Essentially, business is a process that converts inputs into outputs. Every business does that. In education, you convert newcomers into experts; in finance, you convert cash, assets and obligations into financial products; in any assembly industry, you convert parts into goods. The business process is a line of sequential steps that adds value to your product. What business owners usually want, especially during a crisis, is to make the production process cheaper and more efficient – in other words, to decrease the number of steps while retaining the product’s value. Analytics can help you with that. Actually, if you are serious about your business and plan to withstand the crisis, business process analytics is your lifejacket. Never stop re-evaluating your business process, and always conduct value-added analysis.
Value-added analysis is a method to identify opportunities to eliminate waste and simplify a process. By doing a value-added analysis, you identify which steps add value and which ones don’t, and gather information that can reveal opportunities to simplify the business process.
As we said, every process, large or small, is a series of steps, both value-added and non-value added. Every step adds cost and complexity, because it adds time, requires space, and creates inventory. Someone has to do the work, so there may be training involved. Maintenance might be needed. Every step is an opportunity to make a mistake. The challenge is to find the non-value added steps, eliminate the waste and, when possible, simplify the steps that actually add value. The more waste you eliminate, the better you will be financially, and the easier it will be to survive the crisis.
How does it work? You start by documenting current profits using a flow chart, spaghetti diagram, or other similar means. Then you record each step in the flow and identify them as value-added or non-value added. The results are reviewed, and by challenging every non-value added step and trying to eliminate it, you develop an improved process flow. Remember, value-added analysis is a very simple activity that often leads to surprising results, such as lower manufacturing costs. By eliminating unnecessary steps and streamlining the remaining ones, you will reduce lead times, have more capacity with low inventories, and so on. By eliminating steps, you reduce the chances of creating defects and improve quality. Eventually, you will substantially decrease your production costs, which in turn will allow you to decrease the product price while retaining the same profit margin.
Six steps lead to successful value-added analysis. First, you define the scope of the analysis. What are you analyzing? Where is the beginning and the end of the process? The second step is to decide who will participate in the analysis. Third, you create a process flow, a spaghetti diagram, or use another tool to chart the process flow. Fourth, you develop the ideal process flow, starting with only the value-added steps. The fifth step is to develop your proposed process flaw. The last step is, of course, to summarize the results in a final report with recommendations.
There are at least two concepts you need to remember when doing value-added analysis. The first concept is the ‘Three Types of Steps’. A Type One step changes the form, fit, or function of a product for the benefit of the customer. This is a value-added step. A Type Two step does not change the product for the benefit of the customer. That, of course, is the non-value added step. The Type Three step is a form of non-value added step that includes non-value added, but required, transactional tasks such as processing purchase orders, paying invoices, doing payroll, etc. These tasks are required for a business to operate because they enable the manufacturing process and the delivery of services, but for the purposes of a value-added analysis, they are considered as non-value added.
The other key concept or definition to keep in mind is the ‘Eight Different Types of Waste’. Knowing them will help you find them. Of course, you can’t find waste if you don’t know what you’re looking for. Business process analysts often use a mnemonic – HITIMWOOD – to help remember them. It stands for Human and Intellectual Capital Waste; Transportation Waste; Inventory Waste; Waste of Motion; Waste from Waiting; Waste of Overproduction and Over-processing; and Defects. I will not go into the details of each one, but it is key that you bear them in mind when you do a value-added analysis.
After you have identified the beginning and end of your process and who will participate in the analysis, you have to create a map of your current flow. Use symbols that help identify each step: profit steps, inventory points, delay, transportation, inspection, decisions. Next, with the process flow chart and data collected on that process, you do the analysis. A good practice is to record each steps and the data associated with it – such as distance, part size, time required. Then determine what steps are value-added and non-value added, and color them in different colors by type. Most likely, you will see that your current process is full of non-value added steps.
The next step in the value-added analysis process is to develop the ideal process flow—that is, starting with 100% value-added (only the two value-added steps). This ideal state is usually easy to construct, since it’s only the value-added steps minus all the non-value added ones. A perfect process is seldom achieved, but the analysis helps the team stay focused on the value-added activities and creates a new, improved process flow.
Before each step, ask yourself and the team: What is the purpose of this step? Why is it necessary? Who does it and why? Where is it done? Those things will typically help you clarify the real intent of a step and whether you can eliminate it, combine it, or simplify it. After you have done your proposed process flow, summarize the impact of the changes. Summarize those as the number of steps eliminated, the number of non-value added steps before and after the analysis, distance traveled, and lead time, for example. There might be other factors you can add to your analysis, too.