Product cost (VA, NVA) vs. Investment CAPEX

February 24, 2025
Product cost (VA, NVA)
 Determining Components for Cost Reduction Targets

The fundamental element in setting cost reduction targets is identifying the components that make up the entire production process.

While the basics are straightforward, as you delve deeper, things can become murky. We illustrate this with an example drawn from our own experiences, highlighting how to approach the task more effectively.

Consider a company where initial technological times were measured roughly—a very positive first step. Determining the basic times for Value Added (VA) and Non-Value-Added (NVA) activities as a combined metric is useful for an initial analysis of product profitability, as well as for establishing total labor costs and productivity.

Below is a sample chart that demonstrates how the time consumption for executing a product should be segmented. There is a clear separation between VA and NVA, meaning you know exactly what constitutes the labor cost components of a product.

Example Breakdown: Detailed Production Time Analysis

For the above example, the total production time is 2010 seconds, broken down as follows:

  • Value-Added (VA) Time: 1200 seconds (59.70%)
  • Non-Value-Added (NVA) Time: 810 seconds (40.30%)

Returning to the main discussion, if only the overall production time is used in product calculations—without a detailed breakdown—it becomes extremely difficult to estimate potential savings in areas such as transportation or quality control.

Therefore, it is crucial at the initial stage to establish the correct measurement method and determine the appropriate size of the reference sample.


CAPEX – Calculating Potential Investment Based on NVA

CAPEX, or Capital Expenditure, refers to the investment outlay for purchasing assets. Often, mid-level and senior managers must forecast investments using only limited data, especially toward the end of the fiscal year.

While this isn’t the only or most precise method, it’s one of the simplest and fastest ways to get a rough estimate. One effective approach to planning ROI is to target the largest component of Non-Value-Added (NVA) activities—in this case, internal transportation. For our example, internal transportation takes 710 seconds, which is 35.23% of the total production time. With this insight, you can quickly gauge the potential budget for future investments.

Example Calculation:

  • Daily Production Employees: 100
  • Average Monthly Salary: 6,580 PLN
  • Monthly Employee Cost: 658,000 PLN
  • Annual Employee Cost: 7,896,000 PLN

Based on our breakdown:

  • Value-Added (VA) Costs (59.70%): 4,713,912.00 PLN
  • Non-Value-Added (NVA) Costs (40.30%): 3,182,088.00 PLN

Considering that some companies view a 2-year ROI as attractive, this example suggests a CAPEX of approximately 6 million PLN for close-range transportation equipment. It’s important to note that internal transportation can’t be entirely eliminated—someone must load and unload products or semi-products on the line. However, if NVA could be reduced to 10%, the potential CAPEX would be around 2,386,560.00 PLN for a one-year payback period, or 4,773,132.00 PLN for a two-year payback period.

Calculating potential CAPEX in this way is invaluable for budgeting investments and assessing production potential. In upcoming posts, we’ll explore in greater detail how changeovers impact NVA and the planning implications they bring.


Thank you for your time, and please feel free to get in touch with any questions or comments.

Determining NVA Values ​​and Impact on Production Planning

Determining NVA Value in a Product

By sites • February 24, 2025
Here we have a different story with a client who has a lot of SKUs in their portfolio. The production is partly linear - organized on assembly with stations with well-balanced NVA and partly nested in preparation of semi-finished products where this NVA is more difficult to balance.
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