VSM Preparation Phase Activities • Hold initial conversation with executive sponsor, value stream champion & Value Stream Analysis: Beyond the Mechanics - Part 1 (Planning)

Value Stream Analysis: Beyond the Mechanics (Part 1) Webinar January 7, 2014

Welcome! • • • • • • • • • © 2014 The Karen Martin Group, Inc. Argentina Australia Belgium Bulgaria Canada Denmark France Great Britain Israel • • • • • • • • • Lithuania Latvia Morocco Netherlands New Zealand Russia Saudi Arabia Spain United States 2

Industries Represented • • • • • • • • • • Accounting Aerospace Banking Biotech & Pharma Construction Defense Education Energy Financial Services Government © 2014 The Karen Martin Group, Inc. • • • • • • • • • • Healthcare Information Technology Insurance Legal Manufacturing Publishing Real Estate Retail Telecommunications Transportation

 Coach / Facilitator / Consultant / Trainer: Lean transformation & business performance improvement in all industries.  Teacher: University of California, San Diego  Author & Speaker: Karen Martin, President The Karen Martin Group, Inc. www.ksmartin.com 2013 Shingo Prize winner! www.ksmartin.com/subscribe 4

Before the webinar… • The materials are available on: – www.ksmartin.com/files/webinarmaterials/MM‐ DD‐YYYY_slides.pdf (or _handout.pdf) After the webinar… • All recordings are available on: – – – – www.vimeo.com/karenmartingroup www.youtube.com/karenmartingroup www.slideshare.net/karenmartingroup www.ksmartin.com/webinars • The materials are available on: – www.slideshare.net/karenmartingroup © 2014 The Karen Martin Group, Inc. 5

More VSM Webinars! 11:00 am‐12:15 pm PT • Tuesday, January 21, 2014 – Value Stream Analysis: Beyond the Mechanics – Part 2 (Mapping Execution) – https://www2.gotomeeting.com/register/835695002 • Tuesday, February 18, 2014 – Value Stream Analysis: Beyond the Mechanics – Part 3 (Executing the Transformation Plan) – https://www2.gotomeeting.com/register/154959186 • Thursday, March 27, 2014 – Value Stream Mapping: Case Studies – https://www2.gotomeeting.com/register/288652530 © 2014 The Karen Martin Group, Inc. 6

Value Stream Mapping Activity Phases and Timing Repeat Prepare Understand Current State Design Future State Develop Transformation Plan Execute Transformation Plan 4 Weeks Prior to Mapping Three Consecutive Days Following Mapping Tuesday January 7, 2014 Tuesday January 21, 2014 Tuesday February 18, 2014 © 2013 The Karen Martin Group, Inc. 7

You will learn… • The importance of a well‐crafted charter. • Leadership’s role in the planning process & engagement tips. • How to define the scope and set appropriate target objectives. • Which leaders MUST be on the mapping team. • Techniques for properly socializing the VSM charter. • Logistics details that matter. © 2014 The Karen Martin Group, Inc. 10

Value Stream Defined Value Stream: All of the activities required to transform a customer request into a good or service. Value Stream Process Customer Request Process Process Customer Receipt First defined in The Machine That Changed the World, James Womack, Daniel Jones, & Daniel Roos, 1990. © 2014 The Karen Martin Group, Inc. 13

Value Stream Mapping’s Roots Mike Rother & John Shook, 1999 Beau Keyte & Drew Locher, 2004 Whenever there is a product for a customer, there is a value stream. The challenge lies in seeing it. — Mike Rother & John Shook, Learning to See © 2014 The Karen Martin Group, Inc. 14

Value Stream Mapping: Common Failings • Using the mapping process solely as a work design exercise • Using the map to make tactical improvements • Creating maps but taking no action • Mapping with an inappropriate team—or no team at all • Creating value stream maps during a kaizen event • Creating maps with no metrics • Mapping without a team charter or not socializing it © 2014 The Karen Martin Group, Inc. 15

