Value in any business can be determined by calculating the ratio between function and cost. A value can be added to a product in a business in two ways i.e. either through cost reduction or improving the function. That’s why most organizations consider value engineering as a strategy for cost-cutting by preserving the basic function of a product in the value improvement process.
From a marketing point of view, value engineering is utilized for the purpose of product designing so that it remains for a longer duration before becoming obsolete. Though high-quality components can be used in designing the product, value engineering facilitates manufacturers to look for alternative components that have low-cost. This helps in avoiding unnecessary costs in the production process as ultimately, customers will have to bear such additional costs. So, through value engineering, manufacturers are able to utilize components of less cost that fulfill the requirement of lifetime duration of the product and at the same time securing its basic purpose.
The concept of value engineering or value analysis is considered important in the manufacturing field due to the essential demand for making components that are more economic. It is a must to eliminate all unnecessary components and any undesired operation. The need may arise to change materials and provide relaxation in manufacturing tolerances so that value can be developed in accordance with increased strength, reduced volume, or longer duration of service.
Value Engineering/ Value Analysis
Before understanding what value engineering and value analysis are all about, let’s discuss the term “value” first.
Value is formed by combining the price, quality, service, and efficiency of a product with the purpose of ensuring superior economic satisfaction to the customer.
The mathematical equation of the value can be as under:
Value= (Function or Utility) / Cost
Value= Worth to customers / Price they pay
Value analysis is considered a procedure to identify any unnecessary cost related to material, component, or system efficiently and in an organized way by analyzing the function and efficiently eliminating the unnecessary cost without hampering the quality, functional reliability, and capacity. Thus, value analysis helps in enhancing profitability, and therefore, it can be considered any time in any stage of PLC (product life cycle).
The term value engineering is related to a systematic approach through which the value of a product can be improved that is created in a project. It is useful in analyzing a system, service, or product for the purpose of managing the crucial functions and at the same time reducing the cost in the best possible way.
Value engineering facilitates the use of alternative processes and materials that are less costly and simultaneously, maintaining the functional aspect of the product, service, or system.
The value engineering concept was initiated by General Electric (GE) Company in the 1940s. There was a shortage of materials, skilled workers, and component parts during the period of the Second World War. At that time, the alternative components and raw materials had to find out by the engineers of GE to ensure the continuous production process. So, the sourcing of alternate substitutes was done by a team of engineers to reduce the cost of production without hampering the product functionality. This turned out to be a systematic process that helped in cost reduction and providing better products with better performance. This technique was referred to as “value analysis” by engineers.
Value engineering has become popular as it carries the potential for achieving a huge Return on Investment (ROI). This method is mainly utilized for government projects, industrial equipment, transportation and distribution, business reengineering, healthcare, construction, and many more.
Value engineering facilitates the organization by identifying the below aspects:
- Any issue or situation that has to be changed or improved.
- Required improvements in the situation.
- Everything that helps in making the existing situation better.
- The functions that need to be performed.
- Different ways to perform each function.
- Selection of the best method among the chosen functions.
- The steps to be considered for the implementation of the function.
- The person, responsible for executing the function.
The relevance of Value engineering in Modern Manufacturing
We can see modern manufacturing from different perspectives. One perspective is the management approach that includes using different techniques such as Just-in-time (JIT), Total Quality Management (TQM), lean manufacturing, Total Production Management (TPM), concurrent engineering, cellular manufacturing, group technology, and other technologies. These consist of basic philosophies that act as the basis for developing different tools, techniques, and methodologies.
The process is facilitated by computers and various software that are made for collecting, processing, distributing, and analyzing data. Management Information System (MIS) is there to support decision-making and considered as the next important perspective.
The process of optimization at each level considers cost and benefit aspects. To develop more accurate components at much-reduced costs, different modern machines such as automatic machines, robots, special purpose machines are designed. This results in highly advanced products that are available to a large group of customers.
Through value analysis, manufacturing activities are done in such a way so that simpler components can be made, processes can be fast, and the products can be better. It is essential to produce each component or part in a much economical way because the huge investments are there in the procurement and maintenance of machines.
Different elements of the machine work together in the manufacturing activities for the purpose of obtaining the material transformation that produces components, subassemblies, and parts. The use of machines with sufficient capabilities in the form of voltage, power, lifting, and placing provides opportunities to do value analysis.
There are four types of value available in value analysis:
Use value: The performance or usefulness of a product for a specific purpose is due to its certain characteristics. The use-value helps in measuring the quality aspect of a product’s performance.
Esteem value: There are a few properties or characteristics of a product that don’t contribute to increasing a product’s performance or utility but they help in making the product desirable in customers to buy it.
Cost value: This value is measured based on the cost of materials, labor, and other associated costs. In the case of a manufacturing organization, it includes the production cost of the product and if purchasing of some part of the product is done from an outside vendor, it includes the purchase cost of that part.
