1. VALUE ADDED VS. NON-VALUEADDED ACTIVITIES
What is value?How do we identifyactivitiesthat add value and those that do not add value?
Value cansimplybe definedassomethingacustomeriswillingtopayto receive.If acustomerisnot
willingtopay forit,thenthere is novalue.Forexample,let'ssayyourcompanymanufactureswidgets
and youofferfree 24-7 customersupportfor yourwidgets.Toprovide the bestcustomerservice you
alwayshave at leastone knowledgeable technicianavailabletoanswercustomerquestions24hours a
day,sevendaysa week.Onthe otherhand,your competitoronlyoffersemail support,withaguarantee
of gettingananswerwithin48 hours,andtheysell theirwidgetsfor5% lessthanthe price of your
widgets.Because of theirlowerprice youare losingseveral majorcustomerstoyourcompetitorevery
month.If thisis the complete story,whatismostlikelythe problem?
Your customersdonot place much value onhaving24-7, live customersupport.Theypreferthe lower
price.That places24-7 customersupportinthe categoryof waste.
DefiningValue
Everythingwe doeitheraddsvalue ordoesnotadd value tothe productor service ourcompanysells.
Who determineswhethervalue isbeingadded?The customerdoes.
Let's take the example of areceptionistwhoworksforamanufacturingcompanythatmakeswidgets.
Doesthispersonadd value tothe widgets?Whoare the “customers”thispersonisserving?Her
customersare the people whoneedtomeetwithpeoplefromoutsidethe company.Thatmeansher
customersare people inthe purchasing,administration,HR,andengineeringdepartments.The
receptionistisalsoprotectingthe company'sproprietyinformationbyonlyallowingauthorizedpeople
to enterthe building.Sothe receptionist's“customers”—the peopleshe isprovidingaservice for— are
all internal customers.If the receptionistisnotprovidingvalue forthose customersthatexceedthe cost
of havinga receptionist,theywill eitherbe replacedorthe receptionistpositioneliminated. Anythingor
anyone whodoesnotadd value iswaste.
Keepinmindthatthe receptionistisalsoindirectlyaddingvalue tothe productsyourcompanyshipsto
your customers.Bysavingtime forotherpeople inyourcompany,andprotectingyourcompany's
assets,there isvalue addedtothe productyou are selling.
Value Addedvs. Non-Value Added– The SevenWastes
Lean manufacturingprinciplesdivide waste intosevencategories.
Waiting(idle) times
Excessmotion(transportation)
Handling(movingthings)
Excessor uselessinventory
Overprocessing
Overproduction
Defects
2. In addition,whentalkingaboutvalue addedvs.non-value addedactivitieswe needtoinclude the
categoryof requiredactivitiesonthe non-value addedside.Let'slookateach of these,startingwith
requiredactivities.
Value Addedvs. Non-Value Added– RequiredActivities
Requiredactivitiesare those whichmustbe done,buttheydonotnecessarilyaddvalue foreither
internal orexternal customers.The mostcommonrequiredactivitiesare those requiredbylaw or
governmentregulations.Whilesome requiredactivitiesdoaddvalue,inmanycasestheyare activities
that mustbe done,buttheyaddno value.However,thatdoesnotmeantheycannotbe optimized,
eliminatingwaste, toreduce the costsof the requiredactivities.
Some people categorizebusinessactivitiessuchasHR (hiring) andbuildingmaintenance asrequired
businessactivitiesthatdonot add value.However,these activitiesare notnon-valueaddingrequired
activities.Forexample,findingandhiringthe rightpeople,atthe time whentheyare needed,anddoing
it efficiently,addsvalue.Anorganization'shumanresourcesare itsmostimportantresources.The HR
departmentisprovidingavaluable service toeach of the otherdepartmentswithinthe organization,
that inturn allowsthemtodo a betterjobof addingvalue tothe productstheyproduce.
WaitingTime: Thisisone of the most obviouswastesanditclearlydoesnotaddvalue.Forexample,if a
machine operatoriskillingtimewaitingforthe nextbatchof componentstoarrive,there iswaste that
can be eliminatedthroughbetterscheduling.However,notall waitingtime iswastedtime.
Let's saythat a worker'sjobisto unloadlarge blocksof woodfroma palletandplace themintothe inlet
hopperof a finishingmachine.He unloadsthemasquicklyaspossiblesothatthe forkliftwiththe pallet
can performothertasks,and thenhe waitsabouttenminutesforthe nextpallettoarrive.Isthiswaiting
time wastedtime?Notnecessarily. Insome jobs“waitingtime”canbe valuable resttime thatworkers
needif theyare to continue todo theirjobwell.
