Michel Baudin, 12/16/96
When applied to a company or to an aggregate of companies, the concept of value-added is clear and quantitative: it is the difference between the price at which goods are sold and the cost of the materials used to make them. It can be calculated easily from accounting data and is used as a basis for the value-added taxes paid in many countries. Comparisons of value-added among industries provide insights into their structures. In metal smelting, the value added may be 20% of sales; in prestige cosmetics, 80%; in software, 99%. Such differences impact wages, the level of automation , and competitive strategies. Value added can also be calculated for individual products, and then enhanced by finding materials that are cheaper but don't diminish the value of the product to customers, using Value Engineering (VE) and Value Analysis (VA).
Some extend the concept to individual manufacturing operations, and analyze processes in terms of "value-added tasks" and "non-value-added tasks." The value added of a task at this point is no longer quantified. "Value-added" versus "Non-value-added" becomes a binary distinction: it is not a question of whether a task has a higher value added than another, but whether it has any or none. There are two problems with this approach:
The criteria used to separate value-added and non-value-added tasks are ambiguous. Tasks that don't transform parts are usually classified as non-value-added because, presumably, they do not contribute to what the customer pays for. Inspections, for example, go into the non-value-added column for that reason, but there are at least two circumstances in which inspections are part of the what the customer buys:
Others consider reading instructions to be a value-added task even though it doesn't transform any part. We could also take as value added tasks those that increase the book value of the WIP in the accounting system, which would shift the responsibility for making the decision to the Finance department and isn't satisfactory either.
The next question is equally puzzling. The expression "non-value-added" is clearly derogatory: if your job is in this category it is not a fact you will advertise. The connotation of "non-value-added" is "should be eliminated," and it misleads many managers into concluding just that. Going further along the same line, they eventually fire the people who perform these tasks. In fact most of the "non-value-added" tasks are necessary support activities. They can't be eliminated. They must be performed effectively to make sure they don't slow down production, and efficiently to make sure they don't waste resources. The same, however, could be said of value-added tasks: they must be done effectively and efficiently. So, if the actions required for both types of tasks are the same, the distinction and the analysis are much ado about nothing.
The concept of waste may be less elegant, but it is more operational. It is possible to identify what is waste and what isn't, and, by definition, waste needs to be eliminated. To help recognize waste, Taiichi Ohno divided it into into seven categories as follows:
You can actually go to the shop floor and observe operations to detect each of these types of waste. What needs to be done to eliminate it may be neither obvious nor simple, but the direction in which to focus our energy is clear.