The Value Stream

The Value Stream

The methods of Lean and Six Sigma seek to globally optimize the entire value stream…

Typically, in order to aid their management, companies are broken into departments according to function.  Accounting, purchasing, receiving, shipping, manufacturing, marketing, sales, engineering, research and development are all examples.  Each department is given a set of goals for what it does and a budget for accomplishing these things.

The compartmentalization of companies is a useful practice.  Doing so makes it possible for companies to break the work that has to be done into smaller pieces that can be managed more easily.

The disadvantage, as anyone who has ever worked for just about any company can tell you, is that the goals and standards that a company sets up for their departments often lead the leaders of the various departments to make decisions – sometimes unintentionally, sometimes intentionally – that exchange the interests of the whole company for those of the department.

Figure: Any business has one or more value stream that span the operation from the ordering of raw materials through to delivery of the finished product or service to the customer.  The methods of Lean and Six Sigma seek to globally optimize the entire value stream for a product or service rather than locally at the department (or sub-department) level. 

The steps involved in converting raw materials into finished products or services  – and getting these things to the final customer – are known as the value stream.  This is illustrated in Figure 1.  The value stream bridges the various functions in the operation.  In fact, it is often possible to view the value stream as something that spans across companies as well.

Important Tip: Learn to View Your Business as a Value Stream

Setting goals and performance standards that discourage local optimization will help you to avoid having your people chasing targets that reward them or their staff at the expense of the overall operation.