The Toolbox, Volume 3: Lean Six-Sigma Value Analysis

by Doug Paulin
Senior Manager, Logile, Inc.

Many individuals that find themselves managing labor programs do not have formal training in engineering concepts that are incredibly helpful to ensuring their success and the success of their company. The Toolboxlooks to cover one of these concepts each month, providing useful instruction, templates, and tools that you can put into practice.

This month’s tool download: Lean Six-Sigma Value Analysis Tool

In this month’s installment of The Toolbox, we will look at another tool that process improvement experts use during the Analyze phase for either an existing process – where the DMAIC approach (Define, Measure, Analyze, Improve, Control) is used– or a new process that is to be developed – where the DMADV (Define, Measure, Analyze, Design, Verify Design) approach is used. This analysis tool is known as Value Analysis, and it aims to define each step of the process from the customer’s perspective, according to whether they would perceive that step as adding value to the product. Another way to think about this is asking the question “would the customer be willing to pay for this step of the process to be performed?”

Value Analysis has long been used in manufacturing operations, but it is especially relevant in the retail space as well and will continue to grow in importance. Retailers are adding more experiential aspects within their four walls, including moving production tasks into the store, adding animation and performing demonstrative production tasks in order to draw customers into visiting their locations. While some of these additions to stores may be written off as loss-leaders, they do not necessarily have to be, or, they can certainly be minimized. This can be achieved through Value Analysis.

The first step in Value Analysis is to select a process to analyze and break it down into the logical steps necessary to complete the process. As far as process selection, you should aim to select a process that falls within the group of processes that make up the top 80 percent of your hours according to a Pareto analysis. Once you have selected the process and broken it down into the logical steps, the next task is to define each step as either Value-Added, Value-Enabling or Non-Value-Added.

Value-Added steps must meet each of the following three criteria:

The step transforms the product in a way that moves it closer to the final state
The step is unique and does not represent rework to correct previous steps performed incorrectly
The customer cares that the step is performed and indeed would pay for it
If the step does not answer every one of those criteria in the affirmative, then it is not considered a Value-Added step, and will be classified as one of the following:

Value-Enabling: These are steps that most likely fail criterion three above (customer willingness to pay for the step), but must be completed for various reasons (i.e., comply with regulation, meet a business requirement, etc.)

Non-Value-Added: These are steps that fail one or both of the first two criteria above, representing what is typically considered waste in a process (i.e., inspection, rework, travel. etc.)

Determining whether a step is Value-Enabling or Non-Value-Added can be challenging, but you need to adhere to strict definitions of the seven wastes. Even if the product must be moved from the production area to where customers will purchase them that step is still Non-Value-Added, as the step represents transportation.

So now that we have classified each step of the process, how do we use this information? The first step is to determine if the Non-Value-Added steps can be eliminated all-together. If they cannot, then you should look for ways to reduce the time it takes to complete them. While this doesn’t eliminate the Non-Value-Added steps, it reduces their overall share of the end-to-end process. The same time-reduction analysis is then performed with the ­Value-Enabling steps, and even the Value-Added steps. But, where do we start in terms of designing the potential future state?

Depending on the Non-Value-Added tasks you are aiming to remove, this can require additional statistical analysis and process redesign. For example, if you are looking to remove an inspection step, you need to determine what the current defect rate is. If the defect rate is unacceptable, then you must collect data and analyze why the defect rate is outside of acceptable limits. If you find that the defect rate is within acceptable limits, then and only then can you consider removing that step.

If you cannot eliminate the steps, the next best thing to do is to look for ways to reduce the time that each step takes. If you already have engineered labor standards in place, you should know exactly how much time each step of your process takes. If you do not, then you will have to build an engineered labor standard through the application of either time study or pre-determined time and motion analysis. Once you have this information, we can target the steps that fall in the Non-Value-Added and Value-Enabling buckets first, zeroing in on the steps that require the most time. After that, we can analyze even the Value-Added steps to determine if efficiency opportunity exists.

The tool provided in this installment (download link provided at the top of this post) will allow you to list your steps, perform your Value Analysis, and document the current time allotted to complete each step. Once you have done this, we can begin to perform analysis on the process to determine if and how we can remove waste. What follows is a very high-level example of how you may use the tool to go about this process (example document available to download here).

Figure 1 – An example of a widget production process that has been broken down into steps. Value Analysis has been completed and process times have been measured to determine how impactful each step is

In the example above, I have broken down the process into steps and performed the Value Analysis according to the direction above. I then entered the process duration for each step in the provided column (this is all conducted on the ‘Analysis Sheet’ work sheet of this month’s tool). Of importance, the entries for Process Duration can be in any unit of time, but they must be consistent. Also, the time must represent what it takes to perform the step for the same volume of product as all other steps. For example, Process Step 0007 – Transport widget to shipping may actually take 1,600 seconds, but 10 widgets are transported at a time. Therefore, I have divided that time by 10 to ensure that is the Process Duration for a single widget.

Once the data have been entered, the tool will identify whether or not the step falls within that top 80 percent of the work duration, which is called out in the Falls in Pareto? column. From here, I can start to complete the Future Plan column, utilizing both the Value Analysis designation and the overall time that the step takes to prioritize which steps of the process I will work on. At this point, I can use a variety of process improvement tools depending on the type of step to either eliminate or reduce the time it takes. In the example above, I would focus on steps 0008, 0009 and 0010 first, followed by step 0001 most likely. Again, this depends on the specific process. I would look at these steps and determine if I can eliminate them, and if not, how I can reduce the time it takes to complete each step.

Once I used my process improvement techniques to analyze each step, I would model the new process steps and again utilize time study or pre-determined time and motion analysis to determine the potential new time to perform the step. This may require a pilot of the new process in a location to truly test both the feasibility of the new process design and its impact on the product. When I have collected the new times for each step, I would enter them in the final column which will provide insights on the additional worksheets in the tool:

Figure 2 – The Metrics – Opportunity Profile work sheet displays the time currently required to complete each step in the total bar, and highlights in green the opportunity time that exists for each step

Figure 3 and 4 – The Metrics – VA Analysis Pie Chart work sheet displays two pie charts, showing the breakdown of the steps across the three Value Analysis categories and their current contribution to the overall time it takes to complete the process, both for the current and potential future state

Value Analysis is just one of many improvement strategies within Lean Six-Sigma. Performing this analysis can help you not only identify wastes within the process, but also improve quality of the products you are presenting to your customers. In an environment that has not undergone significant process improvement efforts, it is typical that truly Value Added work represents less than 5 percent of the overall work effort. If performing Value Analysis increases that figure even by a few percentage points, it can greatly reduce costs, increase profitability, improve quality and have many other benefits to your operation. As companies invest more and more on labor to ensure customers visit their stores, this type of analysis may be more important than ever.