Value Contribution of Processes
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?
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 Type||Action During Lean|
|Value-Added||Optimized and Standardized|
|Business Value-Added||Question and Reduce|
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.