VALUE ANALYSIS

A Presentation byN.N.V. Krishna Kanth

I MBAALIET

Let us explore, how it works???

Cost reduction without

compromising on

quality???

Value Analysis, How???

Origin

• Value Analysis was developed after WW-II in USA at General Electric (GE) in 1947. Because of WW-II, there were shortages of skilled labor, raw materials, and component parts at GE.

• Lawrence D. Miles, Jerry Leftow, and Harry Erlicher at GE looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved product, or both. This led them to the discovery of a systematic process for cost reduction without compromising on the desired quality of products. They named their process as “VALUE ANALYSIS”.

Introduction

Worth to you • VALUE = Price you pay

DEFINITIONValue Analysis can be defined as,A process of systematic review that is applied to existing product designs in order to compare the function of the product required by a customer to meet their requirements at the lowest cost consistent with the specified performance and reliability needed.A systematic analysis that identifies and selects the best value alternatives for designs, materials, processes, and systems. It proceeds by repeatedly asking, "Can the cost of an object be reduced or eliminated, without diminishing the effectiveness, required quality, customer satisfaction or market acceptability?”

VA… How???

Techniques of Value Analysis and Engineering tells you why so much

unnecessary cost exists in everything we do. . . how to identify, clarify, and

separate costs which bear no relationship to customers' needs or

desires. . . how to place a dollars-and-cents value on different customer

functions. . . how to divide a problem into "mind-sized" steps, each one of which is solvable and the sum of which

solves the major problem.

Key ConceptsValue: The ratio between a function for customer satisfaction and the cost of that function. It is the least cost that can achieve reliably a function or a service.Value of a product = Performance of the function / CostNeed: Something that is necessary or desired by a customerFunction: The effect produced by a product or by one of its elements, in order to satisfy customer needs. Value Analysis: A systematic process that is used to increase the value of an object that is achieved by providing required functions of a product at lowest overall cost consistent with achieving the required quality, performance and market acceptance.

VA team refers to a team/group/committee of cross-functional technicians who follow a stated workplan to accomplish VA objectives. The object can be a product, a system, a process, a procedure, a plan, a machine, equipment, tool , a service or a method of working.

The aim of VE is to obtain target cost without compromising on the quality of a product by:

Identifying improved product designs that reduce product’s costEliminating unnecessary functions that increase the product’s costs

VE requires the use of Functional Analysis (FA). FA is an analysis of the relationships between product functions, their perceived value to the customer and their cost of provision. The process involves decomposing the product into its many elements or attributes. For instance, in the case of automobiles, functions might be consist of style, comfort, operability, reliability, quality and attractiveness etc., etc.

An Illustrative Model

What is it? (a pencil)What is it used for? (writing and making marks)What is the main function of this product? (making marks, writing) What is the method, material or procedure that was used to realize the main function? (a graphite stick & wood)What are the corresponding secondary functions? (transfer graphite to paper and facilitate holding the graphite)What does the item cost and how can we distribute the cost of realizing the main function into each secondary function?Comparing these costs to an item of a similar function, how much should each function cost and what must be the total cost?

Important Note Focus your VA on the main function, because, during the

analysis, the secondary functions may change. The group/committee/team may choose different secondary

functions to realize the main function.

VA WorkabilityFor many of the world’s leading companies, including names like Hewlett Packard, Sony, Panasonic, Toyota, Nissan, and Ford, VA process of design review has provided major business returns. The key to realizing these returns is through using knowledge of:

the customer requirements, the costs of the product, manufacturing process & the costs associated with failures due to poor or inadequate product design.

All these inputs to VA process are vital if decisions regarding product and process re-design are to yield lower costs and enhanced customer value.

FunctionsFunctions may be broken down into a

hierarchy, starting with a basic or main function, for which the customer believes

they are paying, and then followed by secondary functions, which support that

basic function.For example, a coat may have a use

function of making you warm (i.e. basic or main function) and an aesthetic function

of ‘looking smart, attractive and charming’.

SIX “ WHATs OF VALUE ANALYSIS “

1) What is it ?2) What does it do ?3) What does it cost ?4) What is it worth ?5) What else will do the job ?6) What does that cost ?

THE PHASES OF VALUE ANALYSIS

SELECTION & ORIENTATION

ANALYSIS

RECORDING IDEAS

SPECULATION

INVESTIGATION

RECOMMENDATION

IMPLEMENTATION

# Stage Description

1.SELECTION & ORIENTATION

To select those critical areas where a potential for cost reductions is expected.

Use the common Pareto’s ABC analysis. General scope, restrictions and aims of the study is defined.

2. ANALYSIS

Examine the data at a VA group/team meeting. Record the minutes of each brainstorming session. Apply the Tests for Value. Propose further action.

3. RECORDING IDEAS

Write down the minutes of analyses meetings and circulate them to group/team members for further queries.

It includes the agenda for the next meeting.

4. INNOVATION/CREATIVITY

Arrange team meetings in order to discuss the ideas analyzed and any new information obtained.

Think upon practical measures for reducing costs and increasing value.

# Stage Description

5. EVALUATION

Investigate suggestions for reducing costs and to make them practical and acceptable to client management.

Obtain definite prices and costs in order to estimate cost reductions accurately.

6. RECOMMENDATIONS

Recommend cost reductions to client management. Present the recommendations in a comprehensive report. Recommend a member to act as an implementation consultant for

VA recommendations.

7. IMPLEMENTATION& MONITORING

Implement the recommendations accepted by the company management. Monitor the results as suggested in VA report.

Jot down the feedback of the management upon completion of VA assignment.

Advantages 1. A high customer orientation, focusing on those aspects

of the product/service that better satisfy customer needs.

2. Allows enormous cost reductions by eliminating functions that do not satisfy customer requirements/needs.

3. VA improves profitability of products.

4. New ideas that arise from the creativity/innovation phase, may add radical changes.

5. VA provides a process to systematically improve the existing goods and services. It builds value into a product or service.

6. VA process is used to offer a higher performing product or service to a customer at a minimal cost.

8. VA process is, therefore, one of the key features of a business that understands and seeks to achieve TQM in all that it does to satisfy customers.

9. VA process often allows to root out practices that have grown out of date and can be replaced with more modern approaches.

10.VA can uncover design flaws that not only operate inefficiently but also create problems. In the case of a product, this could mean a high rate of malfunctioning items, creating customer complaints and warranty claims that put a strain on personnel and inventory departments.

Disadvantages

Avoid making generalizations and superficial statements – it is important to be precise at every moment.

Collect, determine and examine all costs involved – only when one is cost conscious, will it be possible to determine the value of the thing being assessed.

Make use of information from the best possible sources.

It is possible that two different VA consultants may give different sets of recommendations still both be correct. There can be challenges in the selection of the best alternatives.

APPLICATION OF VALUE ANALYSIS1. Capital goods – plant, equipment, machinery, tools, etc.2. Raw and semi-processed material, including fuel.3. Materials handling and transportation costs.4. Purchased parts, components, sub-assemblies, etc.5. Maintenance, repairs, and operational items.6. Finishing items such as paints, oils, varnishes, etc.7. Packing materials and packaging.8. Printing and Stationery items.9. Miscellaneous items of regular consumptions.10. Power, water supply, air, steam & other utilities (services).

Thank You!