PurchTips edition #407

Value Stream analysis is a powerful methodology supply chain and procurement professionals can leverage to understand and unlock opportunities for quality improvement, cost reduction, cost avoidance and Total Cost of Ownership enhancements in their respective supply chain mechanisms.

The definition of value amongst supply chain professionals differs slightly at times.

For many practitioners, Value Add has three characteristics:

1. There is a conversion of inputs from one stage to the next
2. The activities of conversion are done right the first time (very high First Pass Yield)
3. Customers are willing to pay for the resulting products and services.

The logistical movement of information, materials, inputs, and products and services in stages, from suppliers to customers is referred to as a Value Stream. An efficient, effective, and collaborative value stream is a lethal strategic weapon capable of pushing aside all competition. Walmart is a profound testament to this fact, as its value streams are slim, trim, flexible, agile, and formidable.

Procurement and Supply Chain Professionals who master the concepts of Value Stream Analysis, position themselves to play pivotal roles in the Global Market.

The Next Level Purchasing Body of Knowledge underpins, integrates and enhances the essential components of Value Stream Analysis in simple how to do steps. This cutting-edge BOK is designed by practitioners for practitioners.

In this work we will briefly examine three methods of Value Stream Analysis:

1. SIPOC
2. Value Stream Mapping
3. Process Waste Auditing

SIPOC (Suppliers Inputs Process Output Customers) examines the interaction of Input and Process variables (Xs) and how they impact the Outputs (Ys).

Figure 1, SIPOC Analysis of Receive to Deliver Order of the Value Stream of ABC Pizza Chain

The formula for the said interaction is Y=f(x). The output (Y or the Products delivered to customers) is a function of Supply Chain Input and Process Variables or the (Xs).

In the case of the pizza chain depicted in figure 1, the procurement team must ensure that input variable such as ingredients, pizza boxes, mixing equipment, internet service are of the highest quality and delivered to the pizza chain in a timely manner in the right quantities. A failure to ensure this may result in the delivery of poor quality pizza to customers, with staggering fiscal consequences.

Value Stream Mapping

Figure 2, Value Stream Map of Receive to Deliver Order Process of ABC Pizza Chain

The above Value Stream Map depicts many critical aspects of the value stream in the ABC Pizza Chain. The total Cycle Time or time spent on value creation is 42.75 minutes with 30 minutes wait or delay time between processes 1, 2 and 3. The opportunities for improvement in this value stream are numerous. The Total Lead Time 72.75 minutes. The degree of visibility of operations provided by value stream mapping is of extraordinary value to supply chain managers.

Process Waste Auditing

Figure 3, Process Waste Audit Matrix of the Receive to Deliver Order Process of ABC Pizza Chain

The waste audit above provides a great view of cost drivers and issues that affect supply chain professionals and their customers. This tool enables managers quantify and pinpoint the 8 Deadly Wastes that plague most supply chains.

The 8 types of waste in Supply Chains are:

1. Transportation waste
2. Inventory waste
3. Motion waste
4. Waiting waste
5. Over-production waste
6. Over-processing waste
7. Defects
8. Skills and Talent

Problem-Solving methodologies such as Kaizen’s PDCA, Theory of Constraints, and Lean Six Sigma’s DMAIC is the basis of NLPA’s course Improving Quality in the Supply Chain. The course presents the tools used in the above methodologies in a manner to enable supply chain practitioners to realize rapid results, improvements in quality and significant cost savings.

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