Use Of Value Analysis (Within The Business & Market Induced Reasons)

Market induced Reasons

There are many modern competitive trends and pressures that make the VA approach a valuable activity within any business. These pressures include:

• Pricing Practice. The traditional approach to setting the price of a product has been to determine the costs of the product and then to add a ‘margin’ to provide the profit (known as ‘cost plus’ pricing). However in the modern competitive environment, the market tends to determine the acceptable price that can be commanded for a product. As such, companies with high costs and a relatively fixed market price will command less profit if costs are not managed properly and reduced continuously. The VA process accommodates this need to manage and continuously seek ways of reducing product costs.

• The Advent of E-Commerce. The new information technology available to customers means that product purchasing is now a global exercise. Therefore in order to maintain a relationship with an existing customer and to protect this relationship, enhancing the value and lowering the costs of existing products will be vital to competitiveness.

• Reducing Complexity. The general trend in European industry is to rationalize the number of suppliers to a business and to reduce the vast number of parts that were traditionally bought and stocked. Therefore, the ability to redesign products to incorporate common parts will lead to financial savings in space and the costs of inventory.

• Compliance with Quality Regulations. Most of the quality management systems, such as ISO9000 series, require companies to operate a formal design review process to ensure that the quality of the product can be assured. This is an element of the quality accreditation system that is monitored and audited by external agencies. As such, companies that fail to comply with these procedures will fail to qualify for the quality award and can lose business as a result.

• New Technology and Materials. The discovery and invention of new processes and materials means that this form of innovation can be incorporated within existing product designs such that the reliability and quality of the product can be improved whilst simultaneously reducing costs. This market intelligence and the ability to take advantage of innovation for product designs are vital to improving the performance of the product and the factory.

• Environmentalism. The growing awareness of environmental issues is reshaping the buying behaviour of customers and consumers in Europe. It is effectively redefining the esteem value of a product and can, through legislation, affect what materials can be used in the production of products and therefore environmental pressures serve to redefine the ‘use’ value through changes in product specifications (for example CFC gases in refrigerators and aerosols). In addition many companies, notably vehicle producers, have begun to direct attention towards reducing the weight (and material content) of purchased parts to meet environmental and efficiency targets for themselves.