Identifying
Value-Added
Activities
Melissa DeMaso
Student of Quality and Supply Chain Management
Marriot School
Brigham Young University
Value-Added Activities
Value Analysis
Identifying Value-Added Activities
Process Mapping
Value Added Activities
So what is a “value-added” activity
anyway?
Value-Added
An activity is considered value-added when
some customer is willing to pay more for the
additional output.
Examples of value-added components of a
product?
What’s the potential problem with only
considering what the customer
considers as value-added?
-Cost of production?
-Does it effect other functional areas?
-Effect on quality?
So there’s more ….
Value-Added:
The difference between the cost of inputs and the
value or price of outputs
(Price of outputs: price that customers are willing to pay for the goods or
service)
One equation for value:
Value= function/cost
Exercise:
Using the previous formula, determine the added value
in the following situation:
Company Y manufactures screwdrivers. After thorough market
research, they determine that customers would prefer rubber
handles rather than plastic and would even pay $1 more for
such a feature. To manufacture, market, and ship the new
handles there is an average additional cost of $.60 per unit.
Is there an added-value? What would it be?
Exercise cont:
Using the previous formula, determine the added value in the
following situation:
Value= $1/ $.60
= 1.67
>1 means there is value-added!
Yes, make the rubber-handled screwdrivers!
Value Analysis
Value Analysis:
Examination of the function of parts and materials in an
effort to reduce cost and/ or improve product
performance.
So What’s the Point?

The primary objective of value analysis is assess how to
increase the value of an item or service at the lowest cost
without sacrificing quality.
How do you do that?
Any ideas?
Some ways to increase value at low
cost without sacrifice:
-
increase the functionality or use of a product or service
while holding costs constant
-
reduce cost while not reducing functionality
-
and increase functionality more than cost.
“In such a fast-paced environment, product
development must be transformed into a
continuous, iterative, learning process focused
on customer value.”
-Turning New Product Development into a Continuous Learning,
David Hughes & Don Chafin
Sherwin-Williams’ Dutch Boy Group’s
Twist & Pour
Revolutionizing house paint
packaging!
Consumer values:
-
square container
lightweight but sturdy
hollow handle
snap-in pour spout
twist-off lid
Company Values:
-
space-efficient
easier to ship and stock
additional shelf space
Identifying Value-Added
Activities
One of the best ways to identify value-added activities
is to assess if a particular part of a product or
process is a non value-added activity.
So how do you do that?
Is your process more
complicated than it needs to be?
Value or Non-Value Added?
Typical questions to ask:
1.
2.
3.
4.
5.
6.
Could a cheaper part or material be used?
Is the function necessary?
Can the function of two or more parts be performed by a
single part for a lower cost?
Can a part be simplified?
Could product specifications be relaxed and would this
result in a lower price?
Could standard parts be substituted for non standard parts?
“A well-defined lean supply chain is characterized by
processes that are considered core competencies by the
organization and are supported by qualified suppliers
and driven by customer needs.”
- Operations Management
William J. Stevenson
Process Mapping
Process mapping
Describes processes in terms of the activities
within the process and how they relate to
each other.
Example of
Process
Mapping
So what does that have to do with value-added
activities?
In addition to value analysis, a top-most effective
method of identifying value is process
mapping.
By continually improving your process, you are
becoming more and more competitive in
your business performance therefore
bettering both you and your customer!
Additional Suggested Readings
Adding Value or Adding Cost? By: Jones, Christopher. Management Services,
Mar1994, Vol. 38 Issue 3, p20-20
Beyond Products: Services-Based Strategy. By: Quinn, James Brian; Doorley,
Thomas L.; Paquette, Penny C.. Harvard Business Review, Mar/Apr90,
Vol. 68 Issue 2, p58-67
Value chain analysis in consumer focus improvement. By: Zokaei, A. Keivan;
Simons, David W.. International Journal of Logistics Management, 2006,
Vol. 17 Issue 2, p141-162, 22p
Coordinated value mapping process makes Lean effective for manufacturer.
By: Levine, Phyllis. Plant Engineering, Feb2006, Vol. 60 Issue 2, p2324, 2p, 2c