This is roughly how I have heard different trainers explain the basics of Lean production. It feels right and seems logical. But above all, it provides a clear focus. Either what I do in my process is value creating, or it is some kind of waste.

The next step is traditionally to start categorizing everything that is not value-adding into one of seven types of waste, and then create action plans and activities. All with the aim of reducing costs in our processes and increasing productivity.

However, many organizations testify that it is difficult to succeed in introducing Lean production. Despite the simple, almost obvious, definition of waste and value, it is difficult to implement in reality. Over time, it has also been shown that a large majority of organizations that try to introduce Lean fail to achieve their goals.

So what is the problem?

One possible explanation is that the concept of 'value' is neither obvious nor easy to use.

I often lecture to students at various universities. Talking about lean production to a group that doesn't have much experience can be difficult. Students may find it difficult to absorb what is said during the presentation. One way to deal with this is to try to have small practical exercises to give a sense of what Lean production is all about. The simplest exercise is just about value and waste.

After talking about value and the seven traditional wastes, I ask for two volunteers. With some hesitation, two people usually stand up. One of them is given the task of assembling a simple component consisting of five parts. The other is asked to time how long the assembly takes with a stopwatch, i.e. measure the cycle time of an operation.

Everyone else in the audience is asked to take out their cell phones and start a timekeeping app. Their task is to start the clock, while the fitter is doing his work, every time they think something valuable is being done, and to stop every time they think what is being done is a waste.

The assembly itself takes about thirty seconds before all parts are in place. After a round of applause and thanks, the volunteers are allowed to take their seats. Then I ask the audience to show by a show of hands whether they thought the amount of value added time was between zero and five seconds? Then between five and ten seconds? This continues until everyone has raised their hands. The result is almost always a graph that has a few crosses at the beginning and is roughly normally distributed. Some think that most of the work is wasteful, some think that most of the work is valuable, and most fall somewhere in between.

Then the discussion begins. Why do we get such different outcomes on such a simple task? Everyone was given the same instructions and definitions, yet the assessments differ greatly. From assessing the work as almost 100% waste to assessing it as almost 100% value creation. And this when we study a job that only takes thirty seconds.

It is possible that we are asking the wrong questions. Instead of trying to understand what is value creating and wasteful in our processes, perhaps we need to start by asking ourselves:

• Why do we have these concepts at all?
• What is the point of talking about value creation and waste?

Let's start from the beginning

The meaning of "Value" as used in Lean production comes from Taiichi Ohno. In his book Toyota Production Systemhe describes:

"Our products are scrutinized by cool headed consumers in free competitive markets where the manufacturing cost of a product is of no consequence. The question is whether or not the product is of value to the buyer." 

The consequence of this is that the only way a company can affect its profit is by reducing its costs by eliminating waste. In Lean production this is called the Non-cost principle.

Selling price - Cost = Profit

The price of a good or service is determined by a free market, so the only parameter we can influence is to reduce the cost of our activity. The concept of value is thus linked to an external customer and serves an important purpose as an external reference to the production system.

As with a physical system, you can only measure in comparison with something outside the system. For example, length is measured by comparison with a reference that we have defined as "one meter". Weight is measured in comparison with a reference that we call "one kilogram". Understanding customer value works in the same way as an external reference for a business. The customer is independent and can choose to buy from someone else.

Without customer connection, we risk our process becoming self-referential and over time it may develop other drivers than customer benefit.

If we understand what a customer values in our products, we can keep our process sound and make rational decisions.

So, the conclusion is that the only reason we have to talk about Customer Value, Value Creation and Waste at all is to reduce our costs. So we have to choose definitions that help us with this. We need to be able to see where we have our problems and our potential.

There is no other purpose for talking about "Value" and "Waste".

So far it is obvious, but there are several problems we need to solve.

It is easy to fall into the trap that some of the students fell into. It can become a competition to be the most extreme in assessing activities as different forms of waste. If all the time (almost) spent in a process is waste, which of all the wastes is most important to work on first?

The simplest answer is that the classification of what is waste must be based on what you can influence. For an assembler in an operation, it is more important to understand if the location and position of the work can be improved than if the number of screws on the product is unnecessarily high. For a designer, on the other hand, it is important to understand if the product can be simplified. Although both situations have waste, it is the ability to influence that is crucial. Spending time classifying waste that you cannot influence is in itself a kind of waste.

Sometimes we also talk about "the next process is your customer" as a way of describing the flow of a business. The explanation is sometimes heard in businesses that are implementing Kanban or some other flow management method. But for some processes, this way of thinking can be misleading.

Value is created in a balanced exchange between two parties.

The concept of customer value is based on an unspoken premise. It is based on an idea of a transaction or an exchange. As a customer, it is easy to have high demands, but the counter-demand from the supplier is then a high remuneration. 'Value' thus arises in a balanced exchange between two parties. One provides a product or service, the other pays for the product or service. "Value" is an agreement between two parties where both have a choice.

In an internal process, this situation does not exist and can lead to strange priorities. It is not uncommon that a main process (e.g. assembly) can make unreasonable demands on the supporting processes (e.g. logistics) with reference to the customer concept. However, since there is no balancing process in the form of an exchange between demand and reward, as in the case of the external customer, the total cost of an operation may increase rather than decrease. A small saving in the main process can cause a large increase in the cost of the support process. When we study real companies, this phenomenon is not entirely uncommon.

So, if the only purpose of having the concepts of value and waste is so that we can see where we have problems and our potential in our business, we need to think again.

A support process may be necessary, but in practice it is not valued by the external customer. If you buy a car, you are not interested in how far your steering wheel was transported before it was installed in your car. As long as the steering wheel is in the right place in the new car and works properly, the typical customer is satisfied.

Everything that the support function does (logistics in this case) is wasteful according to the classic definition. Even if logistics would try to improve, all the remaining work is still waste from the point of view of the external customer. The external reference provided by customer value does not help us to choose the right problem in support processes.

One possible solution is to replace 'value creation' with 'benefit'. A support function adds value to the rest of the business regardless of (almost) what they do. If a support function can identify the benefit it brings through its results, it can trace this back to its own process and ask "How and where does this benefit arise in our business?".

What happens is that we gain the ability to see problems and potential in support activities and, at the same time, the ability to measure how much better they are becoming.

So how do you identify "Benefit" in a support process? The simple answer is to ask yourself two universal questions. They work regardless of which support function answers them.

• Who would miss us if we disappeared?

And the most important question.

• Why would we be missing?

If we can answer these questions, we get a good understanding of the internal customer and the value (benefit) we bring. Then it's just a matter of driving an improvement process. And that's the whole point of having concepts like value and waste.

In summary, the only reason we talk about value and waste is to understand where we have problems and potential in our business. In order to do that, the concepts have to be adapted to what we are able to influence. In some cases, it can also be better to use "benefit" instead of "customer value" to understand your process.

Anyone interested in learning more about this or other issues can download my doctoral thesis free of charge.

With kind regards,

Christer Osterman
Manager Central SPS Office at Scania and recently completed his PhD at Mälardalen University.