Benefits of value analysis

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Page 1: Benefits of value analysis



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Page 2: Benefits of value analysis

Flow of presentation

• Meaning of value

• Origin of value analysis

• Introduction of value analysis

• Meaning of value analysis

• Definition of value analysis

• Purpose of value analysis

• Benefits of value analysis

• Limitation of value analysis

• Review of the topic

• Conclusion

• Bibliography

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Page 3: Benefits of value analysis

Meaning of value

Value is a broad term often used to denote cost

and Price. However, we would go a step further

and introduce the concept of function as well

into the definition of value. Value can be divided

into the following classifications :-

Use or Functional Value:- the properties and

qualities which accomplish a use, work or


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Esteem Value :- The properties, features or

attractiveness which cause us to want to own it.

Cost Value :- The sum of labour, material and

various other costs required to produce it.

Exchange Value :- Its properties or qualities

which enable us to exchange it for something

else we want.

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Origin of value analysis

• Value engineering or value analysis had its birth during the Second World War. Needless to say, this was a fertile period for its growth due to world-wide shortage of essential materials.

• Lawrence D. Miles was responsible for developing the technique and naming it.

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• Through its application, G.E.C saved nearly 70 million dollars and after that it was a question of time before the technique caught on and spread like wild fire.

• In recent years, it has also been known as “Molecular engineering” or “Vertical thinking”.

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Introduction of value analysis

• value analysis aims at a systematicidentification and elimination of unnecessarycosts resulting in the increased use ofalternatives, less expensive material, cheaperdesigns, less costly methods of manufacturingetc. to provide the same performance, qualityand in a decrease of overall unit costs andconsequntly greater profits.

• For example:- We can convert a stainless steelpart into steel or even fiber-glass and thus savecost. Tvs Suzuki‟s choice of fiber-glass forspectra scooter has reduced its product-cost.

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Example of value analysis

• Suppose a housewife is out shopping for

vegetables. There are four varieties of

tomatoes to choose from, costing Rs.15

,Rs.20,Rs.25 and Rs.30 respectively.

Which will she buy? Quality? All are of

good “quality.” price ? Obviously not. Then

the vegetable vendor won‟t be able to sell

the other three qualities.

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• The answer is simple. she will buy that quality

which serves her purpose. for example, if her

husband‟s boss is coming for dinner and

tomatoes are required for the salad, the Rs.30

variety will be the obvious choice. If she wants to

make tomato- rasam , then she will purchase

the Rs.15 quality. In other words, her choice will

depend on the function the tomato is to perform.

Each of the four varieties has a value and his

value depends on the function it is expected to

accomplish. This small example illustrates the

approach of value analysis.

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Page 10: Benefits of value analysis

Meaning of value analysis

• Value analysis is a study of character-wise costof an items such as quality, design, method ofmanufacture, consumption aspect, etc., with aview to reducing the ultimate cost of the item.Value analysis also refers to the determination ofthe value of items proposed to be bought so as toexamine the worth of money to be spent in buyingthose items.

• Value analysis takes into consideration the qualityof the material in relation to its functional valueand price. Value analysis helps in taking decisionabout what is actually required and what should bepayed so as to derive the maximum benefits butpay the maximum for the same function.

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• Value analysis is, in essence, a study offunction. The function of a part, ormaterial, or service is the job it does.Value is a price we pay for a productprocess, material or service required toperform a specific function in an efficientway.

• Value analysis is a technique which goesinto systematic and complete investigationof combinations like quality, service, priceetc. with a view to determine the functionalutility of the item.

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Definition of value analysis

1. Value analysis can be defined as an organizedapproach to the identification and elimination ofunnecessary cost. Unnecessary cost is Costwhich provides neither use, nor life, nor quality,nor appearance, nor customer features.

2. Value analysis is an organized procedure forefficient identification of unnecessary cost.

3. value analysis is the study of the relationshipof design, function and cost of any project,material or manufactured by more efficientprocess, change in source of supply(external orinternal), or possible elimination orincorporation in a related item.

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4. Value analysis is the organized and systematic

study of every element of cost in a part,

material or service to make certain it fulfils its

function at the lowest possible cost; it employs

techniques which identify the function the user

wants from a product or service; it establishes

by comparison the appropriate cost for each

function; then it causes the required

knowledge, creativity and initiative to be used

to provide each function for the lowest cost.

