Definition of Value-Added (VA):« Back to Glossary Index
Your customer determines whether what you produce has value or not. Value will always be in the eye of the customer. In this article, we will define what we mean by value-added (VA) work and present other commonly used definitions that include the phrase “value-added.” We will describe some benefits of producing VA output, why you want to understand VA work, and some hints on how you might find out what work is value-added or not.
Overview: What is value-added (VA)?
Let’s start with the concept of a process. All processes have an input that is transformed by some steps, activities, and tasks, resulting in an output. The SIPOC is an extended version of the process. Inputs may be the classic elements of people, equipment, materials, methods, measurement, and environment — also described as the 6Ms. Output may be product, service, information, or anything else that results from the transformation activities in the process.
VA can be defined as the activities you do that change the fit, form, or function of the item going through your process transformation. VA work takes the input and turns it into something of value to your customer — something they are willing to pay you for and that you do right the first time through your process. Some critical questions you can ask when trying to determine if a task is value-added are:
- Did the process actually convert the item going through the process or not?
- Did moving something from point A to point B in the plant change the nature or characteristic of the item or just change its location?
- When inspecting a part for quality, did you change the item, or is it exactly the same before and after the inspection?
There are four main derivations of the definition of VA. First, there is customer value-added (CVA) work. This is the work that changes the item, is important to your customer, and that they are willing to pay you for.
The second is business value-added (BVA) work. This is work that is needed to keep your business functioning, but is transparent to your customer, who probably isn’t interested or doesn’t care whether or not you’re doing it. For example, the functions performed by your HR department, legal department, or accounting department are vital to doing business, but the customer really doesn’t care about them and would be unlikely to pay you for those activities. Assuming that value is defined by your customer, some organizations refer to this type of work as business non-value-added (BNVA) since it is of little or no direct value to your customer.
The third approach to VA is the definition of non-value-added (NVA) work. This is work that does not add value to your customer nor your business. It’s usually a remnant of a previous process activity that is no longer needed or relevant. It is pure waste. NVA work needs to be eliminated as soon as is feasible.
A VA analysis is often done when you’re mapping your processes. Once you have all your process tasks identified and mapped, it’s very useful to go back and identify whether that task is CVA, BNVA, or NVA.
A common color code can be used where blue designates CVA activities, green for BNVA activities, and pink for NVA. This will allow you to assess your process at a glance. If pink is the predominant color, you might have some opportunities for improvement.
3 benefits of value-added (VA)
Distinguishing between the different definitions of VA will allow you to assess how much of your efforts are going towards producing something of value to your customer and how much is allocated to producing output you aren’t getting paid for.
By identifying the VA in your process, you’ll be able to judge the degree of opportunity for improvement. If there is little VA, get ready to buckle up and start improving.
2. Calculation of PCE
Process cycle efficiency, or PCE, is the ratio of your VA work divided by your process lead time, or PLT. This is a basic Lean definition describing what percent of the total time an item is in your process is dedicated to something important to your customer.
3. Employee morale
Most employees know whether they are doing value-added or non-value-added work. They often question you as to why they have to do something the way that it’s prescribed.
Your employees can become frustrated and demoralized if they know that most of the work they do all day is not really important and consists mostly of wasted effort. Making people’s work more satisfying will improve morale and possibly have a positive impact on turnover.
Why is value-added (VA) important to understand?
Your customer will define VA for you, so it’s important for you to fully understand what that is.
1. Customer defines VA
To understand whether you are spending company resources on wasted or unimportant activities, you need to understand what is important to your customer and specifically how they define VA from their perspective.
2. CVA vs BNVA
Sometimes, it’s difficult to distinguish between those things that are important to your customer versus what is needed to keep your company functioning. If you ever have a doubt about whether your customer cares about a certain activity, just put it on your invoice as a separate line item. If they call to say that they won’t pay for that, then you have your answer and know that it is not CVA.
3. Impact on productivity
By eliminating NVA and improving BNVA, you will free up time and other resources. You will be able to produce at a faster rate and deliver faster to your customer. More of your organization’s resources will be producing things of value, with which you can generate revenue.
An industry example of value-added (VA)
A military organization dedicated to the maintenance, engineering, and logistics support for Naval aircraft was having difficulty in turning aircraft around and back to the fleet to meet their customers’ expectations. They formed an improvement team and began by doing a process map from the time the aircraft arrives at the field until it flies back out to the fleet.
After color-coding the process activities using blue for CVA, green for BNVA, and pink for NVA, they noticed multiple incidents of NVA linked to certain inspection steps. One expensive test stood out. A landing gear was reworked and refurbished. It then went through an X-ray test for structural integrity. The landing gear then moved to a different part of the line, where it was X-rayed again. The problem was that nothing was done to the gear between the first and second X-ray other than move it.
After analyzing why this was happening, they discovered that the manufacturing sequence had changed two years earlier, but someone forgot to change the standard operating procedures to reflect that change. They just did what they always did. The second test was eliminated, and the organization saved approximately $1,000,000 in annual expenses.
3 best practices when thinking about value-added (VA)
The good news is that there is no capital expense required for you to do the value analysis of your process. Here are a few tips to help you.
1. Ask your customer
If your customer defines value, then you need to start with them to find out what is important, what they value, and what they’re willing to pay for you to do that work step, activity, or task.
2. Classifying NVA
You have to call waste what it is: waste. By identifying non-value-added work and eliminating it, your overall process time will, by default, contain a higher percentage of CVA.
3. Be specific
When you get your customers’ definition of VA, be sure you have a specific operational definition that is agreed upon and measurable.
Frequently Asked Questions (FAQ) about value-added (VA)
1. What is a good definition of value-added?
The steps, activities, and tasks you do that change the nature or a characteristic of the item you’re working on that also meet all of the following conditions:
- The steps, activities, and tasks are important to your customer.
- The customer is willing to pay you to do these steps, activities, and tasks.
- You do these steps, activities, or tasks right the first time.
2. What is business non-value-added?
This is work that is of little value to your customer but of value to your business and its ability to properly function.
3. How do I find out what is value-added to my customer?
Ask them. Then review all the steps in your process to see which ones actually contribute to the achievement of that customer value.
Let’s wrap up value-added (VA)
Your organization does a lot of things. Your focus should be on those things your customer values and is willing to pay for. By doing a value analysis, you will be able to distinguish between those tasks you should be doing well and those that are waste.
Focus on those of your processes that change the fit, form, and function of the item being worked on, and make those the best they can be. Everything else should be evaluated and improved if appropriate, or eliminated if they are not needed to satisfy either your customer or your internal business processes.« Back to Dictionary Index