Value-Added vs Non Value-Added Activities

Lionel Grealou Operations Leave a Comment


Typically, value can be defined as “the regard that something is held to deserve; the importance, worth, or usefulness of something“.

The Institute of Value Management defines value as “the relationship between satisfying needs and expectations and the resources required to achieve them” and “getting what you require for what you will pay“.

Activities can be classified into value-added (VA), non value-added (NVA) and essential non value-added (ENVA) activities.

In business terms, VA activities change the formfit, or function of a product or service. They include designing / assembling products, ordering raw materials, preparing Engineering drawing, making informed decisions, innovating, etc. These are something the customer should be willing to pay.

In order to reduce cost while keeping up with the competition, NVA activities might be eliminated, ENVA activities might be reduced, or simplified by becoming ‘lean‘ (muda). There are 7 waste types: defects, inventory, over-possessing, waiting, transportation, motion, over-production, and non-utilized talent (Kilpatrick, 2003). Most organizations are vying to increase their market share and profitability in a world of margin pressures, regulations, quality focus, innovation battle, and global competition. Some NVA activities may be necessary to comply with certain standards and / or regulatory requirements. Such activities are referred as ENVA activities.

The factors to consider include:

  • Productivity, flexibility and profitability impacts.
  • Visible v.s. unseen waste.
  • NVA embedded within VA activities or processes.
  • Waste dependencies, causes and effects.
  • NVA activities mis-categorized as ENVA activities and vice et versa due to legacy practices no longer applicable or influence from old / new technologies.

Typical NVA activities include reviewing, counting parts, inspecting, testing / checking, filling information, obtaining multiple approval, revising / reworking, reporting. These activities do not help create conformance to the customer’s specifications; they are something for which the customer should be unwilling to pay a premium for. Some activities are essential for the process for traceability and accountability or are required to meet company or regulatory policies, such like sign-offs, approvals, etc. Consequently, such activities do not directly contribute to manufacturer’s profits and are considered ENVA activities.

NVA activities can typically be identified from process improvement / business efficiencyinitiatives using lean management techniques to:

  • Analyze value from the end user perspective.
  • Identify waste and ‘hidden factories’.
  • Identify direct (damage, fault, recalls, warranty cost, loss of resale value, etc.) and indirect (insurance premiums, damaged reputation, loss in customer loyalty, etc.) costs which impact the overall price of the end product.
  • Profile Product Engineering and Manufacturing Engineering activities (aka a ‘day-in-the-life’ of an engineer).

In addition, ENVA activities present opportunities for (low cost country) outsourcing and / or management through economies of scale and scope realized using shared service models.

Optimizing VA activities is a consideration for improvement where applicable and relevant. Automation is also a relevant for both VA and ENVA activities.

What are your thoughts?

References:

  • Kilpatrick J (2003), Lean Principles, Utah Manufacturing Extension Partnership.

This post was originally published on LinkedIn on 11 February 2015.