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The value-added fantasy: A strict focus on eliminating waste is not the best way to improve

performance Edward S. Pound, Mark L. Spearman, Factory Physics -- Manufacturing Business Technology,

11/16/2007.

Performance improvement strategies that revolve around the notion of reducing nonvalue-added activities are

quite popular these days. Unfortunately for the multitude of manufacturers relying on them, these strategies

are flawed.

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

to expectations? The answer is, 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

eliminating nonvalue-added activities will provide the most profitable performance for a supply chain. The

reality is if companies truly 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 bet your career on something so risky?

You may be asking: If value-added strategies don’t really work, 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 the customer cares about; changes the product; or is done right the first time.

Some good things can result from value-added analysis. For instance, it typically shows that most of the time

that a product spends in a process involves waiting. Lots of companies—especially those where little process

improvement has been done—have seen great initial benefit from this revelation. They have been able to

eliminate some of this wait (or wasted) time. However, there are other problems with the value-added

fantasy—particularly the notion that it addresses things customers care about. 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 buying gas for our cars, not once have we

considered the value-added versus nonvalue-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 multiple-choice survey

question?

A. Customers prefer companies that have long set-up times.

B. Customers prefer companies that have short set-up times

C. Customers are not concerned about set-up 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 nonvalue-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

nonproductive discussions. For instance, try telling a highly skilled quality inspector that his job is nonvalue-

added. The use of vague terms such as nonvalue-added leads to the creation of more vague terms—

particularly the invention of the uninspirational term, necessary nonvalue-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 + Nonvalue-added time + Necessary nonvalue 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 akin to 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. It is advisable to eliminate unproductive efforts fueled by subjective definitions, and 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

reveals 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)

• Set-up time

• Move time

• Wait-to-move time

• 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, nonvalue-added, and necessary nonvalue-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 percent by examining the elements of cycle

time and implementing simple control procedures to reduce wait-in-batch times—again, no major capital

expenditures or companywide productivity improvement programs required.

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 the 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 work-in-process, throughput, cycle time, and variability.

Edward S. Pound is COO of Factory Physics. Mark L. Spearman is the company’s president and CEO.

Factory Physics is a management consulting company that provides a scientific framework, software support

tools, and training to optimize performance of manufacturing supply chains.