However,inthe exampleabove,thereare numerousopportunitiesforimprovementsforeliminating
waste.Forexample,whydoesapersonneedtophysicallymovelarge blocksof wood.Mightthere be a
betterwayof doingthisusingmachinery?
The definitionof waitingtime isidletime inwhichsomeone whocouldbe doingsomethingisdoing
nothing.Eliminatingorreducingthisidle timeiseliminatingwaste andimprovingthe value added
activities.
ExcessMotion: The term “excessmotion”referstothe movementof materials,supplies,and
equipment. Inthe above example,whyisaforkliftbringingblocksof wood fromone locationto
anotherlocation?Let'ssaythat in thisexample woodiscutintoblocksina sawingoperation,then
movedtoa warehouse forstorage,andthenmovedonpalletstothe locationwhere aworkerloadsthe
woodblocksintothe finishingmachine.Excessmotioncanbe eliminatedbyhavingthe finishing
machine nearthe sawingoperation.The woodisthencutto the right size andimmediatelypassedto
the finishingmachine,eliminatingthe needtomove itinandout of a warehouse.The excess motion
(transportationwaste) of the woodhasbeeneliminated.
ExcessHandling: Excesshandlingreferstothe unnecessaryactivitiesof workersandthe unnecessary
handlingof products,machines,andequipment.Inthe above example,whymustaworkermove the
3. blocksof woodfrom a palletintothe hopperof the finishingmachine?Whatif the blocksof woodcame
out of the saw machine andwentdirectlyintothe finishingmachine?The woodblocksnolongerneed
to be handledbyan employee,eliminatingthatwaste.
ExcessInventory: Inventorycostsmoneyforthe storage space as well astaxesonthe inventory.
Inventoryincreasesthe risksof shrinkage,spoilage,andobsolescence.Italsoincreaseshandlingcostsas
itemsneedtobe movedinand outof inventory,andman-hoursmustbe usedtocountthe inventoryon
a regularbasis.Onlya minimal,absolute necessaryinventoryshouldbe maintainedsuchthatit isadding
value tothe final productorservice.Excessinventoryiswaste.
Let's lookat our woodblockexample again.Inaweekthe sawingoperationcanproduce enoughwood
blocksto keepthe finishingmachinesuppliedforamonth.Since the sawingoperationdoesthe cutting
for a numberof otherproducts,it makeswoodblocksfora week,withthe blocksbeingstoredina
warehouse until theyare neededlaterinthe month.Itdoesthe same for three otherproducts.The
resultisfourwarehouses,eachcapable of holdingamonth'ssupplyof the material neededtomake a
product.
But whatif the cuttingoperationspendsjustone dayoneachproduct? Each day itmakesenoughfor
fourdays of operationof the finishingprocessforeachproduct.The resultisthat each warehouse only
needstostore four daysworthof material insteadof fourweeks.The inventorystorage costsalongwith
the associatedriskshave justbeencutby 75% as the resultof eliminatingexcessinventory.
Over-processing:Over-processmeansthatmore workisbeingputintoa product or service thanis
neededbythe final customer.If the finishingprocessforthe woodblocksincludesapplyingtencoatsof
high-qualityepoxypaintwithsandingandpolishingbetweeneachstep,butthe customeronlyrequires
that the finishedblocksbe paintedblack,there istoomuchworkgoingintothe finishingprocess –
meaningthe extrawork(andepoxypaint) isbeingwasted.
Overproduction:Overproductionmeansmakingmore productthanwhatis immediatelyneeded.If
more woodblocksare beingproducedthanare beingsold,theywill accumulate inawarehouse.This
may make sense if mostwoodblocksare soldduringthe fourweekspriortoChristmasand supplyneeds
to be builtupprior to the holidayseason.Inmostcases,over-productionresultsinhighlevelsof
wasteful inventory.
Defects:Defective productsmustbe thrownoutor fixed.Defective servicesmustbe done over.Doing
thingsrightthe firsttime isessential toeliminatingwaste.While eliminatingall defectsmayseemlike an
impossible task,there are leanmethodssuchasPoka-Yoke,thatare soeffective ateliminatingdefects
that theyalsoeliminatethe needtoinspectfordefects,producingevengreatersavings.
Value Addedvs. Non-Value Added– The Needfor Signsand Labels
The properuse of labelsandsignswill aidyoureffortstoreduce andeliminatewaste.Forexample,they
communicate neededinformationsuchasnew or revisedoperatingproceduresatthe place andtime
where the informationisneeded.Theyprovidedirections,guidingpeople safelytotheirdestinations.
Andtheyprovide critical safetyinformationandidentifythe locationsof safetyequipment.However,
signsand labelsonlyworkif theyare posted,theirmessageisclear,theyremaininplace,andare
readable.
