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Value Analysis Technique to Achieve Cost Reduction in Manufacturing: The Initial Process


Cerasis friend and experienced engineer and 3PL consultant, Chuck Intrieri, whom you can connect to on LinkedIn, is featured again as a guest blogger. This time he offers a two part series on a value analysis technique you can employ in any industry to gather ideas to better your company, but more specifically in the process of creating new products to manufacture in order to lower costs of goods and increase your bottom line.

What is a Value Analysis?

It is an orderly and creative method to increase the value of an item. This " item" can be a product, a system, a process, a procedure, a plan, a machine, equipment, tool , a service or a method of working. Value Analysis, also called Functional Analysis was created by L.D. Miles of General electric Company...

value-chain-analysisThe value of an item is how well the item does its function divided by the cost of the item (In value analysis value is not just another word for cost):

Value of an item = performance of its function / cost

  • An item that does its function better than another, has more value. Between two items that perform their function equally well, the one that costs less is more valuable.
  • The "performance of its function" could include that it is beautiful (where needed).
  • Do not be surprised if as a result of value analysis the cost of an item is less than half of its previous cost.

Select the item to be studied and form a cross-functional study group team:

  • To value analyze anything, we form a study group of 4 to 6 persons, preferably each with different knowledge, with different backgrounds (cross-functional). They meet in a room free from interruptions.
  • Then we select the item to be studied. The item should be one that gives the impression that its cost is too high or that it does not do its function well. All brainstorming ideas are put on a white board. All ideas are acceptable.

Value Analysis

The value analyst should always be aware of functions, not of products, shapes, or processes. The main function is what the item does, is that which somebody wanted to archive by creating the item. Express this function (if possible) with just two words, a verb and a noun.

If the item is composed of various parts, it is useful to ask for the function of each part, and how they contribute to the main function of the item.

Do not be distracted by mere aggregate functions such as the rubber on a pencil's end or the ice producing part of a refrigerator. These were functions added since it was economical or easy to do so. They have no relationship with the main function.

Gather information

Find the main function and the secondary functions of an item. Get the cost of realizing each function. The attitude of a value analyst should be critical, aggressive, nonconformist, never satisfied with what she/he receives for the money given. The first action of the group should be to gather all the information about the item. Ask the best specialist of the field, not the person most accessible. Get a detail of costs. Collect drawings, specifications, all the written data on the item. Don't be satisfied with verbal information.

For a pencil, for instance:

  • What is it? (a pencil)
  • What is it for? (make permanent marks)
  • What is the main function? (make marks, write lines)
  • What is the method, material or procedure that was used to realize the main function? (a graphite stick and wood)
  • What are the corresponding secondary functions? ("transfer graphite to paper" and "facilitate holding the graphite"
  • What does the item cost and how can we distribute the cost of realizing the main function into each secondary function?
  • Comparing these costs to an item of a similar function, how much should each function and the total cost?

(This example, the pencil, is already a high value item).

Center the attention of the value analysis group on the main function, because, during the analysis, the secondary functions may change. The group may choose different secondary functions to realize the main function.

It is not important that the individual costs assigned are imprecise. Because even an imprecise numerical value is much better than an expression such as "very costly" or "of low cost". Use Pareto’s 80/20 principle for cost analysis... That means 20% of the items are 80% of the total costs. Focus on these 20% first.

Measure the value of the way each secondary function is realized, is materialized:

  • Does it contribute value? (Is there something that does not contribute value?)
  • Is the cost in proportion to the function realized.
  • Does it need all its parts, elements, procedures?
  • Is there something better to do the same function?
  • Is there a standard part that can do the function?

Investigate the cost of a function. Put a dollar sign on tolerances and strict specifications. See what's thought to be necessary and which somebody put in, just to be on the safe side. Remember: All that does not contribute to the main function is waste and should be eliminated.

Creativity (the brainstorming session)

The objective is to find a better way to do the main function. We try to find a different material, or concept, or process, or design idea, that realizes the main function.
People looked for conditions under which the human mind produces really original ideas, a method that helped creativity. These conditions and procedures are stated below and need strict adherence:

  1. State the main function clearly and shortly on paper or a blackboard (verb and noun), so that the group can fix their attention on it. State it without mentioning the physical object or the specific process. (Do not state secondary or aggregate functions).
  2. The leader of the group says "We begin now" and when the ideas do not flow so fast anymore (about 15 to 20 min.) The leader says "That's all".
  3. Members of the group state loudly any solution to the problem they can think of. It is very important that they do not analyze their own thoughts or those of others. They should not smile or react when exotic, improbable or senseless ideas are stated. They should not criticize or speak with others. They should only let their imagination run wild and state ideas. An idea can be inspired by a previous idea. (If no rare ideas are stated, then the members are analyzing, not making a brain storm).
  4. The leader registers all ideas on paper, a flipchart, white board or a blackboard.
  5. When the session has finalized, if there is any doubt what was meant by an idea, the leader clarifies the idea with the help of members. He does not analyze or discard any idea.

This finalizes the brainstorm.

In tomorrow's post we will go over the rest of the steps of the technique in order to conduct a value analysis and to know how to work towards making products at a lower cost. These include: Evaluation, potential barriers and how to eliminate them, development, recommendations, and then implementation and follow up.

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Chuck Intrieri
Mr. Chuck Intrieri is a highly experienced and credentialed Supply Chain Management professional and is a recognized thought leader and innovator, primarily in the areas of Supply Chain Optimization, LEAN initiatives, Operations, Manufacturing, Third Party Logistics (3PL) International Purchasing/Importing, Inventory Management and Logistics, Strategic Sourcing, and Procurement Operations.
Chuck Intrieri
Chuck Intrieri
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