A value added is the difference between sales revenue and input costs of the products and services.
• Value-added is a key indicator of economic performance and efficiency in creating goods or services.
• Value-added represents the additional value created by a business or production process. It focuses on the enhancement of the product or service through various stages of production.
For example:
If a manufacturer produces goods for Rs 100 and sells to the wholesaler for Rs 150, the difference is Rs 50 is the value added. Similarly, if the same goods are sold by wholesaler to the retailer for Rs 180, the value added is Rs 30. As such the same goods sold by retailer to the customer for Rs 200, the value added is Rs 20. Hence, the total value added becomes Rs 100 (i.e. 50+30+20).
Application of Value Added:
The concept of value-added finds applications across various industries and economic sectors.
Here are some key applications of value-added:
Economic Analysis:
Value-added is widely used in economic analysis to assess the overall performance of industries, sectors, or a national economy. It helps policymakers, economists, and analysts understand the contribution of different economic activities to the overall GDP (Gross Domestic Product).
Productivity and Efficiency Measurement:
Businesses use value-added as a metric to measure productivity and efficiency. It provides insights into how well a company transforms inputs into outputs, helping management identify areas for improvement in the production process.
Cost Control and Management:
Value-added analysis aids in cost control and management. By understanding the incremental value created at each stage of production, businesses can identify cost-effective strategies and optimize resource utilization.
Supply Chain Management:
Value-added is applied in supply chain management to evaluate the efficiency and effectiveness of each link in the supply chain. It helps identify areas for improvement and collaboration among suppliers, manufacturers, and distributors.
Performance Evaluation:
Businesses use value-added as a key performance indicator (KPI) to assess their financial performance. It enables companies to evaluate their competitiveness and profitability relative to industry benchmarks.
