Non value added activity

From CEOpedia | Management online

A non-value added activity is a task or process that consumes resources (such as time, money, or effort) but does not contribute to the creation of a product or service that meets the needs of the customer. These activities can include things like unnecessary paperwork, redundant steps in a process, or activities that do not directly contribute to the end product or service. Identifying and eliminating non-value added activities is a key part of process improvement and efficiency efforts in businesses and organizations [1].

Examples of non-value added activities

Non-value added activities are activities that do not add any value to a product, service, or process. Examples of non-value added activities include unnecessary paperwork, redundant processes, and activities that are not customer-focused.

Unnecessary paperwork can be a form of non-value added activity, as it does not add any value to the product or service and can be time-consuming and costly. Redundant processes can also be a form of non-value added activity, as they do not add any value to the product or service and can be a waste of resources and time. Activities that are not customer-focused can also be a form of non-value added activity, as they do not add any value to the customer experience and can be a waste of resources and time.

It is important to understand that non-value added activity is not equal to not important activity. It doesn't create a value for the customer of business, but it can be necessary due to some regulations or other reasons. Below there are examples of non-value added activities:

  • The moving of raw materials: Moving raw materials within the factory is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be the use of forklifts to move raw materials from one part of the factory to another.
  • Building maintenance: Building maintenance is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be the cleaning of the factory floor or the painting of walls.
  • The repair of machines: The repair of machines is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be fixing a broken conveyor belt or replacing a worn out part on a machine.
  • Finished and assemblies product within the factory: Moving finished and assemblies products within the factory is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be the use of forklifts to move finished and assemblies products from one part of the factory to another.
  • Inventory control: Inventory control is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be manually counting and tracking inventory in a warehouse.
  • Inspections: Inspections are a non-value added activity, as they do not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be conducting an inspection of a product before it is shipped to the customer.
  • Building maintenance: Building maintenance is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be the cleaning of the factory floor or the painting of walls.
  • The storage of inventory: The storage of inventory is a non-value added activity, as it does not add any value to the product or service and can be a waste of resources and time. An example of this non-value added activity would be storing inventory in a warehouse or other storage facility.

Example of process with non-value added activities

One example of a process that contains activities that do not create value for the customer is a manufacturing process for a product.

In this process, certain activities such as inspections, paperwork, and testing may not directly create value for the customer but are necessary for ensuring the product meets quality standards and regulations. These activities can also be considered as compliance activities that are done to meet the legal requirement.

Another production process may include moving raw materials within the factory, building maintenance, the repair of machines, finished and assemblies product within the factory, inventory control, inspections, building maintenance and the storage of inventory. All of these activities may be necessary to produce the product, but they do not add any value to the product or service and can be a waste of resources and time.

Another example could be a customer service process, where certain activities such as transferring calls or escalating issues may not create direct value for the customer, but are necessary to efficiently resolve their issue.

The idea of added value

The term added value refers to the value that a product, service, or process adds to a customer’s experience. It is a way of measuring the overall worth of a purchase or experience. It encompasses the intrinsic quality of the product, the value of the service provided, and any additional benefits that enhance the value of the purchase. Examples of added value include warranties, after-sales service, discounts, loyalty programs, and convenience. Added value can also come in the form of intangible benefits such as emotional satisfaction, peace of mind, or a sense of accomplishment. When considering a product or service, customers often factor in added value as one of their main considerations.

Types of activities

Three types of activities are being identified in business process management in reference to added value. Those are:

  • Value Added Activities: Value added activities are those activities that increase the overall value of a product or service. Examples of value added activities include increasing the quality of a product, adding features or services, providing after-sales support, offering discounts, and providing loyalty programs.
  • Business Value Added Activities: Business value added activities are activities that are undertaken to help a business increase its profitability. Examples of business value added activities include increasing efficiency and productivity, developing new products and services, marketing to customers, and providing customer service.
  • Non-Value Added Activities: Non-value added activities are activities that do not add any value to a product, service, or process. Examples of non-value added activities include unnecessary paperwork, redundant processes, and activities that are not customer-focused.

Added value importance in management

The concept of added value is an important one for management. Added value is the measure of the overall worth of a purchase or experience, taking into account the intrinsic quality of the product, the value of the service provided, and any additional benefits that enhance the value of the purchase. Management applies this concept to help ensure that a product or service meets customer needs and expectations. It also helps to determine the pricing of a product or service and can be used as an indicator of how well a company is performing.

For example, management can use the concept of added value to analyze the cost of producing a product or providing a service. This helps them to determine if the cost is justified by the value of the product or service to the customer. In addition, management can use the concept of added value to analyze the effectiveness of marketing campaigns and promotional activities. This helps them to determine if they are targeting the right customers and providing them with the right value.

Added value can also be used to measure the success of a business. By looking at the value of a product or service compared to the cost of producing it, management can gain an understanding of whether a business is successful or not. This helps them to make decisions about how to improve the business and ensure that it is providing the maximum value for customers.

The concepts that refer to non-value added activities

  • Lean Management: Lean management is a management system that focuses on reducing waste and improving efficiency. Lean management is based on the idea that added value is the measure of the overall worth of a product or service. It looks to identify and remove non-value added activities that do not add any value to the product or service. Lean management also seeks to optimize processes by streamlining them and reducing waste. This helps to ensure that the customer is getting the maximum value for their money.
  • Reengineering: Reengineering is a process of redesigning and improving a business process. It involves analyzing existing processes to identify areas where improvement can be made. This analysis can include looking at the cost of producing a product or service and the value it provides to the customer. Reengineering can help to improve efficiency and reduce costs, which in turn can help to increase added value.
  • Business Process Management: Business process management is a system of managing business processes to ensure that they are efficient and effective. It involves analyzing and optimizing processes to ensure that they are meeting customer needs and providing the maximum value. Business process management helps to identify non-value added activities and remove them to maximize added value.

Non-value added activities and costs

Non-value added activities can incur a variety of costs to a business. These costs can include the cost of resources used to carry out the non-value added activities, the cost of labor used to carry out the activities, and the cost of lost opportunities due to the activities. Non-value added activities can also lead to increased customer dissatisfaction and decreased customer loyalty, which can have a negative impact on profits. Finally, non-value added activities can lead to increased costs due to rework, such as having to redo a process or product due to errors.

Other type of costs are the costs of ineffective performance of value added activities. They can include lost revenue due to decreased customer satisfaction and loyalty, increased costs due to rework, and decreased profitability due to increased costs associated with the activity. In addition, ineffective performance of value added activities can lead to decreased customer confidence in the business, which can negatively impact future sales. Finally, ineffective performance of value added activities can lead to decreased efficiency and productivity, which can lead to increased costs and decreased profits.


Non value added activity — recommended articles
Product — Added value chain — Value added activity — Cost reduction strategy — Attributes of quality — Closed loop supply chain — Quality — 7 wastes of lean — Strategic cost management

References

  1. ↑ (M.M. Mowen, D.R. Hansen, D.L. Heitger 2011)
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