Identifying

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Identifying Value-Added Activities
Melissa DeMaso Student of Quality and Supply
Chain Management Marriot School Brigham Young
University
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Value-Added Activities
Value Analysis
Identifying Value-Added Activities
Process Mapping
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Value Added Activities
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• So what is a value-added activity anyway?

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Value-Added

• An activity is considered value-added when some
  customer is willing to pay more for the
  additional output.

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• Examples of value-added components of a product?

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Whats 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?

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So theres 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)

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Value function/cost

• One equation for value

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• 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?

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• Exercise cont
• Using the previous formula, determine the added
  value in the following situation
• Value 1/ .60
• 1.67
• gt1 means there is value-added!
• Yes, make the rubber-handled screwdrivers!

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Value Analysis
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Value Analysis

• Examination of the function of parts and
  materials in an effort to reduce cost and/ or
  improve product performance.

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So Whats 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?

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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.

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• 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

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Sherwin-Williams Dutch Boy Groups 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

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Identifying Value-Added Activities
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• 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?
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Value or Non-Value Added?

• Typical questions to ask
• 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?

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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
ManagementWilliam J. Stevenson 
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Process Mapping
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Process mapping

• Describes processes in terms of the activities
  within the process and how they relate to each
  other.

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• Example of
• Process Mapping

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• 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.   

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• By continually improving your process, you are
  becoming more and more competitive in your
  business performance therefore bettering both you
  and your customer!

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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,
  p23-24, 2p, 2c