What is Value-Add and How Does it Impact Efficiency?

What is ‘value add’ and how does it impact efficiency? To answer this question, let me first explain what ‘value add’ means. Something that is value added (or adding value) must meet three criteria:

  1. The customer is willing to pay for it
  2. A process, object, or service has to be physically changed
  3. The process, object, or service is made/done right the first time

In short, value added is anything that is not waste. What is interesting and perhaps surprising is that in many organizations, the majority of activities included in processes are non-value adding activities. In fact, estimates peg only about five percent as truly value add, the rest are waste. And waste impacts both time and money.

In Lean, there are eight types of waste. Some organizations also talk about seven or nine wastes, but, generally, eight are common. They include: defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion, and extra processing – an easy way to recall these wastes is to use the acronym “DOWNTIME.” Let me give you a quick overview of each type of waste.

  1. Defects – could be anything relating to incorrect parts or services not delivered to the customers’ specifications. Common causes of defects include lack of process controls, poor quality of incoming materials, poor work instructions, inadequate training or other causes.
  2. Overproduction – this includes anything that is produced faster, sooner or more than needed. This leads to excessive cost.
  3. Waiting – this refers to time lost when people, material or machines are waiting.
  4. Non-Utilized Talent – this refers to wasted potential for improvement results when people are not consulted for ideas on improving the methods of work. Some of the causes of this include old guard thinking, politics, business culture, or no training.
  5. Transportation – the transportation of parts and materials around a facility can create waste. Some of the causes of this include poor plant layouts, large batch sizes or large storage areas.
  6. Inventory – this is any material in excess of the one piece required for the next step in production. The biggest reason why inventory is in excess is because people hold inventory for “just in case” they may need the inventory.
  7. Motion – this refers to the movement of people or machines that does not add value to the product. For example, poor workplace organization and housekeeping, poor workstation layouts and sorting or looking for items are call causes for wasted motion.
  8. Extra processing – this is about doing more than minimum required to transform material into an acceptable product. For example, duplication or re-work are extra processing wastes. Some causes of extra processing include redundant approvals or inspections, unnecessary reports, or accommodating perceived customer needs.

Now with an understanding of value add as anything that is not waste, and waste falling into one of eight categories, consider your organization’s efficiencies. How much waste is included in your processes? As mentioned, the typical organization has only about 5% value added activities in its processes. This means that 95% of the activities are waste. What this further means is that there is room for at least 95% improvement in efficiency in each process. That is an astoundingly large number. And equally astounding is the fact that these wastes equate to loss of time and money on a large scale.

So what is value add and how does it impact efficiency? Value add means removing waste from your processes to improve your efficiency and your bottom line. Discipline yourself and your organization to get Lean to eliminate waste and improve process efficiencies.