Have Your Cake And Eat It Too?

Do you know the difference between “value-added” and “non-value-added” activities? As the name suggests, value added activities increase the value of a product or service in the eyes of the customer, whereas non-value-added activities simply waste time and money.

Sounds simple, right? Lean principles teach us we can maximize our profits by eliminating non-value-added activities. If those activities are necessary, we should at least minimize them.

Here are some clear examples of value-added activities (costs). Let’s say you’re a baker and a customer orders a cake online. You can’t very well sell them air on a plate, which means you’ll need to buy ingredients – the customer will pay more for a cake plate topped with cake than an empty one. But wait – will the customer pay for raw ingredients on the plate? Hmm… nope. You’ll need to mix and bake the ingredients, requiring energy. And, let’s not forget the TIME you spend making the cake – you are a skilled baker, after all!

On the flip side, as you decorate the cake, your hand slips and makes an ugly smudge of icing, requiring you to toss the whole thing in the dumpster and start over. This time, you use the same ingredients, energy, and time, but they add no value to the finished product, because the customer won't pay extra for your mistake. Rework and defects are non-value-added activities.

Here’s where it gets more complicated. What about the cost of the e-commerce site where the customer ordered the cake? Is that value-added? It could be, but if every other baker in town has one, the customer isn’t going to pay extra just because you keep the pace. Let’s say you offer secure, online credit card payment – again, the shop down the street does the same. Thus, the fees you pay a credit-card processor to accept credit card payment represent a NECESSARY, but non-value-added expense. The same goes for that dumpster you pay to get hauled away every few days – customer’s not going to pay extra just because your bins get picked up timely.

When it comes to the NECESSARY non-value-added expenses, your best bet is to lower the cost as much as possible. After all, why pay more for a service like garbage or payment processing that isn’t adding value in the first place?

Sounds great, right? Here’s the problem: you’re busy baking cakes and making sure not to smudge the lettering. You don’t have the time to go out and research every garbage hauler in town to make sure you’ve got the right price. It’s bad enough you have to call them to pick up an overflowing bin when they forget to make a pickup! As a matter of fact, since your time is value added input, any time you spend NOT baking cakes is WASTE!

So what do you do? Continue throwing money into the oven? No! Do you hire someone to look after your necessary non-value-added expenses? No! (After they’ve finished eliminating waste, they’ll just sit around the bakery eating day-old cake and scaring away customers!)

When it comes to the NECESSARY non-value-added expenses, you need a cost-reduction consultant who can find the sources of waste - overcharges, unnecessary configurations, vendor mistakes - and lower the impact as much as possible. This process requires significant market expertise, complete independence from influence by your vendors, and deep understanding of your business' needs. Only a skilled analyst can accomplish this work - but wouldn't such a consultant charge a big fee? Plus, what if they don't find anything? Isn't this another example of a non-value-added activity?

The solution is to bring in a consultant that works on a CONTINGENCY basis. Contingency means they don't get a paycheck unless they actually deliver the goods. Even better would be a consultant whose compensation amount is somehow tied directly to the savings amount. That way, you eliminate the risk of throwing good money after bad. Plus, the consultant becomes incentivized to capture real results. The icing on the cake (ahem) would be to ensure the consultant has an incentive to help out for years to come, by paying them a slice of actual savings in periodic increments, so they don't collect a payout up front based on estimates, never to be seen again.

If only such a consultant existed. Oh wait - that consultant is me. As a Strategic-Partner with Schooley Mitchell - North America's largest independent cost reduction consulting firm - I allow you to have your cake and eat it too. I lower the cost of your necessary non-value-added expenses like phones, Internet, utilities, shipping, merchant services (payment processing), waste disposal, and more - by 28% on average. I conduct my expense analysis at no charge and with no obligation - if there is no savings to be found, there is no fee. Plus, I manage your vendor relationships on your behalf for the lifetime of our relationship, so you never have to worry about it again. My compensation is a percentage of the found savings - paid out incrementally over time as a sign of my ongoing commitment to managing your expenses.

Send me a connect request or email me at [email protected] if you'd like to know more.

Bon Appetit!