Value is the inherent worth of a product or service as judged by the customer and is reflected in its selling price and market demand.
The value in a typical product or service is created by the producer or service provider through a combination of actions, some of which produce value as perceived by the customer and some of which are merely necessary given the current configuration of the design and production or service delivery process. The objective of lean thinking is to eliminate activities which do not add value while preserving or enhancing those which do.
Value Stream
All of the actions, both value-creating and non-value-creating, required to bring a product from concept to launch (also known as the development value stream) and from order to delivery (also known as the operational value stream). These include actions to process information from the customer and actions to transform the product on its way to the customer.
Activities in the value stream fall into three categories
Value-Added
A value-added activity increases the value of a product or service in the eyes of the customer, i.e. the customer is prepared to pay more for a product or service which has benefited from this activity.
Non-value-Added
Any activity which adds cost but no value to the product or service as seen through the eyes of the customer. These activities should be removed from the value stream.
Non-Value-Added, but required
An activity which adds cost but no value to the product or service, but which cannot be avoided due to the configuration of the plant, the nature of working conditions, or legal and regulatory constraints. Efforts should be made to minimise the impact of these activities and to redesign the process so that they are no longer required.
What does the customer value?
While some activities are obviously non-value-adding - rework, for example - the identification of others will require a detailed knowledge of what the customer wants enough to pay for it. This will also require an understanding of market segmentation. A car manufacturer will find that heated seats have great appeal in Scandinavia, but probably rather less popular in Southern Italy.
Learning what the customer values is not easy as customers will think in terms of existing products and services, not in terms of their real needs and desires.