"Improving Competitiveness Through Non-Value-Added Activity Analysis"

Jesse Barfield, Caroline Fisher, and Jerry Goolsby

Cost Management

July/August 2004, pp. 22-32

This article provides a very good overview of the topic of adding value in operations. Four subjects are explored:

1. Defining value—The most popular approach has been to view value as the ratio of benefit received to cost expended. Some people define benefit in terms of customer satisfaction, while others focus on benefit to the quality of the product/service. Definitions of cost also vary. Therefore the authors suggest that "It is absolutely necessary that an organization, prior to an assessment of value-adding activities, define the meaning of value, benefit, and cost that will be used."
2. Assessing value in activities—Identifying value-added and non-value-added activities is a key step. The authors define value-added activities as ones "that improves the output received in the perception of the customer." A non-value-added activity "does not improve the output for the customer and, in addition, consumes resources for which the customer cannot justify paying."
3. Minimizing non-value-added activities—Methods include:
   • Eliminating non-value-added activities
   • Reducing the scale of non-value-added activities
   • Streamlining the performance of the activities
   • Substituting a more efficient alternative activity
   • Outsourcing the activity
   • Minimizing the impact of the non-value-added activities
4. Implications for management—The authors suggest initiating a systematic process to identify non-value-added activities, training managers and workers in such tools as flowcharting and process mapping, and creating a culture that supports and encourages challenging the organization's assumptions.

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