Dr. Nitin Kubde

AgendaIntroduction

The Origin

Value & Functions

VA Job Plan

Examples

Case Study

Value Engineering/AnalysisValue Engineering is a systematic method

to improve the "Value" of goods and services by using an examination of function.

Value, as defined, is the ratio of Function to Cost.

Value can therefore be increased by either improving the Function or reducing the cost.

Value Engineering/AnalysisValue Engineering is an attempt to assure

highest value by delivering all required functions at the lowest overall cost.

This practice identifies and removes unnecessary expenditures.

Value Engineering is also referred to as "Value Methodology".

Value Engineering/AnalysisValue analysis is the organized and

systematic study of every element of cost in a part, material or service to make certain it fulfils its functions at the lowest possible cost.

It is one of the most effective ways of cost reduction.

The OriginDuring the Second World War, one of the

most serious problem faced by companies engaged in the war effort was the shortage of materials.

This led to experimenting with substitutes, quite often in a very orthodox ways.

The OriginIn many cases, the experiments clicked and

surprisingly there were a large number of instances where the substitutes were much cheaper and functioned more efficiently than the original material.

This is where the idea was born.

The OriginHarry Erlicher, Vice President of Purchasing,

General Electric Co. (U.S.A.) felt that this problem of finding out substitute could be done in more scientific way.

Lawrence Miles along with a team of engineers was entrusted with the job of working on this idea.

The OriginIt was Miles who coined the term Value

Analysis and its synonym, Value Engineering.

This team under his stewardship pioneered this technique and perfected it and, it is said, saved their company $200 million over a period of 17 years.

The OriginNavy Bureau of ships was the first

organization to use VA in 1954.

L.D. Miles, father of this concept, wrote in 1961, a book, Techniques of Value Analysis and Engineering.

The OriginIn India, the technique is catching on, but

slowly.The basic difference between us and

Americans is that when they see something that is useful to them, they grab it. We are less enthusiastic in accepting change.

In India, now we have Indian Value Engineering Society to create awareness of this approach and to propagate this concept.

Value & FunctionValue is a measure of “Cost Effectiveness”.

It is usually difficult to specify value mainly because values changes from person to person.

Types of Values1. Economic2. Moral3. Aesthetic4. Social5. Political6. Religious7. Judicial

Divisions of Economic valueUse Value

Esteem Value

Cost Value

Exchange Value

Value & FunctionIn almost everything we buy, we relate what

we get to what we have paid for in terms of performance, reliability, appearance etc.

If we can collectively term these as “function” then we can express value in a mathematical way, i.e.

Value = Function Cost

Value & FunctionValue = Function CostBy cost, we mean the total cost (e.g. of

material, labour, overheads etc.) required to produce the article.

If we keep the function constant, we see that we get greater value when our costs come down.

Value = Function

Cost

FunctionCost

Undesirable but Passable

(cheapening the product)

Ideal Good Acceptable Passable

Value = Function

Cost

FunctionCost

Value & FunctionValue can be increased :

1. When we reduce costs.2. When we improve function.3. By (1) and (2) together.4. When we increase function by a

disproportionately low increase in costs.

Value & FunctionsUsually most of us lack the ability to measure

value.In industry most of us are performance or

delivery oriented and we hardly search for or get cost information.

Practice of value analysis sharpens this latent ability to determine worth and measure value and more than all to eliminate unnecessary costs.

Value & FunctionsTypes of Functions:

1. Basic Function: Primary purpose of a product.

2. Secondary Function: Other purposes not directly contributing to the primary purpose but supporting it or resulting from a specific design approach.

Poor value may result from lack of understanding of functions, or an imposition of unnecessary functions.

Value Tests & Value AreasThe following is a check-list of ten tests for

value compiled by the purchasing department of general Co. U.S.A.Does it contribute use value?Is its cost proportionate to its usefulness?Does it need all of its features?Is there anything better for the intended use?Can a usable part be made by a low-cost method?Can a standard product be found which will be

usable?

Contd…Is it made on proper tooling considering

quantities used?Do material, reasonable, labour overhead, and

profit, total its cost?Will another dependable suppler provide it for

less?Is anyone buying it for less?

Contd…VA seeks answers to the following questions

which may be asked about a complete product, component or process:What must this item or process do? What is its

function? (This can usually be expressed in two words, e.g., a bulb “provides light” or a paint “provides protection”, or “enhances appearance”.

What else does the item do? (If the item performs functions that are not needed, then it may be a symptom worth investigating to find out if there is a waste)

Contd…What does it cost?What else could perform the same function?What will be a possible substitute’s cost?

It is usually said that one of the most important reasons for the success of Japanese business is the word “WHY”? Having a constructive discontent of everything around them, it is said, is a part of the Japanese character. The result is that they want change. This is exactly the philosophy of VA.

Value Analysis Job PlanVA process is called VA job plan.It is divided into phases.Each phase has a set of techniques, carried

out in the worksheets.VA is to be applied for those products where

cost reduction potential is substantially high.The Value Index has to be more than 1.

Steps in VAInformation Stage

Functional Stage

Brain Storming Stage

Evaluation Stage

Implementation Stage

Information StageThis stage is an attempt to assess the

potential of value improvement.Detailed study of project is conducted.Important facts are gathered and

considered.The cost data and work specification are

secured. A relationship is to be established between

costs and specifications or requirements.

Functional AnalysisThe product is defined in terms of its

functions, in terms of its performance expectations.

