Value Analysis is deployed widely in the Toyota Production System as well as Manufacturing in general. In its purest form, Value Analysis digs deeper into whether any activity on the manufacturing floor adds Value to the End Customer. For example, on the manufacturing floor, fixing the car door on a car in an assembly line is a Value Adding step for the end customer. On the other hand, if the person on the manufacturing floor is filling out a form on some manufacturing activity and if it is only for the company’s accounting or audit usage, the end customer receives no direct value from this activity. It is deemed to be a Non-Value Adding activity. In Manufacturing, they try to eliminate non-value adding activities completely while improving the way Value addding activities are done. This is a systematic way in which companies like Toyota effect continuous process improvement in the manufacturing arena.
This is a powerful concept that can be modified, tinkered with and adapted for use in the Business Process area also. In Business processes there seem to be three classifications instead of just two: Value-Adding Activities, Mandatory Activities and Non-Value Adding Activities.
In many business processes, an example of a Value-adding activity may be answering the phone and supporting the customer for a product or a service. The employee in a call center filling out a Leave Application form is a non-Value Adding activity. It is of course, extremely valuable to the employee, but the end customer does not receive any direct value from this activity. This is not a value judgment but just a way of identifying activities that can focused on, for improvement.
However, in business processes, many activities may be Mandatory but add value to the end customer in an indirect way. For example, if someone applies for a passport, doing a fingerprint check against a database of known criminal offenders may be a Mandatory activity. In a Mortgage Processing application making sure that the Fair Housing laws are followed properly and the compliance related activities for these are mandatory activities. When evaluating an applicant for a loan, in the U.S., the Equal Credit Opportunity Act may have to followed.
Value Adding Acitivities can be targeted for execution faster, cheaper and with better quality. Mandatory Activities may need to be tested on whether laws have changed since the business process was designed. If laws have changed and some mandatory activities are no longer needed, they can be eliminated. If not, process improvement can focus on performing them faster, cheaper and with much better quality.
Non-value addding activities are good targets for elimination completely.
Lean Manufacturing and the Toyota Production System (TPS) have a number of lessons they can teach us in Business Process Improvement. Borrowing, Tinkering and adapting techniques such as Value Analysis can effect the same kind of quantum leaps in business process productivity that manufacturing has achieved.
Value – The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.– Adam Smith