The objective of the literature review related to Principle 1 is to explore why value is the first key principle in lean methodology. For this purpose one may contrast the value definition process in a traditional, as opposed to a LPD process. For any development- based organization or engineering world it is crucial to understand the importance of customer value, as product engineers do not frequently interact with customers.
The lean thinking concept starts with the definition of value from the customer perspective: this, as has been pointed out, is a first principle. Hence, the first principle in Toyota´s LPDS model, deals with the establishment of a customer-defined value. According to Womack and Jones (1996:19) this is a critical facet of lean thinking, because this process must start with a ‘conscious attempt to precisely define value in terms of specific products with specific capabilities offered at specific prices through a dialogue with specific customers’. Therefore, specifying value accurately is the critical first step in lean thinking, which must be driven by customers, in order to avoid producing waste in later stages of the manufacturing process.
Womack and Jones (1996:311) define value as ‘a capability provided to a customer at the right time at an appropriate price, as defined in each case by the customer’. It is important to understand that value is defined and designed early in the PD process. Thus, the value principle is more relevant to the PD process than to the manufacturing process. Manufacturing requires little or no contact with the customer and exerts no influence on the value definition process. The important role of manufacturing is to produce values invested in specific products so as to meet customers’ preferences. However, customer needs and expectations need to be determined in the early stage of the PD process, already in the product definition phase.
Walker et al. (2006:6) confirm this argument, as the PD and design process starts with product definition and intensive listening to identify customer requirements. These need to be collected and understood, and the engineers need to learn to attend to them. One of the most important ‘customers’, which needs to be considered, is the own manufacturing factory with its specific requests.
135 In general, any PD system needs to focus on customers and their values, in order to establish product requirements and specifications required for production. The established customer value must be represented in the product and it must be operationalized in cooperation with design engineers. Value needs to be translated into product attributes and measurable performance specifications, which must all be together aligned with organizational objectives. After identifying all the data a detailed document describing the target customer group, feasible cost model and vehicle-level performance objectives will be created. Subsequently it is necessary to communicate all this vital information effectively throughout the organization.
6.2.1 Value definition in conventional product development
The key player, in the value definition process, is the marketing department, which determines customer preferences. For this purpose marketing uses various tools such as: market trends; benchmarking competitor’s vehicles; field quality data on the current models; surveys - and finally, focus groups. Reinertsen (1997:164) highlights three important tools for understanding the customer: customer interviews, meticulous observation, and the conducting of focus groups. However, the author criticizes conventional companies that do not spend enough time in trying to understand their customers, which he sees as essential for the creation of product specifications.
Morgan and Liker (2006:28) argue that the traditional tools mentioned above are not sufficient for the accurate establishment of customer-defined value because they do not reflect data required for differentiation between value-added and non-value-added activities. For example, Morgan and Liker (2006:28-29) posit an example of the value- definition process at NAC company as used in traditional PD. Here the PD teams focus primarily on meeting financial budgets, project deadlines and on quality. Thus, the customer is not a central point and customers’ true values are not the priority for these teams. However numbers are important in order to please senior management and the programme reviews.
Furthermore, relevant information represented by programme and functional objectives and team goals is not translated into meaningful language understandable to engineers. Key programme participants are often uncertain and have only a vague understanding of the general programme and of their own specific objectives. Moreover, NAC fails to involve other departments such as manufacturing in the value-definition process, so that functional groups and development teams set their own vehicle-level objectives, which
136 may be different from the general ones. Lack of alignment and lack of ownership of programme objectives downstream by development teams cause unnecessary conflicts and create confusion within the organization: this is often reflected in programme delays and readjustments of budgets. Consequently, it results in waste created in the engineering process. Some of the problems typical of conventional PD organization are summarized below in Figure 6.2:
Figure 6. 2: Problems and their impact on the conventional PD process Source: Researcher´s own construction based on Morgan and Liker (2006:27-29) Figure 6.2 summarizes just a few of the problems occurring in the traditional PD environment and demonstrates how this impacts on the process, the employees and the organization. Such problems surface in the real world and challenge technicians and engineers as well as management. The importance of a customer value definition process can be measured by the extent to which the problems impact on other internal processes, such as communication or collaboration. As explained, engineers need to transform customer requirements into a set of design specifications for the production of the final product. However, if engineers are unaware of - or do not understand - customers’ needs, their work will include non-value adding outcomes, resulting in waste. For this reason waste identification and elimination is at the centre of a LPD process.
137 6.2.2 Value definition in the lean product development process
In contrast to conventional or traditional practices a value definition process at Toyota starts with the selection of the key programme leadership (Morgan & Liker 2006:29). The top programme leader is a chief engineer: it is his or her responsibility to understand exactly what the customer values and to deliver such value to the customer through the development process. Programme leadership and the Chief Engineer System are key elements of the value definition process: they will therefore be discussed below as separate key elements.
As already explained, the cornerstones of a lean value definition process are the customer´s preferences about a product or a service and how these are defined. The lean system relies on a deep knowledge and understanding of customer-defined value, which is operationalized and communicated throughout the organization so as to align a programme’s objectives with its functional objectives and team goals.
The importance of the value-definition process has been stressed in the PD literature, where the process is named the product specification process. According to Reinertsen (1997:177) product specifications are critical for a successful product design as they define clear targets for a design process and for development teams. Reinertsen argues that product specification is a PD issue, not a product planning issue, because product planning produces only a product concept. Moreover, the product specification process starts with a company strategy which consists of critical activities such as customer selection, understanding of a customer, and creation and use of specifications (Reinertsen 1997:162).
Ward (2009:117) adds that for a lean development product, specifications are determined at the end of the project: this is at the stage where the target narrowing process is completed. This contrasts with the conventional process where the specifications are defined at the beginning of the design process. When engineers define specifications at the outset of a project, there is uneven demand on resources and this consequently creates batch processes which disrupt flow and are difficult to manage.
Ward (2009:18) highlights the basic value, which is created during PD - ‘the usable knowledge’ is created through three kinds of learning:
Integration learning – learning about customers, suppliers, partners, and the
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Innovation learning – learning necessary for the creation of new breakthrough solutions.
Feasibility learning – learning which enables effective decision-making for new
solutions, by avoiding unnecessary problems.
Lean companies generally focus on useable knowledge and they put a vast amount of effort into abstracting data into trade-off curves: this will be elaborated on later.
6.2.3. Linking the theory with the real world
As pointed out in this section, the lean concept starts with the customer and a definition of the customer’s value: these are key elements for successful product design. The real- world process of value definition begins by establishing contact with customers which is followed up by intensive discussions to determine their preferences. An understanding of - and translation of - customer’s expectations into product attributes and specifications must be accomplished in the early stage of the PD process. For this purpose design engineers use tools such as Voice of the customer (VOC), Quality Function Deployment (QFD) or ‘Design for X’ (DfX).
Once product and design teams know exactly what customers’ preferences are they will be able to design the specific product which the customers will buy. These teams will therefore not design something not needed and will strive to make the product more affordable. The product design and development process, when seen from a lean perspective as a value stream, will consist of value-adding and non-value-adding activities. These activities are linked to the elimination of waste and will be discussed later in this chapter, as part of Principle 3. Based on the theory reviewed related to Principle 1 it can be concluded that creating value and eliminating waste are the critical first steps in any lean system.
6.3 PRINCIPLE 2: FRONT-LOAD THE PRODUCT DEVELOPMENT PROCESS TO