The Hidden Factory
The Hidden Factory is a term that refers to activities in
an operation or standard operating procedure (SOP). A few
examples of Hidden Factories are workarounds, rework, or any of the 7
wastes, which I will describe below. Most organizations have some
form of a Hidden Factory and being able to “see” these hidden factories in an
organization requires learning to see what waste is and understanding that
waste in any operation — service or manufacturing — can be a substantial drain
on the bottom line, top line, on employee morale, shareholders and, most
importantly, the customer.
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In fact, one very
important litmus test for an activity is this: “If the customer knew the details of process x, would she be willing to
pay for it?” In other words, suppose substantial rework was required
to manufacture a widget and that rework cost was baked-into the cost of 1 unit of a widget, would the customer be
willing to pay for the firm’s defects? Would the customer be willing
to pay for the firm’s internal inefficiencies?
What is a Process?
A process is an
systematic activity comprising of smaller activities that culminate in an
outcome — service or product. A process can take up time, space, and
resources. All processes can be categorized into the following categories: Value-added, Non-value added but necessary,
and Non-value added.
From the Customer’s
Perspective:
1. Value-added: This step in the process adds form,
function, and value to the end product and for the customer.
2. Non-Value-Added: This step does not add form,
function, or assist in the finished goods manufacturing of the product.
3. Non-Value-Added-But-Necessary: This step does
not add value, but is a necessary step in the final value-added product.
(2) & (3)
naturally create waste, of which there
are 7 types:
1. Over-Production: Producing more than is needed,
faster than needed or before needed.
2. Wait-time: Idle time that occurs when
co-dependent events are not synchronized.
3. Transportation: Any material movement that does not
directly support immediate production.
4. Processing: Redundant effort (production or
communication) which adds no value to a product or service.
5. Inventory: Any supply in excess of process or
demand requirements.
6. Motion: Any movement of people which does not contribute added
value to the product or service.
7. Defect: Repair or rework of a product or
service to fulfill customer requirements.
It’s important to
understand “Value” in terms of the customer. From the customer’s
perspective, “Value” could be
defined in the form of a question:
Which process steps (and associated costs) do our customers not have
to bear?
It’s a revealing
question — most companies are glad that they do not have to reveal how their
product or service is created, for fear of their inefficient processes and wasteful
operations revealed to the customer. This stance is sometimes aptly
called “not revealing how the hot dog is made”, amicably referring to the
unknown contents of the hot dog.
Process Cycle
Efficiency
There is a metric
that helps to identify how much of a
process is actually value-added. It requires a few things:
1. Map the process.
2.
Identify the Value-added steps, non-value added steps, and the non-value added but necessary steps.
3. Stratify your map
according to the items in #2
4. Add a time
dimension to the process steps.
Once you have
completed steps (1) – (4), then you can simply calculate how much is actually
value-added, as a percentage. The time for the entire process —
end-to-end — is called a cycle time. To identify the Process Cycle
Efficiency, you just divide the value-added time by the cycle time for the
process.
Process Cycle Efficiency = (Value-added
Time / Cycle Time)
Process Cycle Efficiency = 182 / 860 =
.21, or 21%
In other
words, only 21% of the process above is considered value-added
to the customer. Put another way, the customer might be bearing more than
75% of the cost associated with the waste above. Knowing this, the firm
should aim to increase the Process Cycle Efficiency of the process by
eliminating or reducing the waste.
Data like this can
help the firm increase their value-added percent to the customer by eliminating
or reducing the waste in their process. Doing this would put the customer
first and allow the firm to “get their house in order.” I consider the
above exercise to be simple, yet incredibly helpful for the firm to make sure
that they provide maximum value to the customer; it’s a fiduciary duty to the
customer.
Think about your processes? How much is really
value-added to the customer?
Labels:
QUALITY
