Value Analysis: Is It Still A Useful Tool?
Lawrence J. Clark, C.P.M.
Lawrence J. Clark, C.P.M., Purchasing Manager, Burleigh Instruments, Inc. Fishers, NY 14453, 716/924-9355.
82nd Annual International Conference Proceedings - 1997
On June 1, 1995, Purchasing's cover story "Where Has VA Gone?" seemed to imply that Value Analysis, or VA, was no longer practiced as a cost reduction procedure in modern corporations. A survey of 1,000 companies indicated the growth of VA, as tool for maintaining a competitive edge, had slowed and even reversed. Fewer companies had value analysis programs in 1995 than in previous years. The question naturally followed, what had become of VA, the premier cost-cutting resource of the purchasing profession? Several recent articles have pointed out a shift in when VA occurs. Often the principles of value analysis are applied earlier in the life cycle of the product, upfront during the design process. While this may be referred to as concurrent design or value engineering, many VA methods are applied. This presentation follows the evolution of value analysis from a technique used to reduce the cost of a finished product in the manufacturing phase, to a technique used to reduce costs of a future product while still in the design phase.
The Issues. There were two questions investigated for this presentation. First, has the use of Value Analysis faded in recent years as a cost reduction method, or has it evolved into concurrent design? Secondly, has the use of Value Analysis been adopted by smaller high tech companies?
Background. Several recent articles indicate a shift in value analysis' place in the product life cycle. It is now a means to prevent unnecessary costs rather than a way of remediating them. This relocation makes sense when you consider the impact of TQM philosophy in the early 1990's. Companies were urged to work quality in from the beginning, rather than "inspecting it in" after the bulk of the work had been accomplished. Similarly, one should avoid flaws in the design, rather than leaving them in only to fix later. Miller(1993) suggested design engineering use a VA checklist early in the proposal of a new product. The following three examples from the nine-item list demonstrate how excess cost is identified: "What standard item do you have that can be satisfactorily substituted for this part? What part of this item can be more economically produced (considering tooling etc.) by casting, forging, extruding, machining or any other process? and What finish requirements can be eliminated or relaxed?"
It may still be value analysis, but under another name. Morgan (1995) wrote that of 1,000 companies polled, only 55 percent had VA programs in effect in 1995. This was down from 77 percent in 1981. Funds budgeted for VA programs had been significantly reduced over the years. Nevertheless, the principles of value analysis had not disappeared. Many of the participants advised a "forward shift" had taken place. VA is being applied in the design portion of the design-production process. "VA is changing from a product production improvement tool to a product design improvement tool", said Morgan in the cover article. Monczka (1994) notes cross-functional teams, one of the principles of VA, follow a cooperative approach to product development. A group of professionals from various departments are assembled to work together on the new release. This indicates some firms are applying one of the principles of VA to what is called concurrent design.
The articles mention how VA has evolved in large well known companies. Carbone (1996) reports VA still remains an important tool of the big three automakers among others, but that the use of value analysis has changed. He notes that suppliers are now more involved in the beginning. The philosophy has changed from being a tool to fix problems, to being a tool to prevent problems. Preventing unnecessary costs is the key agrees Harry Rosenfeld, Manager of Value Analysis at Xerox corporation. He has been practicing VA since 1969. He advises that Xerox has also moved VA forward into the design phase of manufacturing.
Experience. Burleigh Instruments formed a value analysis team in 1985 consisting of a design engineer, a manufacturing engineer, and a buyer. Others in the company sat in from time to time. The group systematically looked at some existing products and recommended over $20,000.00 in annual savings on it's first project. To obtain these savings a special paint color was replaced with a standardized paint color on the instrument covers. Based on a sheet metal supplier's recommendation, a costly sanding operation was also eliminated. An ideal modification since it did not reduce the product's value as perceived by the customers. Other projects followed, Including changing from painted and silkscreened instrument panels, to lexan overlays on standardized panel blanks. This reduced scrap due to scratches and allowed the use of standardized sheet metal front and rear panel blanks on several products. The results were more economical lot sizes and reduced inventory.
In 1993 Burleigh Instruments won honorable mention in Purchasing's annual VA contest. The committee reviewed an existing design that had problems. It consisted of a steel-drawn can that was modified by punching holes in it. Then it was painted and lettered so it could be used as a control box for positioning instruments. The difficulty was the long lead time (8-12 weeks) to obtain the can, and the trouble with accurately locating the holes when dimensions varied from can to can. The supplier, Acro-Fab, Ltd. in Hannibal, NY came up with some recommendations. First they would punch the holes in a precut piece of sheet metal. Openings could be precisely located on the consistently sized sheets. Next the sheet was bent to form a box and the seam was welded. The results were deliveries in less than 5 weeks, more accurate hole locations, and a sturdier box much less likely to be damaged in shipment.
