Lean Manufacturing: Value and Waste

Each person perceives value differently. Therefore, when dealing with customers, organizations contend with the subjective importance customers give to a product or service at the moment they order it. With all the possibilities, can any organization control the customer value perception of a product or service? The answer is NO. All an organization can do is, potentially through marketing, present an “image” that may appeal to customers and make them remember the product and brand when placing an order. In the end, it will always be a customer’s perception. A customer goes to buy a pair of shoes. She doesn’t care about the number or order of process steps needed to fabricate the shoes. She doesn’t care how much paperwork was filled out within departments or if there was a need to redesign the shoes. All the customer cares about is that the shoes fit her feet, they are comfortable, the color and style are what she is looking for, and most importantly, they are at a “good” price. The manufacturing world attributes value according to the amount of labor that went into the production of a product instead of an objective measure of the usefulness of a product. Customer satisfaction measures have shown that the value of a product is determined by how much it satisfies the customer’s preference. The problem lies in that organizations tend to concentrate on what they are able to deliver rather than what it is that the customers really want and if they are willing to pay for it. Lean manufacturing requires that companies must start by defining the value of the product or service in the eyes of the customer, because, to customers, value is only relevant at a specific price, quality, and point in time. In other words, value represents the needs of the customer. At the end of the day, it doesn’t matter whether a company has come up with a great idea for a product. If customers do not see the value or have no need for a product, they will not be willing to pay for it. By having a clear understanding of the value customers assign to a product, companies are able to set a target price for it. This will then allow the company to define the cost to produce the product and still make a profit. When companies find themselves not able to meet this production cost, they will start focusing on eliminating “obstacles,” known as “wastes,” so they can deliver the value the customer expects and still make money. Let’s look at an example of this. During the hurricane season, a cell phone service company sends text messages to its customers, helping them get prepared for a hurricane landfall. The text gives the instructions to turn on the Wi-Fi to be able to communicate at any moment, anywhere. Would customers see any value in this text message? Many customers would, since the action is aimed to improve the performance of the devices. Customers will subjectively give importance to this text the next time they have to shop for new devices or service, even if this company’s prices are a little higher than others.