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Principle 1: Establish Customer-Defined Value to Separate Value-Added from Waste

The customer is always the starting point in a lean system, so defining waste starts with defining what a customer values.

“What is our business is not determined by the producer but the customer. It is not defined by the company’s name, statutes, or articles of incorporation but by the want the customer satisfies when he buys a product or service. The question can therefore only be answered by looking at the business from the outside, from the point of view of the customer.”
Peter F. Drucker

Waste in product development generally occurs in one of two broad areas: 1) engineering and 2) product development process.

  1. Waste by poor engineering that results in low levels of product or process performance. This is the most destructive waste.
  2. Waste in the product development process itself.

Customer-Defined Value Process at Toyota

Toyota is evaluates field quality data, market research, and competitor’s products to understand its customer. Toyota selects program leaders with the background and experience to establish an emotional connection with the target customer.

“Engineers that have never set foot in Beverly Hills have no business designing a Lexus. Nor has anybody who has never experienced driving on the Autobahn firsthand.”

Program Leadership: The Chief Engineer Role

In addition to being a super engineer, (s)he must understand what customers value and how these value characteristics mesh with the program’s vehicle performance characteristics. Chief Engineer (CE) team members receive advanced driving training as well as vehicle evaluation-skill training to identify problems and recognize improvements. Once defined, the value characteristics must be: 1) communicated across the program to all product teams and 2) aligned and put into operation with meaningful, measurable objectives that entail specific tasks that each person on the product team can execute.

Steps for Delivering Value to the Customer

At Toyota, the Chief Engineer’s ultimate responsibility is delivering value to the customer, though the process entails many steps and people. This step begins with the Chief Engineer’s Concept Paper which outlines the Chief Engineer’s vision for the new vehicle. The concept paper rarely exceeds 25 pages, usually takes several months to complete and includes both quantitative and qualitative objectives for vehicle characteristics, performance, cost, and quality.

Once the concept is approved the next step in the customer-defined value process is to develop specific objectives that support the Chief Engineer’s vision for all functional program teams.

Next, Module Development Teams (MDT), responsible for each vehicle subsystem, meet to develop specific, measurable goals for each subsystem and communicate it to the Chief Engineer team. Using a customer-first attitude and the CE as the primary voice of the customer, the various MDT’s go through fairly intense negotiations and ultimately commit to specific objectives designed to support the vehicle-level performance characteristics.

The next step in the process requires intensive cross-functional participation among the MDT to develop specific strategies and value targets to deliver the value-driven commitments each team made. Equipped with field quality data, tearing down competitors products, and visiting dealer-competitor’s manufacturing plants to study production as well as talk with operators about manufacturing quality and efficiency. Genchi Genbutsu (=go to the source), is a critical underpinning of the lean product development system.

Establishing and decomposing customer-defined value is your critical first step in creating a lean PD process.

In summary: Establish customer-defined value to separate value-added activity from waste in product development. A lean product development system starts with the customer. There must be a process for identifying product-specific, customer-defined value, effectively communicating that value, and developing and executing specific, aligned objectives throughout the organization from the start of the program.

Toyota starts with direct, visceral product and customer experiences for program leadership and then adds rigorous internal and competitor data analysis and broad technology reviews. The CE then communicates his vision for the vehicle through the CE paper and aligned, executable objectives are developed by each of the subsystem teams and confirmed by the CE. These objectives are tracked throughout the program

Source: Liker, J.K and Morgan, J.M, The Toyota Product Development System: Integrating People, Process and Technology, Productivity Press, 2006

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