Value Analysis and Value Engineering in Production and Operations Management

November 18, 2020

With the advent of enhancement in technology and increased competition among the businesses, there is a growing need to reduce the product price. It puts pressure on the businesses to lower their manufacturing and production costs in order to sustain in a highly competitive world. Product engineers are continuously challenged with the need for a reduction in production and material costs. Various management techniques are applied to enhance the profit by specifically targeting the production and manufacturing costs. Materials and overheads represent a large chunk of the total costs and managers work upon strategies to control them. The costs are regulated not only by the efficiency of the execution of the methods but also by the strategies involved in the design, detailing, marketing, research, and development.

Value Analysis and Value Engineering in Production and Operations Management

Businesses are evolving their product’s designs to minimize the product cost as products incurring greater costs become obsolete faster. This requires the transmission and estimation of correct costs during the design process. It is a complete teamwork and communications are necessary for the regulation of work costs. Value analysis and value engineering services are two such processes that drive down the production costs and help businesses to remain sustainable.

Value analysis is a process of a systematic review and is applied to the designs of existing products. It is helpful in delivering the products at a lower cost with specific performance and reliability. It is concerned with the functionality of a product as per the customer’s demand. This process meets the specification and performance criteria of the customer. Basically, there are three principle costs of products namely, cost of parts, direct labor costs, and overhead costs. But now businesses are also focusing on costs related to manufacturing, assembling, poor quality, and warranty.

Value engineering acknowledges the economic, psychological, and social cues that may decrease the value of a product or service and rarely implies the working aspects like neglect of responsibility. Poor Product value can arise due to the following reasons.

  • A negative attitude toward the product or service, Failure to fulfill the required innovativeness and creativity.
  • Failure to accept or seek advice in need and unwillingness to admit a lack of knowledge or education on certain aspects of project development.
  • A proclivity to emotion-based decisions rather than fact-based decisions.
  • Rigid application of SOPs without adapting to change in technology and design.
  • Insensitivity to customer or client needs.
  • Lack of good communication and poorer human-to-human relations.

The principal focus of the value analysis process has been the administration of functionality to offer value to the customer. Businesses reduce the production costs of the product by eliminating costs that have no functional value to the client without negatively affecting the quality, maintainability, functionality, and reliability of the product. The goal of the value analysis approach is to create value for money by being inexpensive. This can be done by identifying activities that reduce the maintainability of the product as that enhances the cost of ownership and lowers the value attached to the product. But it doesn’t mean removing activities that compromise the reliability and quality of the product because it lowers customer value, enhances customer complaints while lowering product sales.

Value analysis is utilized for a complex number of reasons to reduce the costs. There are numerous design-related issues for the application of value analysis in a product within the business. Some of these are related to technology replacement, mediocre practices, traditional thinking, and inadequate analysis. Other internal reasons for conducting a value analysis approach in a product include the products with unknown problems, unending/varying customer demands, corrective actions, enhancement in product margin, and safety and compliance requirements. Many times, the market determines the cost of the product and any attempt to lower the costs through enhancement activities can deliver a greater return on investment throughout the product life cycle. The value analysis approach is also applied due to the various market induced reasons. These reasons relate to pricing practice, new technology and materials, environmental issues, e-commerce growth, compliance, and quality regulations.

Most businesses apply value analysis to the existing products that are sold in large numbers. The existing products tend to offer a large amount of information for the improvement of the product. The performance of a product can be analyzed by different managers who can present their opinions and complaints regarding the products. The opinions of the managers are very necessary as it benefits the management to analyze the activities that attract costs from raw materials to final products. These discussions facilitate learning and allow managers to understand the boundaries of product redesign and re-engineering activities. Some of the limitations that the product management team come across before the re- engineering activities are related to the inability of businesses to change existing product design as it may incur tooling expense. Sometimes management has very little time to complete the project and make only minimal changes in the product design. Also, the greater levels of purchased costs in the supply line need an active engagement with the suppliers from the management which may consume greater resources and time.

Value engineering is a similar approach to value analysis but is applied to new products. It is applicable to an uncertain environment and has very little information available with the managers to make the decisions. It is a systematic process for the review of existing products. It requires a greater amount of investment in terms of skilled human resources. The results of the value analysis are similar most of the time and have certain commonalities at different stages of production. When the project team finds the commonalities with many products in the production line, it utilizes the horizontal deployment of the value analysis to make all the changes quickly and efficiently on a factory-wide basis.

The value analysis in a product can be a huge success for a business if applied in the right way. The early step of organizing an adept team for the project along with retrieving sufficient information for a product is essential for the success of the project. Businesses initiate the activities of the value analysis by gaining approval from senior management. The support and endorsement of top management are crucial for the legitimacy of the project. A single senior manager is enlisted with the management of the project with a single authority. This is followed by the selection of an operational leader to coordinate the various activities of the project. The management creates a reporting procedure for monitoring and controlling the achievements of the project against time. Regular communication among the members of the team is necessary to achieve the wider objectives of the project successfully.

People working with value engineering need continuous training to implement its chief modern technology to utilize step by step in an organized problem process. The guidelines should be systematically followed in order to focus on significant details. They must develop the skill to apply the scientific method with accurate data in order to challenge their problem- solving skills in real-time. The use of cheap material should not be made the criteria to manufacture the product as it may involve the costly process of manufacture and will cancel the profit. Regular workshops and training should be provided to employees as it offers them to fill the gaps in the information to make key decisions in product development.

