Value Added and Non-Value Added – A Customer Perspective

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There are a number of different ways to think about how to improve a process that delivers a product to a customer.  One way is to break the process down into a list of steps or activities that are required to complete the process, and then analyze each step to determine whether or not it adds value.

We must perform this analysis from the viewpoint of the customer who is spending his or her dollars for the product that is the output of the process.  Generally speaking, customers are willing to pay more for a product if they perceive it has additional value.

The steps or actions that are required to deliver a product can be classified in broad terms as storage, handling, inspection and processing.  A convenient acronym for remembering these terms is SHIP.

With very few exceptions (scotch whiskey is one), products do not become more valuable if they are stored.  In fact, most products deteriorate the longer they are stored.  Also, storage costs money.  Inventory that is stored must be warehoused, insured, and counted periodically.  Storage almost never adds any value.

Handling costs money, and may result in damage to the product.  Handling also includes the cost of transporting goods.  The further goods are transported, the higher the cost.  Handling and transportation do not add value to a product.

Inspection is used to compare the product to a specification or standard in order to determine its suitability for use.  Inspection costs money, and inspection does nothing to improve the quality of the product.  All we can hope for when using inspection is to find some (but not all) of the defective products.  Inspection does not add any value.

Processing is the act of transforming raw materials into useful products, and/or assembling products.  Processing adds value for the customer.

The focus of process improvement should be to reduce non-value added time and effort to the lowest level possible.  At the same time, be aware that the amount of time and effort required to perform the value-added processing steps can be improved as well.  A dollar saved is a dollar saved, whether that dollar was being spent on non-value added steps or on value added work.

Your comments or questions about this article are welcome, as are suggestions for future articles.  Feel free to contact me by email at roger@keyperformance.com.

About the author:  Mr. Roger C. Ellis is an industrial engineer by training and profession.  He is a Six Sigma Master Black Belt with over 45 years of business experience in a wide range of fields.  Mr. Ellis develops and instructs Six Sigma professional certification courses for Key Performance LLC.   For a more detailed biography, please refer to www.keyperformance.com.

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On January 21st, 2015, posted in: Project Management by Tags:

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