Value is a critical concept in Lean Six Sigma. It provides the foundation for continuous improvement and helps to determine which projects, products, services, and customers are worth pursuing.
Overview: In Terms of Lean Six Sigma, What is Value?
Value is a measure of the worth of a product or service to the customer. It’s not how much something costs, but rather how much it’s worth.
Value comes in two forms: basic value and total value. The former is defined as the sum of all benefits provided by your product or service for that customer; the latter takes into account both basic and premium values.
In Lean Six Sigma, we use three metrics: cost per unit, gross profit margin percentage, and average sales price (ASP). You can use these metrics to determine whether your company is creating products or services that customers find valuable enough to purchase at a certain price point.
3 Benefits of Value
There are a number of benefits to the concept of value in Lean Six Sigma.
1. It helps practitioners focus on the most important part of their projects: delivering value to the customer.
This allows them to reduce waste and improve efficiency in their processes, which ultimately leads to better products or services for customers.
2. It can help businesses get better at understanding what their customers want and need.
This is important because it helps businesses understand how they can best serve their clients—and it also leads them down new paths that they might not have considered before.
3. This concept helps companies recognize that all parts of their business are important and should be considered when deciding what needs improvement.
This means that if you’re working on improving efficiency at your manufacturing plant, then it’s just as important for you to consider the impact that decision will have on sales as it is for your employees’ morale or safety issues.
Why is Value Important to Understand?
Value is the difference between what is and what could be. It’s not an easy concept to measure, but it’s important to understand because it helps us focus on what matters most: the customer.
When we talk about value, we mean the difference in impact between one thing and another—the additional benefit that you get when you do something a certain way compared with when you don’t do anything at all. For example, a company might offer a service that costs $100 per month to use and includes 10 gigabytes of storage space for each user, along with storage upgrades available for purchase as needed (10 GB for $5 or 100 GB for $50). This pricing model provides excellent value by providing an affordable set of services for everyone who needs them while also allowing users who want more space than they need—or who want it sooner than later—to buy more storage at any time without having to pay full price up front or wait until their contract ends before upgrading again.
This illustrates how easy it can be to provide great value through good planning: The first step is knowing your customers’ expectations; then comes putting together an offering that meets those expectations while also enabling you (and them) to earn additional revenue by selling upgrades if necessary.
An Industry Example of Value
One example of the concept of value at work in an industry is the way that Amazon uses statistical methods to optimize its supply chain and customer service. The company gathers data on the products that customers order, which items they add to their cart but then remove, and what they search for but don’t buy. This data helps Amazon decide which products are likely to be successful and which ones aren’t, allowing it to more efficiently stock its shelves with the right items and make sure that customers get what they want when they place orders.
This approach helps Amazon not only offer better prices but also faster delivery times, which is just as if not more important to customers than price.
3 Best Practices When Thinking about Value
If you’re using Lean Six Sigma in your organization, it’s important to understand that value is about creating a better experience for customers. Value is about understanding the customer’s experience, needs, expectations, and perceptions.
There are three best practices when thinking about LSS’s concept of value.
1. Start by using a value stream map.
This is a visual representation of all the steps in the production process for a product or service. It shows where waste and delays occur and how long it takes to complete each step. The goal is to shorten lead times and reduce waste by improving efficiency.
2. Focus on reducing variation in your processes as much as possible.
Variation is anything that can cause variability in your operations, such as bad parts, poor equipment maintenance, or even human error. The less variation there is in a process (whether it’s good or bad), the less waste will occur overall.
3. Always look for opportunities to improve quality while reducing costs at the same time.
This means reducing defects while lowering material costs through better materials sourcing methods or new technologies.
Frequently Asked Questions (FAQs) About Value
What is the difference between value and cost?
Cost is the amount of money or effort expended to create a product or service. Value, on the other hand, is what customers are willing to pay for a product or service.
How can I measure value?
Value can be measured by quantifying how much customers are willing to pay for your product or service—that is, what they’ll accept as “fair” in exchange for using your product or service. To measure this, you need to understand what makes customers happy with your product or service and why they would choose yours over others’.
What is the difference between value and worth?
Value is what you get when you exchange something, like money for a product or service. Worth is an intrinsic value that doesn’t change based on any external factors, like price or supply and demand.
Different Than But Good For Profitability
The concept of value is a critical part of any LSS program and helps to determine whether a project or product is worth pursuing. The concept is often confused for “profitability”, but in fact focuses on the effects a project will have on an organization as a whole. By considering both customer and organizational needs and focusing on value, more effective decisions can be made and thus impact an organizations bottom line in a positive way.