Work: Degrees of Granularity Value Stream Macro Perspective • • • Define strategic direction (“what”) Heavy leadership involvement Value Stream Mapping Process Process Micro Perspective Process • • Step © 2014 The Karen Martin Group, Inc. Step Step • Identify the tactical “how” Heavy frontline involvement Metrics‐Based Process Mapping 19

Work: Degrees of Granularity Order Fulfillment Value Stream Order Fulfillment Strategic Value‐stream Perspective Quote Tactical Process‐level Perspective © 2014 The Karen Martin Group, Inc. Design Produce Fabricate Assemble Ship 20

Work: Degrees of Granularity Hiring Value Stream Hire Strategic Value‐stream Perspective Recruit Tactical Process‐level Perspective © 2014 The Karen Martin Group, Inc. Write job description Select Post internally Onboard Post externally 21

Value Stream Maps ≠ Swim Lane Process Maps Current State Metrics-Based Process Map 0 PT Units 1 0 Seconds Hours Minutes Days LT Units 15 6 -1 0 Seconds Hours Minutes Days 1 Customer Diane O'Shea Sean Michaels Sam Parks Sally Dampier Michael Prichard Specific Conditions Domestic orders through sales force Occurrences per Year 37,500 Hours Worked per Day 8 Date Mapped 25-Jun-08 Step # ► Function / Department Mapping Team Process Details Process Name Order Fulfillment 1 2 Activity PT LT %C&A Fax PO to Sales Rep 0 0 Ryan Austin Mary Townsend Facilitator Dave Morgan 3 4 45% PT LT %C&A Activity PT LT %C&A Review PO; clarify with customer as needed 20 2 90% Fax PO to warehouse 10 4 Activity PT LT %C&A Activity PT LT %C&A Check inventory levels; notify Sales Rep re: status 2 Sales Rep Activity 5 90% 5 4 95% Fax PO to Sales Rep 5 0.33 90% 5 Finance 6 Warehouse / Shipping Critical Path PT Critical Path LT Rolled %C&A Total PT 0 20 0 45% 0 10 2 90% 20 5 4 90% 10 5 4 0.33 95% 5 90% 5 Metrics‐Based Process Mapping is used to improve tactically & define standard work © 2014 The Karen Martin Group, Inc. 23

Basic Value Stream Map: Future State 1 Customer IT interface Standard work Error proof IT-1 Crosstrain Modified approvals 2 Process 1 3 Crosstrain Process 2 Function A 1 items IT-2 LT = 1 days PT = 10 mins. %C&A = 99% Process 3 Function C 5 items 5 4 Standard work Function E 10 items 3 LT = 2 days PT = 120 mins. %C&A = 95% 4 LT = 0.5 days PT = 30 mins. %C&A = 95% 1 days 2 days 0.5 days Total LT = 3.5 days 10 mins. 120 mins. 30 mins. Total PT = 160 mins. Activity Ratio = 9.5% Rolled %C&A = 89.3% © 2014 The Karen Martin Group, Inc. 27

Basic Value Stream Future State Performance Metrics Current State Projected Future State Projected % Improvement 9.5 days 3.5 days 63.2% 180 minutes 160 minutes 11.1% Activity Ratio 3.9% 9.5% 143.6% Rolled % Complete & Accurate 30.0% 89.3% 197.7% Metric Total Lead Time Total Process Time User defined User defined © 2014 The Karen Martin Group, Inc. 28

Value Stream Mapping Activity Phases and Timing Repeat Prepare 4 Weeks Prior to Mapping © 2013 The Karen Martin Group, Inc. Understand Current State Design Future State Develop Transformation Plan Three Consecutive Days Execute Transformation Plan Following Mapping 30

Activity Preparation Prepare Understand Current State Design Future State Develop Transformation Plan Execute Transformation Plan 1. Engage executive sponsor 2. Draft charter 3. Socialize charter 4. Plan logistics 5. Gather data 6. Deliver VSM overview © 2014 The Karen Martin Group, Inc. 31

