What is Value Add vs. Non-Value Add Activities ?

When we look at the process, we normally look at each and every step an action or decision within the process to figure out if it is adding any value to the process or it does not add any value. So we will always defined in the eyes of customer.

To determine if it is adding value or not, we use 3C’s techniques.

1st C  is Customer: It is what CUSTOMER is willing to pay. If your customer is not willing to pay, then ask yourself, why are you doing this process step or activity.

2nd C is Change : does it CHANGE the final product or service. Every step in process should add some value to your product or service. If not, then you are simply passing on the product or service to next operations without adding any value.

3rd C is Correct : Every time you do perform a particular action, or any process step it can be considered value-added only if results in producing non defective items. If you repeat some steps multiple time, then you are basically reworking the product or service which is not adding value.

So either the process steps add value or it does not add any value. As you are already aware that if you want to run a successful venture or business, then you need to focus on more on adding value in all your activities either personal or profesional, but approximately 95% of all the activities we do don’t add any value in the eye of user or end customer.

Before we jump to what is Value add and what is not value add, lets first understand the meaning of “Value” in simple terms.

Value is something for which customer is willing to pay or spend money

Customer is least interested in 95% of all the activities that we do behind the scene and only 5% of all the activities are worth it in the eyes of customer. Are Customers willing to pay for this ????

Generally, we classify all the activities as :

  1. Value added
  2. Non-Value added (Essential Activities)
  3. Non-Value added (Non-Essential Activities)

Let’s look at each one by one with some relevant examples :

  • Value added activities  : Those activities which increase the final worth or add value to the a product or services from the customer’s perspective. These are those activities for which customer is paying you
  • Non Value added activities (Essential) : Those activities which will not add any value to a product or service and also these activities are essential or necessary from but customer is not willing to pay for these activities. Somehow you cannot avoid them as well They are kind of mandatory activities that we perform. Examples could be your HR activities, Purchasing Orders, Compliance related activities, R&D testing and Inspection of parts or Maintaining Quality system. They are generally required by business requirements or law or government regulations.
  • Non Value added activities (Non Essential): Those activities which will not add any value to a product or service and also these activities are those which cannot be eliminated. They add no value to the product or service and also are not required for business operational reasons and must be eliminated immediately. We normally classify non value added activities with acronym DOWNTIME which are the deadliest lean wastes.

  • D Stands for Defect – Products or services which fails to meet the customer expectations.
  • O stands for Overproduction – Producing more than desired by customer.
  • W stands for Waiting occur when someone in downstream or upstream is waiting for next action in the process.
  • N stands for Non-utilized talent – Not 100% utilizing the talent.
  • T stands for Transportation – Unnecessary transportation from one Point to another without adding any value
  • I stands for Inventory – which includes ( Raw material, work in process or Finish goods )
  • M stands for Motion – Unnecessary movement of people
  • E stands for Excess Processing  – Adding more steps or enhancements than required by customers.

These are all non-value-added operations. 

Some of the examples includes : Rework activities, Delay in start of any operations, Unnecessary movement of equipment and people.

Let’s take an example:

John wants to visit the bank for cash transactions and there is a huge Que in front of Bank. He steps out of car and stand in Que and waits for his turn to get in to the bank.

Let’s arrange the activities right from start to end.

Drive to Bank from Home will take 30 mins, then John needs in que for 20 mins and then fill up forms which will take another 15 mins. Finally, John compeletes the transactions in 5 mins and the drive back Home in 30 mins.

Now lets look at all the process steps and analyze what is value add and what is not value added activities ? Out of all the above activities only completing transactionsn is Value added which is 5 mins and rest all are Non-value added (95 mins).

Watch this animated YouTube video with Example for better understanding :

Related posts

Leave a Comment