WHY CREATE A VALUE STREAM ORGANIZATION. #1

The question is often raised as to why a company should reorganize themselves around value streams. In this short series of blogs I want to show some good reasons why a value stream organization makes sense.

Your Lean Strategy Is Achieved Through Value Streams.
Every company has it’s own strategy and way to address their markets. This is true of lean companies too. But there is a fundamental strategy underlying the lean transformation of a company. Many people think that lean is about cutting costs. Others think lean is just about eliminating the 7 wastes. Both of these things are true, but there is a deeper issue going on when you embark on making your organizing lean. And this is greatly enhanced when you have a value stream organization.

Lean is About Growing Your Business.
The primary lean approach is to grow the company sales, profits, and cash flow without spending any more money. How does this work? Through increasing customer value and eliminating waste. There are many issues related to lean. There are many lean tools. There are more than 4,000 books about lean and how to do it. But when you boil it down, lean thinking is designed to increase customer value and eliminate waste.

What do you get when you increase customer value and eliminate waste? You get a lot more sales because you are creating more value and satisfaction for your customers. What do you get when you eliminate waste from your processes? Available capacity. You may get some cost savings, but mostly you eliminate waste and create newly available capacity. People’s time. Machine time. Space in your facility. Companies that are serious about lean routinely increase their capacity by 10-20% per year without additional spending.

If you have a lot more sales and freed-up capacity then every dollar of sales become bottom-line profit, once the material costs are taken off. This flies in the face of people who are looking at “margins” on products. If you free up capacity, the cost of making a product is free.

A further outcome of lean improvement in a manufacturing company is the elimination of large amounts inventory. When you reduce your inventory, you free up cash. Lean creates the “perfect storm”; higher demand by increasing value, available capacity by eliminating waste, and the cash to invest in growth.

A Value Stream Organization Builds Growth.
When you have a team of people working in a value stream, and where the responsibility for the sales, production, and profitability of a family of products lies with one person – the value stream manager; then you have a recipe for lean growth. The value stream manager & his/her team have a clear mandate and the authority to make their value stream a “lean machine” creating growth & prosperity.

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