VSM Preparation Phase Activities • Hold initial conversation with executive sponsor, value stream champion & facilitator. • Draft charter – – – – – Purpose Goals Scope Team Logistics (start/end times, location, briefings) • Socialize charter © 2014 The Karen Martin Group, Inc. • Plan logistics – Send meeting invitations (to briefing attendees as well) – Talk with prospective gemba interviewees – Gather relevant data – Book “base camp” room – Gather supplies – Order food • Gather relevant data • Hold value stream mapping overview session 32

Key Roles: Considerations • Executive Sponsor – Typically VP or higher – Authority over significant portion of value stream (or strong relationship w/ peer group) – Ultimately accountable for results – Must attend briefings • Value Stream Champion – Oversee significant portion of the value stream – Heavily engaged in entire value stream transformation (own the transformation plan) – Member of mapping team – In small companies or those just starting out, the VS Champion and Exec Sponsor could be the same person. • Facilitator – Objective; no “skin in the game” – Skilled in both mapping/improvement mechanics, and high‐level team dynamics. © 2014 The Karen Martin Group, Inc. 33

VSM Preparation Phase Activities • Hold initial conversation with executive sponsor, value stream champion & facilitator. • Draft charter – – – – – Purpose Goals Scope Team Logistics (start/end times, location, briefings) • Socialize charter • Plan logistics – Send meeting invitations (to briefing attendees as well) – Prepare for value stream walks (e.g., talk with prospective gemba interviewees) – Book “base camp” room – Gather supplies – Order food • Gather relevant data • Hold value stream mapping overview session http://www.ksmartin.com/wp‐content/files/Value‐Stream‐Mapping‐Charter.xlsx © 2014 The Karen Martin Group, Inc. 34

Charter: Critical planning, communication, and consensus‐building tool Value Stream Mapping Charter Scope Accountable Parties Logistics Executive Required: typically VP or C-level Sponsor Value Stream Value stream being improved Value Stream If needed—often director or Champion manager level Specific What circumstances are included and excluded? Conditions (e.g., type of customer, geographic location, etc.) Demand Rate How many times is this done per wk, qtr, mo, or yr? Facilitator Trigger What initiates the process? First Step Task on first process block Required: skilled, objective person leading the activity 3 days typically; consecutive Event Dates is best; 6 hrs per day & Times minimum; 7 or 8 hrs is best Base-camp On-site, ample wall space, Location quiet/private location Logistics Not always needed Coordinator Last Step Task on last process block Boundaries & What is the team NOT authorized to change? Limitations Meals Always a nice touch; keeps Provided the team from wandering Briefing List the the people that are Attendees required to attend the briefings (**) ** required and those whose attendance is *optional optional (*). Improvement Time Typically 3-6 months Frame Current State Problems & Business Needs Aids in consensus building Briefing and organizational learning. Dates & Typically the last hour of the Times day. Mapping Team Function 1 What's driving the need for improvement? 2 3 Contact Information 2 4 Name 1 Leadership-heavy 3 5 4 Measurable Target Condition 5 1 Reduce <defined metric> from X to Y (Z% improvement). 6 2 Increase <defined metric> from X to Y (Z% improvement). 7 3 8 4 9 5 10 Benefits to Customers & Business On-Call Support Function 1 How will the business, internal and external customers, and 2 internal and external suppliers benefit from value stream improvement? 3 Contact Information 2 4 Name 1 SMEs that may not be needed full time 3 5 4 Relevant Data Agreement Executive Sponsor 1 What data is required to understand relevant current state isues. Value Stream Champion Facilitator 2 Examples: work volume & volume variation, process quality & 3 effectiveness, market trends, customer satisfaction, employee Signature: Signature: Signature: 4 engagement, financials, lead time, safety records, etc. Date: Date: Date: © 2014 The Karen Martin Group, Inc. 35

