Identifying

Value-Added

Activities

Melissa DeMasoStudent 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)

Value= function/cost

One equation for value:

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. Could a cheaper part or material be used?2. Is the function necessary?3. Can the function of two or more parts be performed by a

single part for a lower cost?4. Can a part be simplified?5. Could product specifications be relaxed and would this

result in a lower price?6. 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 ReadingsAdding 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