Developing the Lean Value Chain

In an era in which competition no longer takes place between companies, but between value chains, it is necessary to be inserted into competitive value chains.

Thus, it is not enough for a company to adopt lean principles. It is essential that the entire value chain in which the company is inserted assimilate and practice lean philosophy. This is because the starting point for lean thinking is value as perceived by the client. Moreover, according to the popular saying, “a chain is only as strong as its weakest link.” An actor who does not operate according to lean principles within the value chain can make the whole chain weaker!

Before we talk about the importance of applying lean principles to the entire value chain, creating the Lean Value Chain, let’s define value, value flow, and value chain.

Value, from an economic approach, can be defined as the amount of money that the customer expects to pay and is based on the utility or satisfaction that the product will provide. In other words, cost-benefit. From a marketing approach, value involves perceptions and choices, not only the economic activity of the purchase of a product or service. It relates, therefore, the customer’s perception of a product or service to the expected benefits. It is the intersection of perception and expectations.

Value flow is the execution of activities along the value chain in a continuous way for a product /service from development to launch, from order to delivery, and from raw material to the final product in the hands of the customer.

A value chain can be conceptualized as the set of activities performed by a company from relationships with suppliers and cycles of production and sale, to the stage of final distribution to the customer. In other words, it is the whole set of activities that add value to a product or service.

Figure 1 illustrates the value chain model proposed by Michael Porter.

The value chain is comprised of primary activities and support activities.

Primary activities relate to the development and transformation of products / services, sales, maintenance and support. The following primary activities can be observed in practically all companies:

Inbound logistics are the processes related to receipt, inventory control, transportation and relationship with suppliers.

Operations correspond to the activities related to the transformation of raw materials, such as the manufacture of product. Here equipment, assembly, packaging, testing and other activities are inserted.

Outbound logistics: Once manufactured / developed, products / services need to reach the end consumer. This must be done in a cost-efficient way and meet customer expectations regarding service level and availability.

Marketing and sales are all the processes used by the company to win over consumers to acquire its products or services.

Services are customer-facing and after-sales activities that have the ability to increase the perceived value of the product by the customer.

Support activities in the value chain have the function, as the name indicates, of supporting directly or indirectly the execution of primary activities.

While there may be a variety of supporting activities in each business segment, four main supporting activities are usually identified:

Enterprise infrastructure serves to maintain daily operations, as is the case with management, be it administrative, legal, general, accounting, or quality.

Human resource management is associated with recruitment, selection, development, retention and reduction of staff.

Technology development: though of paramount importance to the company, it is part of the support sector, serving to keep the primary activities expanding and well executed.

Procurement of goods and services are company processes for acquiring the materials and machinery to work.

I hope the important concept of the value chain has become clear.

What is a Lean Value Chain, then?

The Lean Value Chain is the application of lean principles in the development and improvement of the processes and operations that make up the entire chain.

The idea contained in the concept is that of maximizing the flow of value, of mitigating waste and losses, having as a reference the pursuit of perfection, Zero Defects. In other words, it is a value chain where the seven sources of waste of the lean system are tackled at every link, in order to eliminate any loss: defective products, higher production than currently required, inventory for which there is no demand, processing losses, unnecessary movement, transport and waiting times, and, finally, failure to take advantage of the full potential of the people in the value chain. In other words, a lean value chain is one in which the primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and services) and support activities (enterprise infrastructure, human resource management, technology development, and procurement of goods and services) are carried out in keeping with lean philosophy and principles. For this to be possible, it is essential to establish partnerships and cooperation among all actors in the value chain. Is it clear now what a Lean Value Chain is? In due course we will come back to this topic.

 

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