Value Stream Mapping Charter Scope Accountable Parties Logistics Executive Allen Ward Sponsor Value Stream Capital equipment Specific Engineer to order, requires both hardware & Conditions software customization Event Dates July 24-26, 2013 & Times 8:00 am - 5:00 pm Value Stream Nancy Little Champion Demand Rate 1,000 per year Base-camp Surf's Up - Room A Location Facilitator Dave Parks Trigger Customer submits RFQ First Step Sales reviews the RFQ Logistics Dave Parks Coordinator Last Step Production ships product Boundaries & No new software; only minor changes to existing IT Limitations systems; no additional staff; no budget changes Meals Continential breakfast & lunch Provided Briefing ** Allen W (COO), Joe M (CIO), Attendees Sal T (VP Sales) ** required * Bruce R (VP Ops), Carlos P *optional (HR), Su T (CFO), Bill M (VP CS) Improvement Time Future state design is fully realized by Frame December 31, 2013. Current State Problems & Business Needs Briefing July 24, 25, & 26 Dates & 4:00-5:00 pm Times Mapping Team Function / Title 1 Desire to stay ahead of the competition & deepen customer loyalty. Name 2 Forecasted growth of 15% for next fiscal year. 1 Sales, Director Sean Michaels 3 Unclear & incorrect information flowing through value stream. 2 IT, Director Diana Marie 4 Lead time for RFQ turnaround = 2 weeks; PO to software dev = 5 weeks 3 Finance, Controller Dave Gerald 5 (Competition's RFQ LT is 1 wk and PO to delivery is 4 wks) 4 Scrum Master Ryan Austin 5 Engineering, Vice President Nancy Little 1 Reduce RFQ lead time by a minimum of 50%. 6 Manufacturing, Director Ambreen Motiwala 2 Reduce PO to software development lead time by a minimum of 50%. 7 Customer Service, Manager Danny Tran 3 Improve quality of information flowing throughout value stream. 8 Customer (contract manufacturer) Contact Information JR Hunt Goals & Measurable Target Conditions 4 9 5 10 Benefits to Customers & Business On-Call Support Function 1 Faster delivery; less hassle; less cost. Name 2 Better working relationships between sales, estimating & engineering. 1 Planning / Purchasing, Planner Lourdes Dwyer 3 Freed capacity to absorb additional business w/o increasing staff. 2 Production Supervisor 4 Contact Information 3 5 Tom St. James 4 Relevant Data Agreement Executive Sponsor 1 Sales effectiveness: RFQ conversion rate. Value Stream Champion Facilitator 2 Financial: Estimate-to-actual cost comparison. 3 Operational: LT in segments (RFQ to quote; PO to development). Signature: Signature: Signature: 4 Date: Date: Date: © 2014 The Karen Martin Group, Inc. 36

Value Stream Mapping Charter Scope Accountable Parties Logistics Executive Required: typically VP or C-level Sponsor Value Stream Value stream being improved Value Stream If needed—often director or Champion manager level Specific What circumstances are included and excluded? Conditions (e.g., type of customer, geographic location, etc.) Demand Rate How many times is this done per wk, qtr, mo, or yr? Facilitator Trigger What initiates the process? First Step Task on first process block Required: skilled, objective person leading the activity 3 days typically; consecutive Event Dates is best; 6 hrs per day & Times minimum; 7 or 8 hrs is best Base-camp On-site, ample wall space, Location quiet/private location Logistics Not always needed Coordinator Last Step Task on last process block Boundaries & What is the team NOT authorized to change? Limitations Meals Always a nice touch; keeps Provided the team from wandering Briefing List the the people that are Attendees required to attend the briefings (**) ** required and those whose attendance is *optional optional (*). Improvement Time Typically 3-6 months Frame Current State Problems & Business Needs Aids in consensus building Briefing and organizational learning. Dates & Typically the last hour of the Times day. Mapping Team Function 1 What's driving the need for improvement? 2 3 Contact Information 2 4 Name 1 Leadership-heavy 3 5 4 Measurable Target Condition 5 1 Reduce <defined metric> from X to Y (Z% improvement). 6 2 Increase <defined metric> from X to Y (Z% improvement). 7 3 8 4 9 5 10 Benefits to Customers & Business On-Call Support Function 1 How will the business, internal and external customers, and 2 internal and external suppliers benefit from value stream improvement? 3 Contact Information 2 4 Name 1 SMEs that may not be needed full time 3 5 4 Relevant Data Agreement Executive Sponsor 1 What data is required to understand relevant current state isues. Value Stream Champion Facilitator 2 Examples: work volume & volume variation, process quality & 3 effectiveness, market trends, customer satisfaction, employee Signature: Signature: Signature: 4 engagement, financials, lead time, safety records, etc. Date: Date: Date: © 2014 The Karen Martin Group, Inc. 37

