Skill level: Intermediate
The value stream map (VSM) is designed to provide an overview of an entire process, starting and finishing at the customer. It analyzes all of the different processes, transactional as well as operational, that are currently required to deliver the service to a customer.
- View of the world from the customer’s perspective – a look at the big picture
- All key processes and data represented in a graphical way in one document
- Provides a road map for improvement by identifying waste and nonvalue added activities
How to Use
- Step 1. Identify the target service.
- Step 2. Gather a team of experts and people with strong knowledge of the process.
- Step 3. Draw the current state value stream map with all of the steps, delays, and information flows required to deliver the target service.
- Step 4. Assess the current state value stream map in terms of flow and waste. Collect all missing data (e.g., value added, cycle time, etc.).
- Step 5. Calculate the total lead time and value added time.
- Step 6. Identify and list all areas of waste (e.g., inventory, transportation, etc.).
- Step 7. Develop a list of opportunities for improvement based on these observations.
Value added service: An enhancement added to a service, beyond what the customer is willing to pay for.
Nonvalue added service: Any service or activity that does not provide any value to the customer.
Flow: Succession of activities that make an item move from one process to the next until it reaches the customer.
Efficiency: A ratio between total value added and total cycle time (Eff = VA/CT).
A large bank with multiple branches and business divisions has decided to evaluate one of its processes. It has chosen the commercial loan division for medium size loans (i.e., >$1M and <$30M) and has mapped the value chain using the VSM tool.
The key processes from the time the customer walks into the local branch until the customer signs the final contract agreement are mapped. All electronic communications between the branch and corporate central system are also mapped. Below is a sample of the VSM created.
The VSM shows:
- The average time for processing a medium size commercial loan is 24 days.
- The total value added time is less than 2 hours.
- Overall efficiency is 0.31% compared to 1.68% for best in class.
- The corporate office process has the lowest efficiency at 0.16%.
In order to improve overall process efficiency, the bank will have to analyze areas with long cycle times and work on eliminating waste.