In 1995 Burleigh modified its structure by divided into three product line teams, each operating as a separate unit in the marketing, design and release of products. The purchasing staff supports all three of these business units. Since each unit uses different methods in releasing new product, it provided an opportunity to compare the results of different product release methods. There is evidence that business units which involve purchasing and manufacturing up front have an improved understanding of costs. They also do a better job of staying on schedule. There are fewer surprises in assembly, typical in the early production runs of a new product. Fewer surprises mean an improved track record in meeting commitments to customers. Also the "downstream" members in manufacturing have a higher sense of "ownership" of the new product.
Burleigh's experience seemed similar to the reported shift, where VA moved to the front end of the product release cycle. A survey was put together to see if other small companies with similar product lines had similar experiences.
A survey of VA in Small, High Tech Companies. The literature contains several examples of VA teams at work in larger corporations. What about smaller firms? A phone canvass of 20 companies, with fewer than 500 employee's was conducted. In most cases the contact was a purchasing or materials professional. In some cases engineers or managers were also contacted to compare points of view. The companies were selected from advertisers in Photonics or Laser Focus, publications of the laser industry. Only established companies were approached. The selection criteria required that they had been in business at least 10 years. Each company contacted is continually releasing high tech products in the electro-optics marketplace. It is common for the participants to have an R and D staff of 30 percent of the total number of employees. All had shown sales growth over the past 3 years. To summarize, respondents were growing high tech companies, had comparatively large R and D budgets, and were successful in their markets through the continuous and rapid release of new product.
First each participant was asked if they had a value analysis team in place, and if not, did they practice the techniques of VA informally? Secondly they were questioned about the techniques they used in releasing new product. The goal was to determine if they had concurrent design or cross-functional teams in place. Finally those who had used one of the above techniques were asked to give an example of a project that avoided or reduced excess cost. This final part of the survey yielded the most useful information. The best way to learn about value analysis is to hear or read about the actual projects.
Preliminary Results. Several smaller companies interviewed are using VA techniques informally. Few have formal programs. Others are using the more traditional or fractionalized "over-the-wall" product introduction. In these companies manufacturing and purchasing first become involved with a product when the design is released. It is not clear from the information gathered whether VA has an significant impact on a company's success in the marketplace. Growing companies among the respondents reported using either concurrent or traditional methods of product release.
The individuals interviewed were more positive about their company when they participated in a cross-functional team that sought to avoid excess costs. Some buyers had worked at more than one company during the past ten years. With experience in both traditional and concurrent design companies, they could make judgments on the respective merits and disadvantages of both. These buyers favored the companies that used concurrent design techniques. The feeling was that savings were greater than in traditional companies. The spirit seemed higher among purchasing and manufacturing professionals who worked up-front with their product design teams. They were more interested in talking about their efforts and the improvements they had achieved.
Value Analysis at Work. One advantage of compiling data on this presentation is to learn of value analysis and concurrent design projects in action. One company reported a reduction in packaging and shipping costs by clear wrapping and palletizing product manuals. Another told of substituting a plastic condensate collector in a laser cooling system. The old metal drip pan cost more to manufacture, rusted and made more noise. A third manufacturer told of how it reduced the count of expensive actuators in positioning equipment it produced, by learning of a better alignment process from the supplier. These are a few of the examples reported, more will be covered in detail at the presentation. They support the fact that positive cost reduction programs are in place, even if they are not identified as formal VA programs. There seems to be a tendency among the companies to implement design for manufacturability programs, although not all companies have moved very far in this direction. Competition is likley to be the driving force. Where there is a need to beat competitors to the marketplace, companies are more interested in reducing the time it takes to develop new product. The respondents clearly indicated concurrent design was a good way to shorten total release time.
Conclusion. I found very few examples of where small companies have formal value analysis programs, especially late in the life cycle of the product. As sales of an old product decrease these companies are interested in releasing new product, rather than eliminating extra costs in the old product in an effort to boost sales.
There were several cases where purchasing and production work up-front with R and D to avoid unnecessary costs, but this was by no means universal among the companies interviewed. The principles of VA and concurrent design do filter down to the smaller high tech companies, but they are applied in less formal ways.
- E. Raia, "VA Contest Winners" Purchasing, June 3, 1993, 55-64.
- J. Morgan, "Where Has VA Gone?" Purchasing, June 1, 1995, 34-37.
- J. Miller, "The Evolution of Value Analysis" NAPM Insights, December 1, 1993, 13-14.
- R. M. Monczka, R.J. Trent, "Cross-Functional Teams Reduce New Product Development" NAPM Insights, February 1, 1994, 64-66.
- J. Carbone, "VA For Some More Important Than Ever" Purchasing, June 20, 1996, 33-34.