VSM and profitability

VSM and profitability

Does VSM (Value Stream Map) maximise profitability? If it did, would that be the only lean tool most companies would use? Have those organisations that have used the VSM tool maximised their profits? Are there factors other than VSM that impact profitability? Have VSM’s in many places become more of wall papers? Why? Is VSM by itself sufficient to maximise profits? Let’s take a look …

Every product or service has a value stream. The trick lies in seeing it! Some may miss it because they see more of the discrete production processes and attempt isolated process improvements rather than seeing the entire flow. It is important to learn not only to remove the wastes but also their sources. A value stream is where all the actions are done to bring a product to the customer, and it involves’ both the information and material to flow that either trigger action or are acted upon. The correct value stream perspective is taking a helicopter view of the entire process or looking at the big picture. It helps you to see the sources of the waste providing a common language for talking about the manufacturing processes and helps make apparent decisions about flow. Inconsistent or unregulated information causes inventory build-up and it shows the linkage between information and material flow. VSM is a qualitative tool with which we can describe in detail how the entire business process should operate in order to create flow. It helps to avoid cherry picking and forms the basis for an implementation plan. While conventional focus will be on process kaizen, VSM will draw your attention towards flow kaizen.

I once asked the question ‘does VSM maximise profitability?’ among lean practitioners and none answered in a terse affirmative. The question was a bit like asking whether a road map gets you from A to B. It doesn’t, but it shows you the way! Similarly, VSM provides an overview to see where your costs are and where your value is being lost. And one has to undergo that journey at the end of which lies the reward or gains.

Jeffery Liker the author of The Toyota Way drawing attention to Rother & Shook’s work on ‘Learning to see’ and the all-important routine says, “The VSM exercise should be connected to a strategy which is then translated into a challenge for the business. The future state VSM is a representation of the challenge. That is, if you achieve this material and information flow which requires all of these improvements and changes then we will achieve the challenge which can be represented by outcome measures – cost, quality, delivery and flexibility. Thus, achieving the future state directly would impact the bottom line. And the way to achieve that future state is by breaking it down to pieces which are assigned to managers at each level and they define a series of target conditions to achieve their piece of the vision. Thus, many smaller kaizen activities (PDCA) ultimately deliver the future state vision, which will lead to changing outcomes for the business. The future state allows you to have a vision you are striving for, rather than fixing problems randomly in the current state. And people are developed along the way through practicing improvement with a coach.”

Pic 3 VSMA value stream map is drawn by walking the process, seeing and collecting the required data starting from the customer end; then, when drawn it depicts the state of affairs called the current state. Current State picturises what is, as it is and where it is, the way it is if all facts are put on the map. The data and measurements tell us how good or bad is the state of that value stream. It documents all the forms of wastes – where over production is happening, whether over processing is happening, where is inventory and WIP piling up, where are the rejections and reworks, how much transportation and movement is happening, where are the imbalances (deviations to the standards), are we pushing or pulling, are we adhering to single piece flow or batch and move etc. It allows us to calculate the value added (VA) and non-value added (NVA) components from which we can calculate the value added ratio. This is an efficiency indicator of how efficient the process is, or how much scope exists to improve on the present process.

This is the easy part. The future state is a vision. The challenge is to envision the best or optimum state. The picture is first created in the mind and you will see it when you believe it. This future state is a vision where all the wastes and everything unnecessary are removed from the current process. Sometimes the process may be turned upside down or inside out. The thinking in the future state needs to be very different to the current state. The difference to the level of success one achieves from a VSM and subsequent contributions to profits comes from what one does and how. Let’s look at some major areas where people or companies trip:

  1. Preparing an action plan sheet is easy, but many don’t get down to the level of details required or explained above by Jeffery. In which case root cause may elude the corrective action.
  2. If corrective actions are taken for isolated process improvements rather than improving the value stream, then status quo is maintained. Seeing people attempt discrete process improvements is a common sight. The job will never be complete and therefore will have no physical impact on bottom line even if theory shows it.
  3. When wastes are removed but sources of wastes are left untouched, the problem is sure to resurface with a different face. This erases the potential impact of any gains.
  4. The corrective action may involve redoing the basics. If standard operations documentation is not corrected and employees not retrained with respect to the new routine or behaviour requirements, how will the improvement take root? If improvements don’t take root and repeat, it will not impact the bottom line. And the processes are sure to go back to old state very soon.
  5. Depending on the problems to be solved and improvements to be made for realising the future state vision, it may be necessary to make other process, layout or even structural changes. These changes if not rewritten as revision to job instructions and employees retrained to comply with the new standards of actions and behaviour; the changes will not stick.
  6. One should not attempt to use a tool in isolation. Lean tools are interactive and mutually supportive in a unique way. Where maximising profitability using VSM is the thinking, one must also realise that depending on the vision of the future state and the scope of the process coverage, many other tools will have their role to play in solving problems and achieving the vision. So VSM alone will not maximise profitability unless it is used in conjuncture with other tools.

If not done right ‘maximising profits using VSM’ may become an oxymoron!