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

Why Use Value Analysis

In reality, a complex number of reasons exists that necessitate the structured approach of value analysis as a means of logical cost reduction. These reasons can be divided into two key sources, those that lie within the business and secondly those that are stimulated by the market for the product or service.

Within the business

Design related issues

The major reasons why VA exercises are conducted actually originate from the design process itself and the lack of control systems concerning reviews of product performance once the product has entered the production stage. Some of the problems associated with a lack of proper design review systems are listed below:

• The designer may not be aware of ‘best practice’ with which to develop an optimal design. The designer may also be unaware of the cost implications of one design over another due to insufficient information or a poor understanding of new materials and technologies that could be used to make the product. Therefore the review process allows the opportunity to incorporate these new sources of cost reduction. The process also offers vital information feedback to the designer regarding the performance of the design in production.

• The designer may have produced a drawing that was intended for technology that has been replaced by the company since the product went into full production. The VA process also allows these changes to be incorporated formally.

• Traditional thinking and customary practice may have led the designer to believe that a particular solution was the best without questioning the line of logic. Instead, the belief that a traditional and proven solution will be adequate for a modern consumer can create products that do not entirely provide the value sought by the customer. The review forces the designer and other professional managers to assess the ‘fit’ between what the customer ‘wants’ and the solution provided by the company.

• The designer, under time pressure to create designs for immediate production and sale, may be forced to cut corners and pay insufficient attention to the design itself due to the pressure to release a design for production. Therefore insufficient or inadequate analyses may have been undertaken during the planning of the product characteristics and the relative costs of different designs. Therefore the pressure to sell a physical product, and collapse the time from the drawing board to the salesman, can mean that designers are forced to compromise the quality of the design in order to simply meet the commercial pressure to release products to the market. The VA process forces a review of these designs and allows the weaknesses in existing products to be addressed through periodic reviews. It is therefore a routine that allows corrective actions to be taken.

Obviously, these problems conspire against the designer, cause frustration for designers and also become sources of discontent for other employees in a business. These frustrations caused by poor design activities, impact on the engineers in the factory who have to try and manufacture the product in a less than optimal way. Production operators also face the problem of continually adjusting the product to meet quality standards and in so doing slow the rate of production and output. Therefore any small error that deviates from the optimal design will create costs in the factory. It is these costs that can be recovered, reduced and managed through the formal process of VA. The VA process is also a means of learning from past mistakes and constantly refining the ability to create ‘right first time’ designs in less time for the business which is a source of competitive advantage.

If a product was designed optimally and ‘right first time’, which is actually against the law of probability, then the product would offer the most value in providing the function sought by the customer in the most reliable way and lowest cost. The Value Analysis approach is therefore the means of maintaining the value proposition for the customer through periodic reviews that serve to continuously improve the process of ‘design to marketplace’. It is therefore a key strategic capability for any business that seeks to differentiate its products from the competition. At the very least, the VA process allows a company to correct design weaknesses after the product has entered production and therefore to cease paying for activities that add no value for the customer offer but costs which tend to be passed on to the customer. In essence, VA is used to maintain the fit between the product, low costs, and highperceived customer value.

Further ‘internal’ reasons for conducting VA exercises include:

• Products with known problems that from the pilot production stage continue to be produced but require remedial, corrective actions, and engineering change requests.

• Customer Demands. Most markets require suppliers to offer a range of products and to continuously increase this offering. To avoid an explosion in the number of unique parts associated each new product many companies have introduced standard components, platform strategies and supplier rationalization programmes. The ability to design products is seen as key to maintaining the quality, cost and delivery performance of the product. Some customers, especially those in mature markets, need to continuously reduce the costs of products in order to compete against comparatively cheaper imports. The increasing trend, across Europe, for businesses to ‘buy in’ rather than ‘make’ all the elements of a product means that new suppliers of materials must be educated in the VA process in order to use the specialist skills of the supplier to reduce the costs of supplied materials continuously.

• Safety and Compliance Requirements for products in the market or being sold within markets that have different safety legislation implies that VA activities must be used to review the compliance of a product with the prevailing legislation and changes to that legislation.

• The Improvement of Product Margins. VA is often used to combat the perpetual and expected price reductions between a supplier and a customer. Therefore as a protective measure many businesses employ VA to reduce costs and to protect their own profit margins.

• Corrective Action. To redress known problems with existing product designs or to reduce the costs associated with failure (including warranty, complaints and poor quality within the factory and with the customer).

In conditions where the market determines the price, any attempt to reduce costs or recover losses through redesign and improvement activities will provide a major return to the business throughout the life of the product. This total lifecycle saving can amount to a large financial saving.