Production Management

Objectives Importance and Process of Value Analysis

The technique of Value analysis was first developed in General Electric Company in the U.S.A. by Lawrence D. Miles. Value analysis or value engineering is a technique which attempts to search for the cheaper substitute inventory items with a view to reducing the cost of the products. It attempts to reduce the cost of the product by studying the purpose it is to serve and constantly sees if there are less costly ways or manufacturing the product.

According to the Handbook of Modem Manufacturing Management (edited by RN. Maynard),

Value analysis is an arrangement of techniques which makes clear precisely the functions that the customer wants; establishes the appropriate cost for each function by comparison; and causes required knowledge, creativity, and initiative to be used to accomplish each function for that cost.

Another definition of value analysis is “Value analysis is the organized systematic study of the function of a material, part, component or system, to identify area of unnecessary costs that can be eliminated without impairing the capacity of the item.”

Value analysis is also defined as a systematic application of recognized techniques which identify the function of a product or service; establish a monetary value for that function and provide the necessary function reliably at the lowest overall cost.

Objectives of value analysis

According to Lawrence D. Miles.

On an average one-fourth of manufacturing cost is unnecessary. The extra cost continues because of patterns and habits of thought, because of difficulties in promptly disseminating ideas, and because today’s thinking is based on yesterday’s knowledge.

As a matter of fact, the objective of value analysis is to provide a means of total cost control anywhere within a product’s life cycle. It stresses only the reduction or elimination of cost. This is done while maintaining required quality and reliability of the product to which value analysis is applied.

The basic objective of value analysis is to retain all the performance and aesthetic factors which now exist in the product, process or service, which the customer wants and is willing to pay for it, at the same time to put together practical alternatives which will accomplish them at still lower cost; e.g., instead of using the steel-made star or a brand name like Premier Padmini in a car, the chromium coated plastic items can serve the similar purpose at lower cost.

Another example can be quoted of an institute which used to mail lessons to students. Two pages were useless in every lesson i.e., the first page contained only lesson number while the last page contained a list of questions only. Based on the suggestions given, these two pages were redesigned as the lesson number was mentioned on the lesson material itself and in the end the questions were given. This exercise saved USD.50,000 per year.

Though every product or service is bought by a customer because of its ‘USE’ function or the ‘AESTHETIC’ function or both, but the customer is basically interested in its ‘USE’ function and does not bother much for the ‘AESTHETIC’ function which is considered to be secondary. Therefore, more efforts should be made through value analysis to reduce the costs incurred on the secondary function.

Thus, the purpose of value analysis is to provide each individual with a means of skillfully, deliberately, and systematically analyzing and controlling the total cost of a product. This total cost control is accomplished by the systematic analysis and development of alternative means of achieving the function that are desired and required.

Since value analysis is a technique of inventory control which attempts to identify which of the several areas of the manufacturing system holds the solution to each specific component of unnecessary cost, it is necessary for the success of this technique that those who make use of this technique should possess thorough knowledge about the materials used in the product, uses of the product, motives of the product, motives of the buyers, and should also have initiative and innovative capacity required for making the product cheaper without hampering the cause that prompts the buyer to go for the product.

The success of this technique also depends on the interest, cooperation, and motivation from the personnel of all functional departments in the organization.

Process of value analysis

Following are the main steps involved in the process of value analysis

(i) Select : First we have to select the item that we want to study.

(ii) Gather information : Then we collect all relevant information about the item.

(iii) Analysis : Then we analyze i.e. what does it do and what is its value for money.

(iv) Speculate : Next we think of possible alternative idea.

(v) Assess : Then we assess the worth of each of the ideas.

(vi) Reach conclusions : Next we decide what should be done.

(vii) Implement: Then we get the decision implemented.

(viii) Evaluate : Lastly we evaluate to check if the expected result has been obtained or not. The success of this process of value analysis depends largely upon the scientific attitude of the members, i.e. to keep an open mind to any suggestion that may be forthcoming from any corner.

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