Question

Think of a manufacturing or service based company that you know well. Define “Value-added activities” and “Non-Value Added Activities.” After defining each of these, name at least three of each within the company you know well. Could management have differing opinions on what is “value added” versus “non value added”?

Answer 1

Value Added Activities

Value Added activities are those activities which are must required or indispensable in order to complete the process and produce the product or service. The customers are usually willing to pay for this for these activities in some way.

Non Value Added Activities:

Non Value Added Activities are those activities which are not valued by external or internal customer. These activities do not increase the function or quality of the product or service but they impact the cost and price of that particular product or service. These activities usually increase the production cycle time and sometimes results in delays or wastage. Usually customers are not willing to pay for these activities.

Example of Automobile Company - Toyota

Value Added Activities

• Painting a car
• Fitting accessories to the car
• Safety checks in the car

Non Value Added Activities

• Storing and moving components of car from storage area to production floor
• Machine breakdowns
• Rework of manufacturing defects

Sometimes some management may have differing opinion classifying an activity as value added or non value added.

For example Quality checks in a car may be Value added because it will ensure defect free products but at the same time it may be non value adding activity if Total Quality Management(TQM) steps are followed in production floor to ensure defect free production.