Value Contribution of Processes

In my last column we discussed the eight wastes of Lean. We also looked at the various examples from the service sector. The eight wastes of Lean that we looked at are also called non-value-added activities. In this article we zoom out a bit to demystify the concept of not only non-value-added activities but also other types of activities in the process.

Looking Over the Process of a Lean Improvement

During a Lean improvement of a process we dissect a process in detail. While doing so we list the following types of activities:

Value-Added Activities: These are those activities for which the customer is willing to pay for.

Non-Value-Added Activities: These are those activities for which the customer is not willing to pay for. They only add to cost and time. Non-value-added activities are also called "wastes," as delved in the last article. The focus should be to eliminate these non-value-added activities. Examples of non-value-added activities include all the eight wastes of Lean.

Business Value-Added Activities: These are those activities for which the customer is not willing to pay for but needs there for running of processes and the business. These business value-added activities could include work done on audits, control, reduce risk, for regulation or to support value added work.

Remember, both non-value-added and business value-added activities are wastes. However, we need to segregate them to give them a different treatment.

Taichi Ohno called all these non-value-added activities muda ("waste" in Japanese). Business value-added activities are called Type-1 muda while non-value-added activities are called Type-2 muda.

How to Separate Value-Added Activities from Non-Value-Added or Business Value-Added Activities

So, the question before us is how does one go about identifying value-added activities. Dissect a process and ask the following questions:
  • Does the activity transform the form, feature, feeling and function that the customer is willing to pay for?
  • Is it being done right the first time?
  • Is this something the customer expects to pay for?
A positive answer or a "yes" to all of them indicates that it is a value-added activitiy. Even a single "No" indicates that it is either a non-value-added activity or a business value-added activity.

Remember, when you stop doing the value-added activity, the customers are going to complain, while eliminating a business value-added activity would lead to internal customers or regulators complaining.

What Action to Take Based on Each Activity Type During a Lean Transformation

Having identified and segregated the activities into three types, Table 1 summarizes the action that should have taken place during a Lean transformation:

Activity TypeAction During Lean
Value-AddedOptimized and Standardized
Business Value-AddedQuestion and Reduce
Table 1

A very effective metrics for measuring the non-value-added content in a process is Process Efficiency.

Process Efficiency (PE) = (Value Added Time X 100) / (Value Added Time + Non Value Added Time + Business Value Added Time)

Value-added time is the time spent on doing the value-added work in the process. While the denominator has lead time, which is the combination of value-added, non-value-added and business value-added time of the process.

This is an excellent metric to unfurl the waste optimization opportunity in a process. After carrying out a Lean improvement, it also tells the quantum of Lean improvement achieved. I have seen service processes have Process Efficiency that has been as low as .5 percent, while best-in-class service processes can be as high as 25 to 30 percent.