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Value added explained

Written by: Jack Greene

Article Overview: We will cut to the heart of what value added means, but you will have to judge how it suits your operation for yourself.

Value added explained

Value added explained

We will cut to the heart of what value added means, but you will have to judge how it suits your operation for yourself.

In the spirit of value added, this article concisely refers to pertinent information. Good stuff. Apply it to your operations, and translate the general concept to specific actions to remove waste.

1. Define waste, or non-value added

An incisive place to start is a series of questions to define waste, or non-value added:

a. Will a customer pay for this activity?

b. Will my service fail without this activity?

c. Will I go to jail if I eliminate this activity?

Answer "no" to all three, and the activity can essentially be defined as waste.

Business Week, Management section, By The Staff of the Corporate Executive Board, March 6, 2009

2. WRC

A longtime boss and student of productivity W. Richard Clark says, "The first consideration, of course, is not just doing what you do with maximum efficiency, but deciding if it's even what you should be doing in the first place.

Even more importantly is providing a product that is unique enough (and there are many ways of achieving this uniqueness) to avoid being a commodity and to be able to justify higher prices. To add value."

Combine this thought with 1 a); something that does not add value may have been created because it was believed that a customer pay for the activity. Review the belief; either the activity will pay for itself or not.

3. Bill Waddell

On a site titled Evolving Excellence, a blog entitled To Value or Not To Value, Bill Waddell makes a rigorous case. Among other things he says

""The bottom line is that it is very important that the discussion be held within every company and that 'value adding' be well defined.

Value adding expenses should be reduced very, very carefully because it is too easy to degrade customer value in the process - that is the trap too many companies that run to China fall into.

Non-Value Adding expenses, should be cut with near reckless abandon.

For that matter, in many companies, they should not be reducing overall expenses at all. Instead they should be shifting expenses from non-value adding activities to ones that genuinely enhance the value of the product and will enable them to command higher prices. That is the real lesson from Toyota's history. Their cars are not cheaper than their competitors - they are a better value. A greater percentage of the money paid goes into the car, while their same-cost competitors are squandering it on administrative nonsense, overblown advertising, global logistics and other waste."

4. Toyota Production System, per Art Smalley

You may say, Toyota is having trouble too. That is so, but TPS is not the reason. Art Smalley, President, Art of Lean, Inc. wrote "TPS vs. Lean and the Law of Unintended Consequences" in Superfactory in 2006. From that article, I quote:

In the U.S., becoming Lean appears to have gone down a path of implementing tools such as “one piece flow”, “value stream mapping”, “standardized work”, or “kaizen events”, but results have not always followed. Toyota, by way of contrast, has stayed focused on its principles and a disciplined emphasis on process improvement to obtain results such as “making a `profit”, “reducing lead-time”, “improving productivity”, “achieving built in quality”, as well as “respecting human dignity of employees” etc. The difference may sound trivial, but it is actually significant.

While other individuals have commented on the need in Lean to have “problem awareness” or “kaizen consciousness”, the phrase I remember most from my superiors at Toyota was to have “cost consciousness” and to never waste a dime.

Put a stop to the dogmatic routine of using any single tool (value stream maps, kaizen events, or any other) and expecting that it will highlight or solve all the problems in the facility

4. Total productivity

In 2005, Delphi Corporation went bankrupt, haven't emerged in mid 2009. The Lean community was in a tailspin for a long time, because Delphi had been awarded 24 Shingo Prizes for Lean excellence in their factories, and if an award winning company went bankrupt, what hope was there for the rest?.

All factors were discussed in Superfactory for months, but I quote from a November 5 article by Bill Waddell. An eye opening statement there is " Very few companies have advanced with lean manufacturing until you can see the results financially --- perhaps one or two percent at best."

Why not? My own belief is that few organizations apply cost consciousness throughout, as they do on the production floor. What is direct labor cost in your organization? Ten percent or so? What if you save a third of that, a very aggressive target? Peanuts. Put the same effort into the major line items on your P & L and see what results you achieve.

5. Inventory

Another challenging topic in the Mr. Waddell's Delphi article concerns inventory, and how it was considered by Taichi Ohno, one of the two founders of the TPS. "Taichi Ohno said in quite clear terms that inventory is ‘waste’. Our financial and operating systems and practices are built around the deeply embedded principle that inventory is an asset.

"Was Ohno’s use of the term ‘waste’ simply a euphemism or an erroneous translation? Or is it simply easier for us to assume that he was speaking in flowery language than to confront the idea that the core of our balance sheet and P&L logic might be wrong?"

6. Specifications

Consider what your organization produces, and how it specifies the attributes. Do you produce thumb tacks and have a set of pharmaceutical quality specs? All my life I have wanted to produce thumb tacks and have as a sole spec, "one end shall be more pointy than the other." But in that case, the spec could be adequate. Look again at point 1 a) with specs in mind.

7. Lean versus fat

Does anyone set out to design a "fat" operation, overloaded with un-necessary requirements? Probably not; probably inefficient systems evolve with good intentions. But now your process may need revolution to reach a satisfactory level. Blame is not important, but an objective look at the specifics is.

Thanks for your attention; I'm happy to add to your perspective of industrial engineering and productivity.

Jack Greene Jackson Productivity Research Inc.

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Article Tags: non value added, value added, value analysis



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