PRDV304: Introduction to Supply Chain Management

Value-added products can be commodity processes or products that already exist; you only have to use smart modifications and apply them. According to Bishop, value-added is defined as "adding those manufacturing or service steps to a commodity product, which the customer perceives as increasing its value". Customers always want to pay the cost that they think is correct, and if they get something additional to the product, they got value-added. Two factors are significant when we talk about value-added: flexibility and quality. And, as stated by Benetto, Becker and Welfring, production processes contribute to improved value-added.

For example, Dramm (undated) affirms that the forest products industry is mainly focused on acquiring the highest value throughout the manufacturing process at the lowest cost, improving efficiency, quality, and productivity. Thus, it is important to include the production system as a part of the value-added process.

Flexibility

The complex markets, fierce competition and fast changes in demand require that companies be ready to react promptly to customers' needs. Flexibility can be understood as the ability to react and adapt quickly to changes in the market due to an increase or decrease of customers' requirements, accelerating or decelerating the manufacturing processes when it is requested. Bowersox, Closs, and Cooper mention that a logistical competency of a firm can be measured by how well it is able to adapt to unpredictable situations.

Quality

Quality is not a bonus for the customer; it is expected. Quality is also important for the acceptance of a product. High costs, low productivity, and loss of market share are directly related to poor quality (Dramm, undated). Quality is meeting or exceeding the expectations of your customer. This could be achieved, for example, by the use of quality metrics, which improves the production system. Achieving better efficiency, quality and productivity, and acquiring the highest value of a product at lower cost will improve the business performance of a company.

Production system

A study made in the automotive glass business showed how changing the industrial structure of the production system adds value to processes, which will help to expand their business future. This value-added could be achieved by reducing activity time, cost processes, and identifying bottlenecks that will improve the production processes. As a result, it will give value-added to the products.