Value Stream Scoping Diagram Defining Specific Conditions Medical/Surgical Inpatient Intensive Care Pediatric Patient care X‐Rays Vaccine Clinic CT Scans Potential selection criteria: • Highest volume? • Highest margin? • Most painful? • Most supportive leadership? © 2013 The Karen Martin Group, Inc. Outpatient Imaging MRI OB/GYN Services Mammography 38

Value Stream Scoping Diagram Defining Specific Conditions Catalog Configure to order Custom hardware Engineer to order Custom software Capital Equipment Golden State Equipment, Inc. New Product Development Both Catalog Spares & subassemblies Engineer to order © 2014 The Karen Martin Group, Inc. 39

Where should the “fenceposts” be? Function Activity Marketing Generates sales leads Sales Calls on and qualifies customers Customer Submits RFQ to sales Sales Reviews RFQ Estimating Generates quote Sales Approve quote Customer Accepts quote; submits a PO Sales Approves PO Customer service Creates SO; compiles spec package EE/ME design Designs product; generates BOM Customer Approves design EE/ME design Forwards design to SW dev Software Dev Writes code Purchasing/Planning Releases WO; schedules production Supplier (external) Delivers materials Production Manufactures & ships product Customer Installs equipment Field service Conducts 90‐day follow‐up © 2014 The Karen Martin Group, Inc. 40

Value Stream Mapping Charter Scope Accountable Parties Logistics Executive Required: typically VP or C-level Sponsor Value Stream Value stream being improved Value Stream If needed—often director or Champion manager level Specific What circumstances are included and excluded? Conditions (e.g., type of customer, geographic location, etc.) Demand Rate How many times is this done per wk, qtr, mo, or yr? Facilitator Trigger What initiates the process? First Step Task on first process block Required: skilled, objective person leading the activity 3 days typically; consecutive Event Dates is best; 6 hrs per day & Times minimum; 7 or 8 hrs is best Base-camp On-site, ample wall space, Location quiet/private location Logistics Not always needed Coordinator Last Step Task on last process block Boundaries & What is the team NOT authorized to change? Limitations Meals Always a nice touch; keeps Provided the team from wandering Briefing List the the people that are Attendees required to attend the briefings (**) ** required and those whose attendance is *optional optional (*). Improvement Time Typically 3-6 months Frame Current State Problems & Business Needs Aids in consensus building Briefing and organizational learning. Dates & Typically the last hour of the Times day. Mapping Team Function 1 What's driving the need for improvement? 2 3 Contact Information 2 4 Name 1 Leadership-heavy 3 5 4 Measurable Target Condition 5 1 Reduce <defined metric> from X to Y (Z% improvement). 6 2 Increase <defined metric> from X to Y (Z% improvement). 7 3 8 4 9 5 10 Benefits to Customers & Business On-Call Support Function 1 How will the business, internal and external customers, and 2 internal and external suppliers benefit from value stream improvement? 3 Contact Information 2 4 Name 1 SMEs that may not be needed full time 3 5 4 Relevant Data Agreement Executive Sponsor 1 What data is required to understand relevant current state isues. Value Stream Champion Facilitator 2 Examples: work volume & volume variation, process quality & 3 effectiveness, market trends, customer satisfaction, employee Signature: Signature: Signature: 4 engagement, financials, lead time, safety records, etc. Date: Date: Date: © 2014 The Karen Martin Group, Inc. 41

Socializing the Charter • Conversation, not merely an email attachment. • To the entire workforce who will be affected by change. • Adjust the charter if new discoveries or concerns surface. © 2014 The Karen Martin Group, Inc. 44