Value engineering in the modern era needs to generate regular comparable data so the solutions are routinely accessible and readily used. It facilitates to bring better decision making and enhances the quality of the product in the long term. Organizations are now focusing on enhancing their daily work via this technique to improve their tasks. This brings more creative participation to the team and the responsibility is shared by the whole organization.

Many research study shows that a lack of management support is the principal cause of the lack of use of value engineering in businesses. The senior management should appreciate the benefits of value engineering in product design and development to ensure improving the functionality and decreasing the costs. Many industries are recognizing this technique as an effective management tool and agree that various problems that exist in their sector can be orderly removed with value engineering. The next phase of this technique will require the amalgamation of data with new technologies like artificial intelligence and virtual reality that can increase productivity by significant numbers.

Also Read: Reducing The Cost Of On-Road And Off-Road Vehicle Via Value Engineering

Reducing the Cost of On-Road and Off-Road Vehicle via Value Engineering

February 6, 2018

There is a rapid increase in competition these days and various organizations across the globe sought to create higher value in their automotive products for the customers. This growing competitiveness is leading to customers demanding high-quality products with better functionality, without an increase in price. Therefore, the OEM’s in automotive industry must include projects which are designed to lower the product cost and enhance the value to the customer.

The product’s performance and a major part of its cost are defined in the development stage. To optimize these two parameters, a correct approach of cost management in the product development process is needed.

The Costs to be Targeted for Reduction

A vehicle is composed of complex sub-systems and interfaces. If you are targeting a cost reduction in a complete automobile, it’s imperative to understand the build-up costs involved in manufacturing of the vehicle. The cost build-up in a vehicle begins right from the concepts designed for the simplest support brackets up to the last operation on the assembly line and further till the product is displayed in the showroom.

Some of the costs during this process can be controlled directly and other may require large-scale re-engineering program to keep them low. The total direct manufacturing cost of the vehicle becomes the base reduction cost because there is no engineering control over other components.

The Cost Flow Analysis

The first step in cost flow analysis is to understand how the cost flows inside the vehicle. You may need to identify and differentiate the high cost and low-cost items in a vehicle. The cost flow analysis is used to realize and shortlist areas with the low, medium and high potential of cost reduction. The analysis presents a roadmap for the rest of the cost reduction activities and we can prioritize and target strategic areas of reduction.

Approaches to Cost Reduction

The complete cost reduction approach is multifaceted and involves various variables such as form, fit, function, etc. which have to be considered and balanced. There has to be an outline to systematically evaluate the designs while ensuring a broad level perspective on all the aspects of product development. The various cost reduction approaches are listed below:

  1. Direct Material Cost Reduction: This can be achieved either by reducing the material from a design or by using an economical alternative. Before opting for material reduction it’s vital to understand the design’s function and analyze how it behaves under load conditions. Then redesign the product using less material and without causing significant change in the component’s form.
    When re-designing the existing component using alternate material changes, various aspects of initial design have to be considered. Extensive redesigning and cost reduction has to be calculated considering the changes in the downstream cost components. The change of material must save cost as well as improve the end function of the component at the same time.The third approach for direct material cost reduction is to opt for weight optimization of complex components using FEA (Finite Element Analysis) or to perform FOS (Factor of Safety) analysis on existing designs to identify the areas with more than necessary material conditions.

 

  1. Manufacturing Process Cost Reduction: In this approach manufacturability and assembly aspects of designs are involved to identify and evaluate different possibilities to manufacture the same component using alternate process which is cost-effective. This helps save cost by simplifying the overall production process while reducing the lead time. Minor re-designs can lead to better the manufacturability of various vehicle components. This process can be used to improve their end functionality as well as simplifying the overall design. The approach can be extended over to improve and simplify the overall manufacturing process.

 

  1. Parts Standard Cost Reduction: This approach brings about standardization in the designs. This means the overall modularity of the systems has to be improved and the part commonization has to be promoted as much as possible in the overall design of the vehicle. Commonization helps eliminate components which would have been fulfilling the same functionality and brings uniformity in operations while reducing the overall costs.

 

  1. Supply Chain Cost Reduction: Organizations can outsource their production plants to countries that provide large scale high volume production and cheap labor. This will reduce the landing costs of parts and the manufacturers can also reduce costs by locating the sources near markets or production facilities. The logistic network can be assessed and costs can be optimized by redesigning for improved handling and containerization.

 

  1. Cost Reduction through Design Innovation (CRDI):This approach involves redesigning that can trigger resultant engineering changes to such an extent that it becomes a new product development in itself. The investment in this process is huge and has longer ROI period. Thus, though Cost Reduction through Design Innovation is most powerful and must be used judiciously. CRDI can be realized in terms of overall system level simplification. These innovations should target towards a systematic combination of multiple functions which eliminate several others in turn and lower the overall cost.

At Technosoft, we use a combination of various approaches discussed above to carry out a systematic study and redesign of systems and components for on-road as well as off-road vehicles. We have been helping our clients to achieve successful cost-reduction of vehicles used for a variety of purposes.

Technosoft focuses on the Engineering Services space and partners with numerous companies globally. We offer our exceptional design and development solutions throughout the product development chain across several industries. We have a team of over 400 skilled professionals located across the world. We help our clients achieve sustainable competitive edge via our value creating services. For more information, visit us at https://technosofteng.com/