Value Added rationale….Lean Six Sigma group from Linkedin

How do determine which steps are non-value added and which add?

I specialize in precision cleaning prior to final assembly, an operation traditionally described as “non-value added.” The operation is obviously critical to the final product quality, yet it seems to be treated as “insurance” (e.g. you have to have it.) What am I missing here?

1 day ago

George Henderson likes this

5 comments

Wayne Fischer • Might ask the “customers” of your precision cleaning what it is worth to them – not necessarily in terms of money but perhaps in terms of time saved when comparing final assembly times with and without precision cleaning.

If those times (or some other quality characteristic) are not significantly different, then look to your external customers’ experience using your products that included the precision cleaning step versus those not. I’m guessing those customers won’t even accept products that exclude the precision cleaning. Investigate whether they can estimate a value for precision cleaning.

14 hours ago• Like

Srividhya Ganesh • Interesting question… I would say that to classify anything as “Value” it must satisfy the 3C’s, so I like Wayne’s comment on “Asking the customer” to see if he values it, because the process does “Change the thing” and could be done “Correct the first time” If precision cleaning an important part of the process and you dont get “Pre-cleaned” parts without the extra cost, then it does become a part of the transformation process so I would tend to classify the activity as “Value added”

14 hours ago• Like
Brian Gregory, MD, MBA

Brian Gregory, MD, MBA • Mike,
Is your question whether ‘value’ is defined as increasing your net income potential… or increasing functionality for the purchaser? Want, or need?

According to Wikipedia: “In economics, the sum of the unit profit, the unit depreciation cost, and the unit labor cost is the unit value added.”

By this definition, if you can sell it for more by putting on a sticker that says ‘lemon freshened’, then it is value added. This also means that passing a law prohibiting competition is also a value added action.

Maybe there needs to be a further nomenclature to differentiate ‘functional value added’ from ‘revenue value added’. Even then, you could further divide the ‘revenue value added’ into causes from sales, depreciation, and costs. Going further, costs could be confusing by referring to fixed asset allocation value added versus direct cost value added.

This also doesn’t rule out the unusual situation in which increasing functional value actually decreases the sales value. I’m comparing PCs and Apple. You end up with value added for one customer, but a decrease in value for another.

13 hours ago

1

Brian Gregory, MD, MBA

Brian Gregory, MD, MBA • To look at your precision cleaning another way, if there were no effect on sales you still need to calculate the contribution of the following factors in calculating net income value added:

1. decrease in failure of part with cost of rework or scrap

2. increase in variable costs of precision cleaning

3. increase in total throughput time of constraint in the production line due to precision cleaning

11 hours ago1

Mike Peach • Brian, Thank you. The operation is critical to part reliability, demonstrated by a major drop in rejects at assembly/test (approx 5,000 ppm to <200 ppm; all rejects are scrap) when I upgraded the equipment/process several years ago. Although the only way to demonstrate the process improvement was the source of improvement would be to revert to the earlier process (I did offer ;-)) NOBODY wanted to go back.

I’ve been working on a few projects recently were I know the best approach Intuitively, but have had difficulty explaining my reasoning to others (mostly explaining chemistry to mechanical engineers who thought college was the last time they needed to think about the subject.) I think your approach will get the point across with enough clarity that my team members can be an active part of the decisions and planning.

Again, thank you for the guidance.

38 minutes ago• Like

About Brian D Gregory MD, MBA

Board Certified Anesthesiologist for 30 years. TOC design and implement for 30 years. MBA from U of Georgia '90: Finance, Data Management, Risk Management. Practiced in multiple US states and Saudi Arabia at KFSH&RC and KFMC Taught residents in two locations. Worked with CRNAs for 20 years.
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