idea before fully implementing it across a work process. We have a guide for doing a pilot in the Kaizen Desk Reference Standard (see Conduct a Pilot, pages 373-381).

Paper Dolls

Paper dolls, we understand, are a representational element used in building work place layouts. These are mock-ups of either an existing or a proposed layout. We assume they represent the people element in the design and are located at their appropriate work stations. They are used in conjunction with a work process description to do a mental "walk through" of how the process plays out in the proposed work place.
In Gemba Kaizen, we do a work place layout and analysis it as part of the input information to detecting waste. It is done as part of the evaluation activity.

Hope this helps. Share what you develop. We want to learn as well.

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Plan, Do, Check, Act (PDCA) - The Shewhart Cycle

Question: Does your Kaizen principles include PDCA Plan - Do Check Act? Could you briefly explain this to me?

Walter Shewhart introduced the thinking underlying PDCA in 1939 in his book, Statistical Method from the Viewpoint of Quality Control. He did not use the labels, "Plan, Do, Check, and Act." It is unclear to us who introduced them, but W. Edwards Deming, who preferred PDSA with “S “standing for” study, popularized them. Indeed, Shewhart likened the cycle to the "dynamic scientific process of acquiring knowledge" (1939, page 45). As PDSA, the method seems akin to doing an experiment. You specify an hypothesis—a modification in process that seems promising—plan its implementation including how its effects will be measured, do the implementation, check its effects against expectations, and act to institute the improvement or modify the hypothesis and retest it. For implementing experiments, we recommend the approach we detail in the Kaizen Desk Reference Standard (see Conduct an Experiment, pages 323–31). The use of PDSA as an experiment appears to be popular in the healthcare industry. See, for example, the testing guide retrieved February 4, 2008, from http://www.ihi.org/IHI/Topics/Improvement/ImprovementMethods/HowToImprove/testingchanges.htm

Others have used PDCA to guide the action phase of making improvements. They use various other techniques to define the problem, uncover its root causes, and generate ways to remove them. After they make their improvement selection, they use PDCA to guide implementing it and verifying its works. How does this differ from an experiment? It’s simply by intent. With PDSA you are uncovering knowledge and, when you have it, you will decide what you will do next. With PDCA as an action phase guide, you are implementing an improvement in the workplace you expect will work. Your check is as part of your due diligence to see that it does works. Learning will also be a by-product and you may use it to fine-tune the solution—but generating knowledge is not the primary focus; making change is. For the action phase of Kaizen, we used this general framework but elaborated additional steps and created supporting tools to improve the likelihood that work process improvements would succeed. Our approach is detailed in the Kaizen Desk Reference Standard (see Act to Improve the Target Work Process, pages 333–49; Measure Results, pages 351–71; and Conduct a Pilot, pages 373–81).

Still others have elaborated PDCA into a complete problem solving method. When you do this, you essentially are making it your Kaizen (or improvement generating) method. In these instances, people add lots of steps to “P” and “D” to account for problem definition and measurement, root cause analysis, and solution generation and selection. One example of this elaboration of PDCA is the problem-solving guide retrieved February 4, 2008, from http://quality.enr.state.nc.us/tools/pdca.htm.

We have no problem with this last approach, except that it does distort the original purpose of the Shewhart cycle and people lose that understanding and its value. Our position is that the responsible behavior is to make clear what PDSA (or PDCA) originally meant and what it contributes and then you can offer hitchhikes that you think add value. In this way its original meaning and contribution is preserved and your readers get more value from what you present them.

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Inventory Turnover Targets

Question: Why do you not give people a number range for turnover so they can decide what is good or bad

Clearly you feel that a definitive inventory turnover target is a gap in the benefits provided by the article Inventory Turnover. It is frustrating not to have something concrete to compare yourself against or shoot for as a goal. But ask your self this question: "Can there be one inventory turnover target for all industries?" There are many factors that determine the amount and cycling of inventory. They include the nature of one's supply chains (local, national. global) , production cycles (long cycles like passenger aircrafts, short cycles like bottle caps), and customer buying cycles (yearly, quarterly, daily) and the customers' distances from producers. All these factors contribute to deciding inventory levels and affect turnover. For example, the length of the supply chain is one of the primary drivers of inventory requirements. If suppliers are overseas, then inventory requirements would be greater and turnover would be lower than for a company that has a supplier in a neighboring community. Measuring the total cost of the supply chain is important when determining optimum inventory levels. If an overseas supplier provides similar quality at a much lower price than a supplier close by, then the cost savings may justify the extra inventory. At the end of the day, minimizing or reducing supply chain costs at levels below the competition without sacrificing quality or service is important. Inventory is certainly a major cost in the supply chain, but must be factored in with other costs. Due to other factors, there is not an optimum inventory level or turnover target.

>From a lean perspective, you want turnover to cycle as frequently as sales. If you are embracing lean, you can adopt the target set by sales as your ideal turnover number. Practically, your target is probably the optimum that one could strive for given your industry and the best solutions you can conceive for supply chain, production methods, and output distribution. Although Womack discourages the use of benchmarking as a means for setting targets, you can locate turnover benchmarks for your industry, compare yours to that benchmark, and set your target to advance up the ladder of practical excellence. Once at the top, your target is set to create a new benchmark for excellence that is off the distribution of the current one.

I hope this clarifies why a single "practical" benchmark across all industries is not possible.

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Footnotes
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1. Your ratio can be rewritten as follows: (COGS Shipped + Beginning Inventory - Ending Inventory) / COGS Shipped.