An activity that adds value to a product or business process and which customers are willing to pay. Value Added activities are those that convert a product from raw material to a finished product quickly and at minimal cost. It helps businesses to complete a business activity properly the first time and to deliver the product/service in accordance with customer specifications.
Three criteria for Value-Adding Activities
There are three criteria for activities that add value to the customer. The activity must meet all three criteria.
- The Customer wants you to do it and is willing to pay for the task
- The material or information is being processed or transformed into final products
- It is done right the first time (no rework)
Any activity that exists outside of any of these three criteria is considered to not pass value to the customer or “Waste”.
Examples of activities that add value
Activities, which are performed on the shop floor, transform products from raw materials into finished goods the customer is willing and able to pay for. One example might be drilling, piercing, or welding a piece. These activities are not considered to be valuable and do not meet CPR criteria. Examples include additional motion, transportation, or rework due to defective products. If a customer demands that you keep two weeks’ worth of finished goods to ensure they are satisfied with your delivery times, it could be considered an activity that does not pass value but a necessary activity. The activity is not valuable because it creates extra inventory, but it is necessary because the customer expects it.