{"id":458,"date":"2008-01-14T21:26:31","date_gmt":"2008-01-15T04:26:31","guid":{"rendered":"https:\/\/staging.opexlearning.com\/resources\/458\/the-hidden-factory-would-the-customer-pay-for-that"},"modified":"2021-10-22T00:44:15","modified_gmt":"2021-10-22T05:44:15","slug":"the-hidden-factory-would-the-customer-pay-for-that","status":"publish","type":"post","link":"https:\/\/staging.opexlearning.com\/resources\/the-hidden-factory-would-the-customer-pay-for-that\/458\/","title":{"rendered":"The Hidden Factory: Would the Customer Pay for That?"},"content":{"rendered":"<div class=\"a296a24fa2fc69ef5487857f02f111e8\" data-index=\"9\" style=\"float: none; margin:10px 0 10px 0; text-align:center;\">\n<script async src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\"><\/script>\r\n<!-- Single Post readerboard -->\r\n<ins class=\"adsbygoogle\"\r\n     style=\"display:inline-block;width:728px;height:90px\"\r\n     data-ad-client=\"ca-pub-8207522353004717\"\r\n     data-ad-slot=\"1144967431\"><\/ins>\r\n<script>\r\n(adsbygoogle = window.adsbygoogle || []).push({});\r\n<\/script>\n<\/div>\n<p>The Hidden Factory is a term that refers to activities in an operation or standard operating procedure (SOP).\u00a0 A few examples of Hidden Factories are workarounds, rework, or any of the 7 wastes, which I will describe below.\u00a0 Most organizations have some form of a Hidden Factory and being able to &#8220;see&#8221; these hidden factories in an organization requires learning to see what waste is and understanding that waste in any operation &#8212; service or manufacturing &#8212; can be a substantial drain on the bottom line, top line, on employee morale, shareholders and, most importantly, the customer.<\/p>\n<p>In fact, one very important litmus test for an activity is this: &#8220;If the customer knew the details of process x, would she be willing to pay for it?&#8221;\u00a0 In other words, suppose substantial rework was required to manufacture a widget and that rework cost was baked-into the cost of 1 unit of a widget, would the customer be willing to pay for the firm&#8217;s defects?\u00a0 Would the customer be willing to pay for the firm&#8217;s internal inefficiencies?<\/p>\n<h2><strong>What is a Process?<\/strong><\/h2>\n<p>A process is an systematic activity comprising of smaller activities that culminate in an outcome \u201d service or product. A process can take up time, space, and resources. All processes can be categorized into the following categories: Value-added, Non-value added but necessary, and Non-value added.<\/p>\n<p>From the Customer&#8217;s Perspective:<\/p>\n<ol>\n<li>Value-added: This step in the process adds form, function, and value to the end product and for the customer.<\/li>\n<li>Non-Value-Added: This step does not add form, function, or assist in the finished goods manufacturing of the product.<\/li>\n<li>Non-Value-Added-But-Necessary: This step does not add value, but is a necessary step in the final value-added product.<\/li>\n<\/ol>\n<p>(2) &amp; (3) naturally create waste, of which there are 7 types:<\/p>\n<ol>\n<li>Over-Production: Producing more than is needed, faster than needed or before needed.<\/li>\n<li>Wait-time: Idle time that occurs when co-dependent events are not synchronized.<\/li>\n<li>Transportation: Any material movement that does not directly support immediate production.<\/li>\n<li>Processing: Redundant effort (production or communication) which adds no value to a product or service.<\/li>\n<li>Inventory: Any supply in excess of process or demand requirements.<\/li>\n<li>Motion: Any movement of people which does not contribute added value to the product or service.<\/li>\n<li>Defect: Repair or rework of a product or service to fulfill customer requirements.<\/li>\n<\/ol>\n<p style=\"text-align: center;\"><\/p>\n<p>It&#8217;s important to understand Value in terms of the customer.\u00a0 From the customer&#8217;s perspective, Value could be defined in the form of a question:<\/p>\n<blockquote><p>Which process steps (and associated costs) do our customers <strong>not<\/strong> have to bear?<\/p><\/blockquote>\n<p>It&#8217;s a revealing question \u201d most companies are glad that they do not have to reveal how their product or service is created, for fear of their inefficient processes and wasteful operations revealed to the customer.\u00a0 This stance is sometimes aptly called &#8220;not revealing how the hot dog is made&#8221;, amicably referring to the unknown contents of the hot dog.<\/p>\n<h2><strong>Process Cycle Efficiency<\/strong><\/h2>\n<p>There is a metric that helps to identify how much of a process is actually value-added.\u00a0 It requires a few things:<\/p>\n<ol>\n<li>Map the process.<\/li>\n<li>Identify the Value-added steps, non-value added steps, and the non-value added but necessary steps.<\/li>\n<li>Stratify your map according to the items in #2<\/li>\n<li>Add a time dimension to the process steps.<\/li>\n<\/ol>\n<p>Once you have completed steps (1) &#8211; (4), then you can simply calculate how much is actually value-added, as a percentage.\u00a0 The time for the entire process \u201d end-to-end \u201d is called a cycle time.\u00a0 To identify the Process Cycle Efficiency, you just divide the value-added time by the cycle time for the process.<\/p>\n<blockquote><p>Process Cycle Efficiency = (Value-added Time \/ Cycle Time)<\/p><\/blockquote>\n<p>For example, take the hypothetical process below:<\/p>\n<p><img decoding=\"async\" src=\"http:\/\/farm1.static.flickr.com\/175\/389025639_f376e88877.jpg\" alt=\"process cycle efficiency, lean consumption maps\" title=\"lean pce\" \/><\/p>\n<p>The process above has a cycle time of 860 seconds.\u00a0 So, the Process Cycle Efficiency could then be calculated by doing the following:<\/p>\n<blockquote><p>Process Cycle Efficiency = 182 \/ 860 = .21, or 21%<\/p><\/blockquote>\n<p>In other words, <span style=\"font-size: small;\"><strong>only 21%<\/strong><\/span> of the process above is considered value-added to the customer.\u00a0 Put another way, the customer might be bearing more than 75% of the cost associated with the waste above.\u00a0 Knowing this, the firm should aim to increase the Process Cycle Efficiency of the process by eliminating or reducing the waste.<\/p>\n<p>Data like this can help the firm increase their value-added percent to the customer by eliminating or reducing the waste in their process.\u00a0 Doing this would put the customer first and allow the firm to &#8220;get their house in order.&#8221;\u00a0 I consider the above exercise to be simple, yet incredibly helpful for the firm to make sure that they provide maximum value to the customer; it&#8217;s a fiduciary duty to the customer.<\/p>\n<p>Think about your processes?\u00a0 How much is really value-added to the customer?<\/p>\n<!--CusAds0-->\n<div style=\"font-size: 0px; height: 0px; line-height: 0px; margin: 0; padding: 0; clear: both;\"><\/div>","protected":false},"excerpt":{"rendered":"<p>The Hidden Factory is a term that refers to activities in an operation or standard operating procedure (SOP).\u00a0 A few examples of Hidden Factories are workarounds, rework, or any of the 7 wastes, which I will describe below.\u00a0 Most organizations have some form of a Hidden Factory and being able to &#8220;see&#8221; these hidden factories [&hellip;]<\/p>\n","protected":false},"author":12327,"featured_media":8609,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[16],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Lean Six Sigma: What is a Hidden Factory?<\/title>\n<meta name=\"description\" content=\"Explanation of Hidden Factory and how that is ripe for improvement\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, 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