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5) Value analysis is an organized creative

approach which has for its purpose the efficient

identification of unnecessary cost;i.e., cost which

provides neither quality, nor use, nor life, nor

appearance, nor customer features.

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Purpose of value analysis

• Elimination of an item altogether i.e.

identifying its unnecessary costs .

• Utilization of standard components of cost


• Examination of all features of an item.

• Examination of cheaper quality materials

for their advantageous use in the


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• Examination of costlier quality in relation to itsfunctional value and life.

• Examination of alternative source & price inrelation to the money spent and realization ofits worth in due course.

Making them simpler, there can be threepurposes of value analysis;

• The objective of „ best buy‟

• The objective of „ saving in cost‟

• The objective of enhancing the worth.

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Benefits from value analysis

There are several direct and indirect benefitswhich can accrue from the introduction andpractice of value analysis. Some of these are:

1]. A reduction in cost of existing products orsystems.

2]. Prevention of unnecessary cost in newproducts or systems. These two arequantifiable and can be easily measured.

3]. The introduction of value analysis leads tooverall cost consciousness and a generalattitude change toward costs.

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4]. Product value gets improved and the quest for

new materials and processes get encouraged; it

provides a great boost for import substitution.

5]. Systems relating to cost and estimating usually

benefit from reorganization necessitated by the

wider use of cost information.

6]. Finally, a greater return of investment results. in

other words, greater profits accrue.

7]. Value analysis is a very important tool in

contracts, and it is good to have a VE incentive

clause to encourage a contractor to reduce the

costs. There could be sharing of resultant

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• Here are some organizational benefits also which are as follows:

• The concept of value is usually divided into thefollowing classification for better control:

Use or functional value signifies the propertiesand qualities which primarily accomplish theuse, work or service.

The properties, features or attractivenesswhich create a desire to own are known asesteem value.

Cost value is a sum of labour, materialsoverheads, taxes and other cost required toproduce it.

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Exchange value implies the properties or

qualities which enable us to exchange it for

something else we want.

Value is a relative term and changes with place

or time.

Value analysis strives to achieve the said

benefits in the long run and for the entire

community at large.

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Page 21: Benefits of value analysis

Improve quality and effectiveness of


Examination of cheaper quality materials

for their advantageous use in the


Examination of alternative source & price

in relation to the money spent and

realization of its worth in due course.

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• As each coin has two sides, VA also suffers from variouslimitations. They are as under;

Value analysis, if applied to all the materials andproducts, will prove very time consuming and expensivetoo. Hence, it is generally adopted on a selectiveapproach basis.

Value analysis technique should be used only, underthe supervision of a senior officer, by the analysts whoshould be an expert and an experienced person wellversed in their job otherwise the likely remain a distantillusion and the technique may only prove an addedburden for the concerning unit.

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Page 23: Benefits of value analysis

• Value analysis does not have any refined

theoretical basis. It is simply a technique grown

out of experience in the assembly line of a

factory, field of construction works or out of the

spot observations in the activities of industrial

and business units and in their different


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• Value analysis investigates whether the

buyer is obtaining the most economical

material or equipment suitable for the end

product or end use. The approach is

concerned less with price negotiating and

bargaining, than with the right quality,

design , specification , standards and

methods of manufacture.

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Page 25: Benefits of value analysis

• The main objective of value analysis is to

reduce cost so it is useful but there are

certain disadvantages of its like time

consuming etc so it has two effect positive

and negative also.

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Page 26: Benefits of value analysis

Review of the topic

• Meaning of value

• Origin of value analysis

• Introduction of value analysis

• Example of value analysis

• Meaning of value analysis

• Definition of value analysis

• Purpose of value analysis

• Benefits of value analysis

• Limitation of value analysis

• Review of the topic

• Conclusion

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Page 27: Benefits of value analysis


• Production and operation managementBy :- S.A. Chunawala

& Dr. Patel

• Material management and integrated approachBy :- Gopal krishnan

• Material management By :- M.M Varma.

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Page 28: Benefits of value analysis

• Material management procedures text and cases

By :- A.K. Datta.

• Production and Operation management

By: - N.G.NAIR

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Page 29: Benefits of value analysis

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