These functions are co-related with cost and their worth.

The functions that the material/service performs are listed in terms of basic functions & secondary functions.

Contd…These functions are listed and given the value

points or the weightage in terms of their importance or priorities.

The value is expressed in terms of different points from 0 to 100 then the total of all the functions of materials should be added.

Brainstorming StageThis is the stage where creative ideas come

up.

A heterogeneous group is preferred for the stage.

Different alternatives for material or service or design are discussed and worked upon.

Contd…All ideas may not be feasible.

The idea is to break away from rigid thinking.

The group approach has gained popularity.

The volume and variety of ideas is more from a group as compared to when an individual works upon it.

Evaluation StageThe ideas generated in the brain storming

stage are evaluated for feasibility.This analysis helps to find certain alternatives

which might offer similar functional values as the earlier material but at a reduced cost.

Cost of all ideas and savings resulting from their implementation are studied.

Implementation StageThe ideas and alternatives discussed in the

previous stages are put forward to the concerned departments.

The resistance to change has to be overcome.

Typical rigid beliefs, habits & attitudes exists.

Contd…Some types of resistances:

“We tried this a couple of years ago but it was not successful.” (Conditions change. Why not try again now?)

“It can’t be done.” (If it has not been tried, how does one know?)

“The customer is satisfied with the price, as it is” (If this is so, he will be more satisfied and so will many other if the price is reduced.)

Contd…“Sampling is not as accurate as 100%

inspection” (This is not always true but in any case, does it need to be that accurate?)

This way processing would produce too “many rejects to the specifications” (Then, are the design limits too tight?)

“There is no other technique”. (Have you looked for one?)

Contd…Some ideas get eliminated and only a few are

accepted.

This systematic value analysis will help the purchase executive in finding the alternate material or service or design or any other facility of equal functional value or better value while reducing the procurement cost.

Case:1Battery cable was used in quantities of

50,000 for connecting battery to the starter. The cable was made of 90 mm2 X 1.5 metre. Copper, with brass lugs on both ends. The cost was 52 units each.

VA AnalysisData Collected Function, cost, current (450amps) C/Section, other

conductors and their costs, etc.Function Conduct ElectricityCost 52 Units per cableWorth 17 Units (steel cable with increased cross section could

also conduct at cheaper cost).Value Index 52/17=3 (More than 1, hence good potential for V.E.)Creative Phase Ideas to use cast iron, steel aluminium, Nicro-alloys,

silver, etc generated.Evaluation After analysing different ideas, aluminium was

considered best and investigated regarding its feasibility, economy and related problems like bi-metallic corrosion between aluminium and brass lugs etc.

Recommendation Aluminium cable of 120mm2 X 1.5 metres with zinc alloy sleeves and brass lugs recommended.

Saving 30 units per cable (57% cost difference between copper and aluminium + cost increase due to addition of zinc alloy sleeves).

= 30X50,000

=15 Lakh Units per year

Case:2PIPE COUPLING of a 5 component design

was used in quantities 12, 00,000 per year. The cost was 8 units per coupling.

VA AnalysisData Collected Function of each part, material, cost, other coupling

designs, etc.

Function Connect Pipe

Cost 8 Units

Worth 2 Units (cheapest way is to weld/braze).

Value Index 8/2 = 4

Creative Phase To weld, use clips, use threaded pipes, combine functions of parts, etc.

Evaluation After necessary analysis of function of each component of the coupling the functions of three parts were combined into one part.

Recommendation Use of pipe coupling with 3 parts eliminating two parts and also reducing length of cap nut.

Saving 1 unit per coupling (12%)

12 Lakh units per year.

Case:3Thin castle nut M36 X 1.5 (with across flat

55) used in quantities 40,000 per year was imported at a cost of 3 Units per nut.

VA AnalysisData Collected Function, cost, source of supply etc. Parts were

procured as per drawing since material specified was C 35 K. Cold drawn bar of 55 Across flat, which was not made in India.

Function Fasten Steering Gear Box Accommodate Split-Pin

Cost 33 Units

Worth 12 Units (similar nuts procured as per standard indigenously cost 12 units)

Value Index 33/12=2.7

Creative Phase Ideas to change material to alloy steels, hot rolled bar with heat treatment, to use a standard Thin Castle Nut with ISO property class etc. were generated.

Evaluation After analysis, use of standard nut with ISO property class 8 was investigated.

Recommendation To use standard thin castle nut to IS 5368 with ISO property class 8.

Saving 17 Units per nut (52%)

6.8 Lakh units per year ( An import substitution)

Example 4Castle nut with collar was used in quantities

of 1, 60,000 per year. The cost was 4.4 units each.

VA AnalysisData Collected Function, cost, consumption, material, other similar

items used etc.

Function 1. Fasten Screw

2. Provide More Area

3. Accommodate Split Pin

Cost 4.4 Units.

Worth Fasten + Accommodate Split Pin (Cost of Castle Nut) + Provide more area (cost of a washer) = 1.4

Value Index 4.4/1.4=3.1 (more than 1)

Creative Phase Use of castle nut and washer, round nut with flats and slots, hex nut with large across flat & slot etc.

Evaluation Use of hex nut with large across flat and slots was analysed for cost and feasibility discarding others due to certain limitations.

Recommendation Hexagon slotted nut with increased across flat (equal o the collar dia to previous nut) and without collar was recommended. This simplified manufacturing.

Saving 1.6 Units per nut (36%) 2.5 Lakh units per year.