A Process by definition is a series of interdependent steps or actions taken to achieve a particular end. To perform these interdependent actions the organization expends its limited and valuable resources.
This is true within manufacturing, retail and even the service sector. Manufacturing a gear; selling fruits and vegetables in a supermarket or a call center solving a customer’s problem on the phone are all examples of processes. Each of these are a combination of related actions that generate VALUE for the end user (customer).
Let’s talk more about ‘Value’ as perceived by your end user. Arithmetically a Value Adding Step can be shown as follow
(Perceived Value of the Product or Service by Customer after activity)
(Perceived Value of the Product or Service by Customer before activity)
By definition each and every step in the process can be distinctly divided into three categories as described below.
Value Adding Steps: These can be defined as any step of the process that the customer is willing to pay for. For example, in the gear manufacturing process, the customer is willing to pay you for honing and shaping the blank into a gear. By performing this step the organization is adding perceived value for the customer.
Non Value Adding Steps: These steps in the process do not add any additional value for the customer. For example, moving material from one machine to another or reworking quality rejects do not add any value for the customer. This is not something that the customer will pay for.
Business Non Value Adding Steps: There is a third type of activity/step that adds no further value to the customer but is essential for the organization to operate. As in the case of selling fruits or vegetable, the grocer has to tag the vegetable, scan them and create receipts for goods sold. The customer does not pay the grocer for any of these activities but are necessary for the successful functioning of his organization.
In a perfect world, every process would be an aggregation of Value Added steps alone. However such an utopian process does not and cannot exist.
Empirical studies of organization have shown the following ratio across a wide segment of industries.
Eliminating the Non Value Adding Steps is called making the process “Lean” or Efficient. This is easier said than done. Making use of Value Stream Mappingand Six Sigma Philosophies to Lean out your business processes results in more efficient systems with a direct impact on the overall profitability. The targeted approach to follow is quite straight forward and obvious.
Make the Value Adding Steps, Repeatable and Reliable
Eliminate as many Non Value Adding Steps as possible
Reduce the Business Non Value Adding Processes through automation