Question

Explain using ABM to eliminate non-value added activities and costs. Explain some of the non-value added activities and time.

Answer 1

Answer:

Lean manufacturing principles divide non value added activities into seven categories.

1. Waiting (idle) times
2. Excess motion (transportation)
3. Handling (moving things)
4. Excess or useless inventory
5. Overprocessing
6. Overproduction
7. Defects

Activity-based management (ABM) provides three steps for managers to use that lead to eliminate non value added activities.

Step 1. Identify activities required to complete products.

This involves interviewing personnel throughout the company. Recall that activity-based costing also requires the identification of key activities. However, ABM allows for a more detailed analysis because the estimation of costs and related overhead rates are not required when using ABM.

Step 2. Determine whether activities are value-added or non-value-added.

Activities that add to the product’s quality and performance are called value-added activities. Activities that do not add to the product’s quality and performance are called non-value-added activities. Examples of value-added activities at SailRite include using materials and machines to produce hulls and assembling each sailboat. Examples of non-value-added activities include storing parts in a warehouse and letting machinery sit idle.

Step 3. Continuously improve the value-added activities and minimize or eliminate the non-value-added activities.

Even if an activity is identified as value-added, ABM requires the continuous improvement of the activity. For example, SailRite’s assembly process (a value-added activity) may require workers to shift back and forth between Basic and Deluxe sailboats throughout the day, each of which uses different parts and requires different tools. Perhaps the efficiency of this process could be improved by assembling the boats in batches—one day working on Basic boats, another day working on Deluxe boats.

Activities that are non-value-added should be minimized or eliminated. For example, storing parts in a warehouse at SailRite (a non-value-added activity) might be minimized by moving to a just-in-time system that requires suppliers to deliver parts immediately before they are needed for production.

The next time you visit a fast-food restaurant, go to a clothing store, or stand in line at a college bookstore, try to identify value-added and non-value-added activities. Think about ways the organization can eliminate non-value-added activities and improve value-added activities.