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Value Added Manufacturing
Value-added is an economic term to express the difference between the value of goods and the cost of materials, supplies and labor that are used in producing them. In high value-added manufacturing, one aims to boost the value of produced goods in multiples of each additional dollar spent for materials, supplies and labor. This being said, value-added manufacturing is a good strategy only in some cases where the consumer or customer is willing to appreciate the added value to the product. An activity is value added if and only if three conditions are met:
The customer must be able and willing to pay for the activity
The activity must change the product, making it closer to the end product that customer wants to buy and pay for
The activity must be dome right the first time
Value added activities either
Directly add value to the final product or
Directly satisfy the customer
Non-value-added activities do not change the form, fit or function of the part and are activities the customer does not want to pay for. Value-added activities on the other hand, change the form, fit, or function of the part and the customer is willing to pay for them. Everything we do either adds value or does not add value to the product or service we sell. Who determines whether value is being added or not? The customer does. Anything or anyone who does not add value is waste.
Lean manufacturing principles divide waste into seven categories.
Waiting (idle) times
Excess motion (transportation)
Handling (moving things)
Excess or useless inventory
In addition, when considering value added vs. non-value added activities we need to include the category of required activities on the non-value added side. Let's look at each of these, starting with required activities. Required activities are those which must be done, but they do not necessarily add value for either internal or external customers. Most common required activities are those required by government regulations and the laws. While some required activities do add value, in many cases they are activities that must be done without adding value. However, this does not mean they cannot be optimized, eliminating waste, to reduce the costs of the “undesired” required activities.
This is one of the most common wastes. For example, if a machine operator is killing time waiting for the next batch of components to arrive, there is waste that can be eliminated through better scheduling. However, not all waiting time is wasted time. To give you an example, assume that a worker's job is to unload large blocks from a pallet and place them on a finishing machine. He will unload them as quickly as possible so that the forklift with the pallet can perform other tasks, and then he will wait a few minutes for the next pallet to arrive. This waiting time is not necessarily wasted time, because this “waiting time” can be valuable rest time that the worker needs to continue to do the job well. However, in this example, there are numerous opportunities for improvements for eliminating waste. For example, why does a person need to physically move large weights ? There might be a better way of doing this using machinery. This needs to be looked into. Waiting time is basically idle time in which someone who could be doing something is doing nothing. Eliminating or reducing the idle time is eliminating waste and improving the value added activities.
The term “excess motion” refers to the unnecessary and excessive movement of materials, supplies, and equipment. For example, why is a forklift bringing blocks of wood from one location to another location? Let's assume wood is cut into blocks in a sawing operation, then moved to a warehouse for storage, and then moved on pallets to the location where a worker loads the wood blocks into the finishing machine. By having the finishing machine near the sawing operation excess motion can be eliminated. The wood can then be cut to the right size and immediately passed on to the finishing machine. This will eliminate the need to move it in and out of a warehouse. The excess motion (transportation waste) of the wood can be eliminated.
Excess handling refers to the unnecessary and excessive activities of workers and the unnecessary handling of products, machines, and equipment. In our example above, why must a worker move the blocks of wood from a pallet into the hopper of the finishing machine? Wouldn’t it be better if the blocks of wood came out of the sawing machine and went directly into the finishing machine? The blocks of wood would no longer need to be handled by an employee, eliminating that waste.
Inventory costs money for the storage space as well as taxes on the inventory. Products have shelf-lives. Inventory brings risks such as spoiled products on shelves, outdated and obsolete products. Excess inventory also increases handling costs as items need to be moved in and out of inventory, and man-hours must be used to count the inventory on a regular basis, especially for tax purposes. Only a minimal, absolutely necessary inventory should be maintained. Basically, excess inventory is waste. Getting back to our wood block example, in a week the sawing operation can produce enough wood blocks to keep the finishing machine supplied for a month. Since the sawing operation does the cutting for a number of other products, it makes wood blocks for a week, with the blocks being stored in a warehouse until they are needed later in the month. It does the same for three other products. As a result manufacturer needs four warehouses, each capable of holding a month's supply of the material needed to make a product. If the cutting operation spends just one day on each product, each day it produces enough inventory for four days of operation of the finishing process for each product. As a result, each warehouse only needs to store four days worth of material instead of four weeks. The inventory storage costs along with the associated risks have just been cut by 75% as the result of eliminating excess inventory. Of course the situation can be much more complex if parts and products have to be shipped in from far away locations. Then one needs to consider also shipping and logistics costs to calculate the overall cost and find out how much inventory is appropriate.
Over-processing means that more work is being put into a product or service than is needed by the final customer. In our wood block example, if the finishing process includes applying ten coats of epoxy paint with sanding and polishing between each step, but the customer only requires that the finished blocks be painted black, manufacturer has put too much work into the finishing process. In other words, extra work and epoxy paint is being wasted.
Overproduction means making more products than what is immediately needed. If more wood blocks are being produced than are being sold, they will keep accumulating in the warehouse. This may make sense if most wood blocks are sold during the four weeks prior to Christmas and supply needs to be built up prior to the holiday season. However most of the time, over-production results in high levels of inventory and waste.
Defective products must be reworked or thrown out. Defective services must be done over. Doing things right the first time is essential to eliminating waste. While eliminating all defects may be impossible for most manufacturers, there are lean methods that are effective at eliminating defects. These methods indirectly also eliminate the need to inspect for defects, producing even greater savings.
AGS-Engineering has all the expertise and engineering resources to help you achieve a true “Value Added Manufacturing” facility. Contact us to discover how we can cooperate to add value to your exterprise.
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