Yesterday's post on breaking non-value adding costs out on the P&L drew a couple of the questions and opinions that can be expected when the issue is raised around the conference table in any organization. Evolving Excellence readers being the high class folks they are, the issues were raised in a much less contentious manner than you can expect, but the nature of the challenges they raised are about the same.
Steve H has some concerns about classifying quality control costs as non-value added. Dietmar thinks purchasing is value adding. Prashant is afraid classifying training as non-value adding will subject it to cost cutting, which is presumably a bad thing. George questions classifying material handling as non-value adding as waste since it has to be done – somehow the stuff has to move from one place to another.
All of this gets at the fundmental challenge an organization faces when deciding to embark on the lean journey. The basic definition of lean is the elimination of waste – and waste is anything that does not add value in the eyes (and the pocketbook) of the customer. Knowing what is waste is pretty important – else how can the organization get rid of it? If one person assumes the cost of quality inspection is pure waste, while another sees it as adding value the result is not good. The norm is for folks to advocate kaizen exercises aimed at eliminating the waste of other folks' processes, but rarely urging elimination of the waste in their own back yard.
I suppose there is a certain logic to classifying quality inspection as valuable when you look at it as a necessary task to get dismal quality under control. Customers won't pay much for genuinely shoddy quality and I suppose they will pay more if it is improved by weeding out the bulk of the bad stuff. The better lens, however, is to compare product A that sells for $10 with excellent quality achieved by capable processes, poka yoke and absolute control at the source, with product B having comparable quality selling for $11 to cover the cost of inspection. The customer is not going to pay the extra $1 for product B when it can get the same quality without the inspection expense.
That said, the product specifications for many items sold to military and aerospace customers include documented inspection results. Effective quality inspection is clearly part of the value proposition as defined by the customer. This demonstrates that there is no one size fits all definistion of waste.
The toughest nuts to crack in deriving a consensus on value-adding versus non-value-adding are items such as training – Prashant's very legitimate concern. In fact, management spends a lot of money on things such as training that customers will not pay for – at least they won't pay for it directly. Again back to product A or $10 and B for $11. All else being equal (and all else is never equal in the real world), am I willing to pay an extra dollar in order to cover the cost of training the employees who made product B? Of course not. I am only willing to pay extra if the product has superior value – better quality, more precise utility, superior reliability. The dollar spent on training has to translate into a dollar of reduced waste, a dollar of greater product vale, or some combination of the two. If it doesn't, management should cut the training expense.
There are lots of management controlled, non-value adding expenses that fall into the same category as training. Support staff, computers and software, company picnics and most meetings. Customers won't pay for any of this stuff; and the only justification for it is the belief that it will translate into a dollar for dollar reduction in other waste or an enhancement of product value. Calling it value adding rather than waste, however, is a dangerous practice because you are assuming it always results in offsetting benefits – not a particularly accurate or honest assumption in my experience.
Classifying an expense as value adding because (1) it is perceived as a necessary cost of the operation, (2) management has decided it is good for the business in the long term, or (3) some government regulation dictates that it must be incurred even though that expense is for an activity customers won't pay for is a serious mistake. It is the same as recalibrating my bathroom scale so it shows I only weigh 200 instead if 235 because I can't control my metabolism and I can't get out of the family eating binges we call the holidays. Lying to myself is not going to help me lose weight, even if the reasons for my excess weight are tough to avoid.
I can't tell you what adds value to your customers and what doesn't. Only you can do that based on your individual products and customers. It requires objectivity and honesty, and to make it even tougher, the definitions may be different within your organization for the various value streams and the channels they serve.
Just having the discussion, however, is a great (and necessary) first step. Nothing but good can come from opening up this particular can of worms.