Exchange Value: Some specific characteristics or properties of a product allow exchange facility of that product with another product.
Value Analysis Process
Below steps are included in the value analysis process:
- Data collection
- Analysis and Valuation of Functions
- Generating Idea and Evaluating Substitutes
- Implementation and Regulation
The above steps are described below in a detailed way:
This step includes collecting all relevant data and information related to the product and parts used to create it. This stage includes concerns related to raw materials utilized, transport mode, characteristics, lead time, dimensions, availability, price, consumption rate, and storage. The questions related to each of these are raised and answered. This step also includes recording all available information and if the information is unavailable, tags can be included to gather information at the next date. All information should be considered relevant and important. The below diagram includes different key queries, techniques, and tasks required to be done in this step:
Analysis and Valuation of Functions
The function related to each part is listed and categorized into two categories of basic functions and secondary functions. There should be a cryptic description i.e. two or three words. If more functions are associated with any part, each function can be given a weightage. Each function has a value based on the weight and cost of the part. Below table shows different key queries, tasks, and techniques to be performed in this stage:
Generating Idea and Evaluating Substitutes
Once the data is collected and analyzed and the relative importance of functions is determined, the next step includes the identification of material or process that is compatible with the application of value engineering. It is preferred to do brainstorming as a lot of factors are required to be considered and out-of-the-box thinking is required. It is allowed to submit ideas in front of the group for further discussion. Alternatives are evaluated and the best one is selected for implementation. The key queries, tasks, and techniques under this step are defined below:
Implementation and Regularization
The decisions are made after evaluation and conveyed further to the top management that provides clearance for implementation. The implementation phase includes the formation of teams, the involvement of concerned persons, and educating them about any forthcoming change. Once the implementation is successful, the change either process change or material change is considered the new standard for future operations. The important elements are shown in the below table of this phase:
Approaches and Aim of Value Engineering
Value engineering is aimed at effecting economies by indulging in the investigation of all opportunities and discovering new methods and materials for obtaining performance of high quality.
Below are the main aims of value engineering:
- Simplifying product
- Materials of less cost and better quality
- Improvement in the product design
- To achieve high efficiency in the processes
Approaches to Value Engineering
Pre sourcing is related to the process in which suppliers are involved in the design stage. The involvement of material and service suppliers is there at the design stage as an extension of the internal processes in which it is expected to release higher value for the same cost. The reason for involving suppliers is that they are able to give suggestions related to design changes that will support releasing operations efficiently. Through the input of suppliers, higher quality can be ensured at lower costs. Sometimes, the whole responsibility for purchasing of materials, designs, quality, processing, and deliveries according to the schedules is given to suppliers. So, the above procedure to include suppliers from the design stage is termed as pre-sourcing.
Evaluation of Suppliers and Certification
To ensure reliability while choosing suppliers, organizations look for evaluation and certification of suppliers. Quality assurance measures and processes are evaluated. Below facilities need to be assessed by a team as part of the manufacturing system:
- Procedures of material procurement
- Procedures of inspection
- PPC (Production Planning and Control) systems
- Methods of quality control
- Design and evaluation process
- Systems related to labor relations and compensation
- MIS (Management Information Systems)
- Productivity and quality culture
Suppliers are empowered with self-certification by a few organizations. In self-certification, there is the acceptance of the inspection conducted from the supplier’s end as if the inspection is done by the inspectors of the organization.
The above process facilitates treating the supplier as an organization’s partner. Also, it increases the cooperation and involvement of the supplier.
Providing Value to the Customers
With the help of a value engineering approach, organizations are able to reduce the cost and achieve quality improvement of a product or service. There is a major role of both cost and quality in determining a product’s productivity, value, and effectiveness of the organization. However, from a broader point of view, organizations are required to look for other aspects as well to meet the priorities of customers. Below are a few practices that organizations should implement to achieve this:
Promoting Involvement of Employee in Value Work
To add great value to the organization, it is required to promote the involvement of employees in value work. It helps in contributing a lot to customer satisfaction and the organization’s growth.
Act on the Voice of Customer
It is a well-known fact that an organization that gives proper weightage to the priorities of the customer and their needs and do required changes in their business accordingly can earn profits and achieve value to their business.
Enhancing the Reliability of the product
The approach of value analysis helps organizations to come up as a world-class organization by taking measures to improve customer satisfaction and inventory returns.
Streamline the Processes of Business
Organizations should promote the goodwill of customers by reducing the cycle time of the process for faster response.
Below are the major advantages or benefits of value engineering:
- Reduced cost
- Overall consciousness of cost
- Overall transparency creation and administration streamlining while dealing with outsiders
- Developing reliable suppliers