Value-added activity definition
/What is a Value-Added Activity?
A value-added activity is any action taken that increases the benefit of a good or service to a customer. A business can vastly increase its profitability by recognizing which activities increase value and which do not, and stripping away the non value-added activities. In most organizations, there is a much lower proportion of value-added activities than of non value-added activities. This means that a business could theoretically eliminate a significant amount of its expenses while still providing excellent service to its customers.
The Criteria for Value-Added Activities
An activity is considered to be value-added if it falls into any one of the following three classifications:
Improves quality. The activity directly enhances the quality of a product or service. This means that a quality control inspection or test directly relates to and improves the reliability or functionality of a product.
Adds value. The activity is squarely involved in the conversion of raw materials into finished goods. Thus, the activities within a production cell can be considered value-added.
Delights the customer. The activity ensures that a customer receives a more refined or personalized product, or ensures that it is received more rapidly than would otherwise have been the case.
Examples of Value-Added Activities
A number of common value-added activities are listed below:
Assembly. Combining parts to create a finished product.
Machining. Precision cutting or shaping of materials.
Customizing. Tailoring products to meet specific customer needs.
In-store assistance. Helping customers find or understand products.
Product demonstrations. Showcasing how products work.
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FAQs
How are Value-Added Activities Identified?
Value-added activities are identified by evaluating whether the customer would be willing to pay for the activity or whether it directly contributes to customer satisfaction. Tools like value stream mapping and process analysis help separate value-added steps from wasteful ones. The key test is whether the activity changes the product or service in a way that enhances its usefulness or appeal to the customer.