The

Value‐Added Fantasy
Edward S. Pound
Mark L. Spearman

“ ‘Eliminate Waste’ is a nonsensical slogan.” – Shigeo Shingo, p. 19, The Sayings of Shigeo Shingo: Key
Strategies for Plant Improvement, Productivity Press, 1987.

Performance improvement strategies that revolve around the notion of reducing non-value-added activities
are quite popular these days. Unfortunately for the multitudes of manufacturers relying on them, these
strategies are flawed. Not only does “value-added” have flaws in concept, managing based on the value-
added approach is very difficult to sustain long-term in practice.

The “value-added” focus is one of legions of corporate slogans and consulting initiatives, e.g. “one piece
flow”, “eliminate waste”, “zero variability” and “pull to demand.” Why do these initiatives seldom live up
expectations? Because they don’t offer a practical, scientific method of determining which activities have a
meaningful impact on performance.

In particular, the value-added fantasy is the perception that concentrating on “value-added” activities and
eliminating non-value-added activities will provide the most profitable performance for a supply chain. If
companies really want consistent performance improvement, they should abandon the value-added fantasy,
and instead focus on a practical, scientific approach for quantifying and controlling the elements of cycle
times that drive performance. A practical, scientific focus on cycle times can lead to a structured, objective,
and predictive approach to improving profitability.

A value-added strategy may or may not lead to improved profitability. So why risk your career on something
so risky? You may be asking: if value-added strategies don’t work long-term, why are they so popular? To
answer that, let’s first look at some typical definitions of value-added:
 Any step in the production process that improves the product for the customer
 Any activity that:
o The customer cares about
o Changes the product
o Is done right the first time

Some good things can result from a value-added analysis. For instance, it typically shows that most of the
time a product spends in a process is spent waiting. Lots of companies, especially those where little process
improvement has been done, have gotten great initial benefit from this revelation. They have been able to
eliminate some of this wait—or wasted—time. Additionally, the value-added concept is a simple concept—
eliminate waste, focus only on activities that provide value. Simplicity in management slogans is a great
driver of popularity of the slogans and rightly so. However, there are problems with the value-added fantasy,
particularly the notion that it addresses things customers care about. Sometimes a solution that is too simple
is a problem, especially with real world processes and challenges.

In the vast majority of cases, assuming a company is not using slave labor or other unethical practices, the
customer does not care what a company does in its processes. The customer makes a value statement with an
exchange of money for goods or services at the time of purchase of a product or service. When purchasing
gas for our cars, not once have we considered the value-added vs. non-value-added activities that might be
taking place at the refineries—sad but true.

How do you think the majority of your customers would respond to following survey question?
A. Customers prefer companies that have long setup times
B. Customers prefer companies that have short setups times
C. Customers are not concerned about companies’ setup times.
We believe the answer “C” would win hands down.

Since the vast majority of customers are not concerned about the activities that go on within a company’s
production or service processes, having internal decisions about what customers consider to be value-added
or non-value-added is an extremely subjective and often dysfunctional exercise. Actually, since “value-
added” is typically defined as a process step that changes form, fit or function, the value-added steps are the
ones that a company would need to do most effectively whether a customer knows about them or not. Calling
these steps value-added is just a confounding classification and frequently leads to non-productive
discussions. For instance, try telling highly-skilled quality inspectors that their job is non-value-added. The
use of vague terms such as non-value-added leads to the creation of more vague terms, thus the invention of
the term, “necessary non-value-added”—still not an inspirational label for those folks that are necessary but
non-value-added.

We have suggested focusing on a practical, scientific approach to cycle time rather than using the value-
added approach as a more reliable means of achieving consistent performance improvement. In some cases,
value added activities have been used as component of cycle time. But we would argue that even using
value-added activities in this context is a flawed exercise. For example, the statement:

Cycle Time = Value-added time + Non-value-added time + Necessary non-value added time

does not provide useful information about where to address the most profitable efforts for improving
performance. The statement is true though it is like saying, “It will rain today or it will not rain today.”
Cycle time here is used to mean the time a product takes to get through the manufacturing supply chain from
raw materials to completed product. Other names for this term include throughput time, flow days, and dock
to stock time. The division of cycle time into elements related to value-added steps provides no predictive
control about what will happen to an organization’s financial performance if the various elements are
addressed.

Eliminate unproductive efforts fueled by subjective definitions. Control your operations’ performance using
the practical science that describes the natural behavior of your operations. A fundamental, comprehensive
framework of the practical science governing manufacturing supply chains—shows that cycle time is
composed of the following components:
 Process time (e.g. bake time in an oven, machining time on a mill, growth time in
a culture, mix time in a tank)
 Setup time
 Move time
 Wait-to-move time

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  Queue time
 Wait-to-batch time
 Wait-in-batch time
 Wait-to-match time
 Shift synchronization time

Now this is not as simple a list as value-added, non-value-added, and necessary non-value-added, but it is a
much more powerful classification of the elements of cycle time.

Why? First, every item in the list can be described quantitatively and objectively and the list completely
describes the elements of cycle time. Second, because the description is quantitative and objective, its use
provides predictive control over performance.
For example:
 A manufacturing executive at a leading semiconductor manufacturer wanted to concentrate on
vacuum furnaces to drive down cycle time through the fab. An analysis of fab cycle time components
showed that a less expensive and more productive option was adding resources in Wet Etch. The
result was a cycle time reduction without major capital expenditures.
 A medical equipment manufacturer reduced cycle times by 40% by examining the elements of cycle
time and implementing simple control procedures to reduce wait-in-batch times—again, no major
capital expenditures or company-wide productivity improvement programs required.

Finally and most practically, the use of the classic value-added approach is not a viable long-term strategy in
manufacturing environments of any but the simplest level of complexity. Add a product mix of tens or
hundreds or thousands of items and changing priorities caused by forecast accuracy problems or demand
variation, as is common in many companies, and something as simple as “focus on value-added activities” is
useful as a good starting point only. It’s great to do 5S and get the folks on the floor involved in value
stream mapping and kaizens to get an overview of the process and eliminate blatantly obvious waste, but, for
most manufacturing environments, that approach collapses over time in the face of the complexities of
product mix and demand variability. The value-added approach will not provide effective long term
production planning and control to achieve best possible performance.

Do not depend on the subjective “value-added” description of performance to drive performance of your
organization. You might get good results but then again, you might not. Drive your career progression and
your company’s financial health through a solid understanding of the practical science governing your
manufacturing supply chain logistics.

To get best possible performance from your organization, understand and apply both the mechanics of cycle
time control and the scientific principles that provide predictive descriptions of the interactions between
WIP, throughput, cycle time and variability.

Factory Physics Inc. is a management consulting company that provides a scientific framework, software,
and training to optimize performance of manufacturing supply chains. Factory Physics® principles and
applications provide executives and managers the practical science to cut through complexity, reduce

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conflict and establish predictive control and direct accountability to accelerate performance of
manufacturing supply chains. Factory Physics Inc. is the leader in bringing the power of this practical
science to industry. For more information, contact Ed Pound at pound@factoryphysics.com or by phone at
979.846.7828 x 151.

FACTORY PHYSICS® and LEANPHYSICS® are registered trademarks of Factory Physics Inc.

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