Value Added

Value added or Value adding refers to a process or step within a process which transforms raw materials or work in progress into much more valuable goods and services to customers downstream. It aims at increasing its value per unit of material.An example of a value adding steps is the processing of the ore bauxite to extract alumina, then the smelting of aluminium from alumina and the extrusion of aluminium channel from aluminium alloy billets. These are several value adding steps to arrive at the final product which the customer values and is willing to pay for.

The amount of time spent on value adding activities in a process can be compared to the total lead time or time it takes to fill a customer order. This is sometimes referred to as the value added to non value added ratio. This helps identify the proportion of time spent on non-value adding tasks or steps in producing each unit of output that doesn't add value to customers. This can then be used as a measure or metric to monitor continuous improvement or lean initiatives in reducing the overall customer lead time. When first analysing a system or process, the value adding time can sometimes be below 5% of the total lead time, this could present great opportunity to improve or streamline the process reducing costs and improving lead times to deliver all goods on time .

    More lean concepts and terms