Tuesday, November 26, 2013

Is there a lean approach to organizing value through the value chain? When to outsource or not?

Hello everyone!  Happy Holidays to you all!!  

This post is shared from my post on http://www.theleanedge.org

Question this month:

Is there a lean approach to organizing value throughout the value chain?
Automotive companies tend to outsource all except body and engine, and service organizations such as banks and insurance companies are now arguing they should do the same in order to become lean. Is there a specific lean approach to where value should be in the supply chain? Is there a unique Toyota way of doing so?

My reply:

There can be several ways to determine when outsourcing is an option for an organization.
How I share my thoughts about it to others is based on my experience inside and outside of Toyota. I believe there must be a need to outsource a process, service or product. So what is that need or criteria?
This means there should be an overall “value-add” to the company business indicators in making this decision /change. Just to outsource without increasing value can be considered just a manpower reduction, and unfortunately many industry would consider that a Lean activity -(Less Employees Are Needed).
Manpower reduction alone can ignite the already existing fear that may be present in a declining culture of conditioned people, who have by default; made a clear extinction between management and themselves. (We versus They= people versus management).
When examining this decision as an organization, there will be many factors that will help clarify the next steps.
One crucial factor would be the need to control quality. If the product, service or process is highly sensitive (“zero tolerance” type policy) then this particular process may never be a candidate for outsourcing. In my world at Toyota these would be critical items such as brakes, air bags, or steering columns on a vehicle.
When there is a product, service, or process that is a possible candidate for outsourcing (added value has been determined), then a review of the supplier’s capability and capacity should begin. This vetting process ensures the product will meet necessary quality, productivity and cost expectations which should align with customer need internally and externally.
When a supplier is selected this should be the beginning of a long term relationship that fosters ongoing cost, production and quality improvements. This should be “leading and learning” dialogue between the company and the supplier with continuous improvement as a backdrop.
The overall bottom line with an outsourcing decision should have no impact on the final output in regard to quality, however by adding value it will have a positive result on the production, costs. For example, if an organization has increased demand for their product then decisions should be made about how the outsourcing process should be used to support this demand. (Rebalancing or reallocation of work using value stream mapping from order to customer). This process, if done correctly, should help build mutual trust and respect with your workforce, and engage your people in this value adding process along the way – they are truly your most important asset.
Until next time
Tracey Richardson