Value vs Waste

The Lean thinking journey begins with defining your customers and what customers will see as value-added in your product or service. Everything that doesn’t fall within that “value-add” bucket is defined as “Non-value Add” or “Waste”. Then starts the long journey of trying to reduce and eliminate the “Non-Value Add”.

Value

But how exactly do you define “Value”and “Value-add” when there are so many vague definitions? Take a look at some of these –

• Merriam-Webster defines “Value” as
  • The monetary worth of something
  • A fair return or equivalent in goods, services, or money for something exchanged
  • Relative worth, utility or importance
  • Something intrinsically valuable or desirable
• Merriam-Webster defines “Value-add” as
  • of, relating to, or being a product whose value has been increased especially by special manufacturing or processing (more precise, but doesn’t lend itself well to services)

At best, these definitions are clear as mud and extremely subjective. In today’s world of Black Friday discounts and Cyber Monday sales, the definition “something the customer is willing to pay for” or “monetory worth of something” from a customer’s perspective can be very vague.

The other problem that most organizations have in trying to define value, is that they tend to focus on what they can deliver versus what the customers really want. The old paradox of “customer’s don’t know what they want until we deliver it to them” versus “Let’s build exactly what the customer aks for”. The Steve Jobs camp will bring up smartphones and the Toyota camp brings up, well…Toyota.

Waste

Once you’ve picked a suitable definition of “value” that works for you and your customer, you’ve got to begin looking for “waste”. Let’s look at a few definitions of waste –

• Any activity that adds time or costs, but does not add value. Ex: Waiting, Transportation
• Consuming more resources (time, money, space etc) than are necessary to produce the goods/provide the services that the customer wants. Ex: Producing excess inventory when there is no demand, Making improvements to the product that customer’s will not value
• Pure Waste: Actions that could be stopped without affecting the customer. Ex: delays, extra samples, defects
• Incidental Waste: Actions that need to be done based on how the current system operates, but do not add value. Ex: auditing and saving records for a specific period of time due to legislative requirements

Research has shown that roughly 50% of all activities in customer-facing organizations is Pure Waste. 40% is Incidental Waste and 10% is Value-added.

Use the following questions to differentiate between Value and Non-Value added activities –

1. Would the customer care if the activity is performed? Would they pay for it? If the answer is Yes, then it is Value-added. The next step is to figure out more efficient ways of doing that activity.
2. Does the activity or process convert input to an output directly? Does it transform the product from one shape to another? If yes, it is value-added
3. Are we doing a particular step or process for compliance or regulatory reasons? Then, it is an incidental waste. Consider finding more efficient ways to perform the task.

2Gemba Pro Tips

1. Go 2 Gemba! Observe the entire process from start to finish, take notes and Ask Why.
2. Show Respect! Before you go charging onto the factory floor or the office telling people their work is “waste”, consider if their task contributes to an aspect of value that traditional lean definitions above haven’t considered. Engage in healthy debate and respect differing opinions. 
3. Pay careful attention to identifying your true Value streams! True value streams are those sets of activities that actually deliver the product or service to the customer. For example, Product Design and Development, Manufacturing etc are true Value-streams. Finance, Marketing, HR etc are support functions. They still add value, but not directly.