Value Stream Mapping Charter Scope Accountable Parties Logistics Executive Allen Ward Sponsor Value Stream Capital equipment Specific Engineer to order, requires both hardware & Conditions software customization Event Dates July 24-26, 2013 & Times 8:00 am - 5:00 pm Value Stream Nancy Little Champion Demand Rate 1,000 per year Base-camp Surf's Up - Room A Location Facilitator Dave Parks Trigger Customer submits RFQ First Step Sales reviews the RFQ Logistics Dave Parks Coordinator Last Step Production ships product Boundaries & No new software; only minor changes to existing IT Limitations systems; no additional staff; no budget changes Meals Continential breakfast & lunch Provided Briefing ** Allen W (COO), Joe M (CIO), Attendees Sal T (VP Sales) ** required * Bruce R (VP Ops), Carlos P *optional (HR), Su T (CFO), Bill M (VP CS) Improvement Time Future state design is fully realized by Frame December 31, 2013. Current State Problems & Business Needs Briefing July 24, 25, & 26 Dates & 4:00-5:00 pm Times Mapping Team Function / Title 1 Desire to stay ahead of the competition & deepen customer loyalty. Name 2 Forecasted growth of 15% for next fiscal year. 1 Sales, Director Sean Michaels 3 Unclear & incorrect information flowing through value stream. 2 IT, Director Diana Marie 4 Lead time for RFQ turnaround = 2 weeks; PO to software dev = 5 weeks 3 Finance, Controller Dave Gerald 5 (Competition's RFQ LT is 1 wk and PO to delivery is 4 wks) 4 Scrum Master Ryan Austin 5 Engineering, Vice President Nancy Little 1 Reduce RFQ lead time by a minimum of 50%. 6 Manufacturing, Director Ambreen Motiwala 2 Reduce PO to software development lead time by a minimum of 50%. 7 Customer Service, Manager Danny Tran 3 Improve quality of information flowing throughout value stream. 8 Customer (contract manufacturer) Contact Information JR Hunt Goals & Measurable Target Conditions 4 9 5 10 Benefits to Customers & Business On-Call Support Function 1 Faster delivery; less hassle; less cost. Name 2 Better working relationships between sales, estimating & engineering. 1 Planning / Purchasing, Planner Lourdes Dwyer 3 Freed capacity to absorb additional business w/o increasing staff. 2 Production Supervisor 4 Contact Information 3 5 Tom St. James 4 Relevant Data Agreement Executive Sponsor 1 Sales effectiveness: RFQ conversion rate. Value Stream Champion Facilitator 2 Financial: Estimate-to-actual cost comparison. 3 Operational: LT in segments (RFQ to quote; PO to development). Signature: Signature: Signature: 4 Date: Date: Date: © 2014 The Karen Martin Group, Inc. 47

Value Stream Mapping Overview Recommended Content • Define value stream • Explain VSM benefits • Difference between value stream and process mapping – Show sample maps • How the mapping activity will be structured – – – – – What they can expect Roles & responsibilities Approximate agenda Deliverables “Rules of engagement” • Review the charter in detail • Assign homework, if needed. © 2014 The Karen Martin Group, Inc. 49

Your Questions • How to deal with information flow problems between sales, management, and engineering before and during production. • For an organization just beginning their Lean transformation, how do you encourage effective use of VSM? Data that exists is often questionable. It's difficult to get leaders to commit the time to do it right. • I’m looking to implement a continuous improvement culture in an office environment. Where should I start? © 2014 The Karen Martin Group, Inc. 50

For Further Questions Karen Martin, President 7770 Regents Road #635 San Diego, CA 92122 858.677.6799 ksm@ksmartin.com Blog & newsletter: www.ksmartin.com/subscribe © 2014 The Karen Martin Group, Inc. 52 52

VSM Preparation Phase Activities • Hold initial conversation with executive sponsor, value stream champion & Value Stream Analysis: Beyond the Mechanics - Part 1 (Planning)

TKMG, Inc.

VSM Preparation Phase Activities • Hold initial conversation with executive sponsor, value stream champion &