What is a Value-Added Activity?

A value-added activity is any action taken that increases the benefit of a good or service to a customer. A business can vastly increase its profitability by recognizing which activities increase value and which do not, and stripping away the non value-added activities. In most organizations, there is a much lower proportion of value-added activities than of non value-added activities. This means that a business could theoretically eliminate a significant amount of its expenses while still providing excellent service to its customers.

The Criteria for Value-Added Activities

An activity is considered to be value-added if it falls into any one of the following three classifications:

Improves quality. The activity directly enhances the quality of a product or service. This means that a quality control inspection or test directly relates to and improves the reliability or functionality of a product.
Adds value. The activity is squarely involved in the conversion of raw materials into finished goods. Thus, the activities within a production cell can be considered value-added.
Delights the customer. The activity ensures that a customer receives a more refined or personalized product, or ensures that it is received more rapidly than would otherwise have been the case.