Certified Production & Operations Manager (POM) Practice Exam

Is "value added" by definition always a positive number?

1. True

2. False

3. Depends on context

4. Only in financial terms

The correct answer is: False

The term "value added" refers to the enhancement a company gives its products or services before offering them to customers. While it is often anticipated that value added will be a positive figure, this is not always the case. In certain situations, the value added can be negative, especially if the costs associated with production exceed the revenue generated from the product or service. For example, if a company incurs high expenses in manufacturing processes that do not result in a corresponding increase in sale prices or market demand, the value added would reflect a loss rather than a gain. Additionally, in terms of operations or strategic decisions where resources may be wasted or the processes may not yield any improvement in customer satisfaction or product quality, one could also measure a negative value added. Consequently, understanding that value added is not strictly positive helps in analyzing operational efficiency and making informed managerial decisions.