What is Value Added Activity? (2024)

Value Added Activity

A value-added activity is a process or step in the production or service operation that contributes positively to the worth of a product or service and is therefore essential to customer satisfaction. Essentially, these are activities that customers are willing to pay for because they add real or perceived value to the product or service.

The concept is often discussed in the context of Lean Manufacturing and Six Sigma, methodologies aimed at maximizing efficiency and eliminating waste in the production process. In these frameworks, processes are divided into “value-added” and “non-value-added” activities. The goal is to minimize or eliminate non-value-added activities, which consume resources but do not directly contribute to the value of the final product or service, thereby improving operational efficiency and customer satisfaction.

Examples of Value-Added Activities:

• Design and Innovation: Research and development activities that result in a new or improved product design.
• Quality Control: Inspecting and testing products to ensure they meet quality standards.
• Customization: Tailoring a product or service to meet specific customer requirements.
• Assembly: Combining parts or materials to create a finished product.
• Packaging: Adding packaging that makes the product easier to use or more attractive.
• Customer Service: Providing support that enhances the user experience, such as troubleshooting and maintenance services.

Contrasted with Non-Value-Added Activities

Non-value-added activities are those that may be necessary due to current technology or production constraints but do not add direct value from the customer’s perspective. Examples include:

• Inventory Storage: Cost associated with warehousing or storing products.
• Transportation: Internal movement of materials that doesn’t contribute to the product itself.
• Rework: Correcting or redoing defective products.
• Waiting Time: Time spent waiting for materials, instructions, or machine availability.

Example of Value Added Activity

Let’s consider an example involving a fictional bakery called “Amy’s Sweet Delights” to explain the concept of value-added activities.

Amy’s Sweet Delights Bakery

Amy owns a small bakery where she sells a variety of baked goods, including bread, cakes, cookies, and pastries. She’s interested in identifying the value-added and non-value-added activities in her bakery operations.

Value-Added Activities:

• Recipe Development: Amy spends time developing unique recipes that make her baked goods stand out. Customers are willing to pay a premium for her unique flavors.
• Baking: The actual process of baking transforms raw materials (flour, sugar, eggs, etc.) into finished goods that customers want to buy.
• Quality Control: After baking, Amy inspects the goods for quality. Only those that meet her standards are put on display for sale.
• Packaging: She uses eco-friendly packaging that is also designed to keep the baked goods fresh. Customers appreciate both the eco-consciousness and the functionality.
• Customer Service: Amy and her staff provide excellent customer service, answering questions, and making recommendations that enhance the customer’s experience.

Non-Value-Added Activities:

• Inventory Management: While necessary, the time and space required to store baking ingredients and other supplies do not directly add value to the baked goods.
• Waiting: Sometimes the baking team has to wait for the oven to free up, causing idle time that doesn’t directly add value to the products.
• Rework: Occasionally, a batch of cookies might get burned, requiring rework. This does not add value and incurs extra cost.
• Excessive Cleanup: While cleanliness is important, any excessive time spent on cleaning that could be automated or streamlined is considered non-value-added.

Actions Taken:

After identifying these activities, Amy decides to focus on a few things:

• She invests in a second oven to reduce waiting time and increase the productivity of her baking process.
• She explores more efficient inventory systems to minimize the cost and space needed for storage.
• She looks into automating some parts of the cleaning process to free up staff time for more value-added activities like customer service.

By focusing on value-added activities and minimizing non-value-added ones, Amy aims to improve customer satisfaction, lower costs, and ultimately increase the profitability of her bakery.

In this example, you can see how differentiating between value-added and non-value-added activities helps in streamlining operations, improving customer satisfaction, and enhancing the business’s overall value proposition.