Value Analysis Prepared by Bhakti Joshi July 11, 2014

The term “Value” Merit …Worth…Usefulness…Utility Efficacy…effectiveness…importance… Significance…appreciate…appraise…respect… …prize…cherish…treasure Do these words have any relevance to the workings of a business?

Background Developed during WWII by Lawrence D. Miles of General Electric (G.E.) Company. With shortages in skills and resources, Miles looked for substitutes supporting “functional” use Value equals Worth to You/Price you pay or ratio of customer satisfaction to the cost of that function It is approach to improving the value of a product or process by understanding its constituent components and associated costs or increasing the value of the functions Functional – Of a special activity, purpose or task OR designed to be practical or useful rather than attractive

Value Related Questions What is it? What is it used for? What is the main function of this product? What is the method, material or procedure used to realize the main function? What are the corresponding secondary functions? What does the item cost and how can we distribute the cost of realizing the main function into each secondary function? How much should each function cost and what must be the total cost?

Definition …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

Application of Value Analysis Capital goods – plant, equipment, machinery, tools, etc Raw and semi-processed material, including fuel Materials handling and transportation costs Purchased parts, components, sub-assemblies, etc Packing materials and packaging Printing and Stationery items Miscellaneous items of regular consumptions Power, water supply, air, steam & other utilities (services)

Case Study

Case Study – Functional Analysis

Value Index = % Importance in Costs % Functional Importance of the component

Case Study – Value Indices

Components C1 (wooden structure) and C2 (anchorages) have a balanced value index (1,2 and 1,1 respectively) but are subject to analysis for improvement since the robustness of the chair, as well as the folding mechanism, need to be improved. Component C3 (seat in bulrush) has a value index much higher than 1. Even so, since it affects the robustness of the chair, and sometimes it has broken, it is subject to analysis for improvement. Component C4 (paint) has a value index much lower than 1. However, the chair is currently considered to offer a good paint finish that must be preserved, even when the cost is high. Component C5 (advertising sheet) has a value index much lower than 1. However, its cost is already reduced and is considered to offer a good quality and design. The generation of ideas aimed at improving components C1 (wooden structure), C2 (anchorages) and C3 (seat in bulrush). Through the morphological analysis technique, different possibilities of the components were analyzed and ideas for improving them were raised.

Case Study - Alternatives

Case Study – Alternatives (Contd…)

Objectives of Value Analysis To provide better value o product/service To improve the company’s competitive position To ensure that every element of Cost contribute equally to the function of cost – Labour – Materials – Suppliers/service To eliminate unnecessary costs

Process for Value Analysis 1.Selection & Orientation 2.Analysis 3.Recording Ideas 4.Innovation/Creativity 5.Evaluation 6.Recommendations 7.Implementation & Monitoring * Basic Techniques include Pareto Chart, PERT technique, Gantt diagrams, etc

Process Description Value Analysis16 #StageDescription 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 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.

Value Analysis17 Process Description #StageDescription 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. Value Analysis18

Advantages (Contd…) Value Analysis19 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. Value Analysis20

Sources Value Analysis21 content/uploads/2012/10/AV-caso-practico_sillas_portillo_EN.pdf

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