L11.

Value Analysis

ARM 321 Horti Business Management (2+1)

Value Analysis

 significant mechanism for cost reductions

 enhances the effectiveness of work and it is

a planned approach to issues

 Value Analysis practice was developed after

the Second World War in America at General

Electric during the late 1940s.
 value analysis is described as process of
systematic review that is applied to existing
product designs in order to compare the
function of product required by clients to
fulfill their needs at the lowest cost
consistent with specified performance and
reliability needed
 Value analysis focuses on pre-production

design improvement for better product

Major objective value analysis
 to offer better value to products and

services
 improves company's competitive position
 to ensure that every element of cost such

as labour, material, suppliers and services

contribute equally to the function of the
product
 Value analysis also eliminates unnecessary

cost.
Tools of Value Analysis

 Job Plan
 Team Dynamics
 Value Engineering Specialist
 Computer Cost and Attitude Support
 Analytical Function Language and FAST
 Function Cost Analysis
 Function Attitude Analysis
 Creating on Function
 Value Standard (PAR)
Types of values
 Value is both real and imaginary. Value is
perspective of willingness to pay for the
performance delivered by the product
or process
1. Esteem value: It is association of an
article with certain people, place or thing.
2. Exchange value: It is the value that
makes the object possible of being traded
for other items.
3. Use value: It is property which
accomplishes a use or work or a service.
4. Cost value: it is the sum of all the cost
involved in manufacturing the product.
Steps performed by value analysis

 Identify the product

 Collect relevant information: technical

specifications, manufacturing processes,

time study details and manufacturing
capacity, complete cost data and marketing
details and latest development in related
products
 Define different functions: It is important

to identify primary, secondary and tertiary

functions of the product
 Create different alternatives: generate
ideas and develop different alternatives to
enhance value of the product

 Critically evaluate the alternative:

examined for their validity, feasibility with
regard to their financial and technical
requirement

 Develop the best alternative: Thorough

development plan must be prepared -
consist of drawing, building of models and
conducting discussions with related
departments.
 Implement the alternative: The best
selected idea is converted into prototype
manufacture which goes into operation and
its results are recorded. The product cost
and functional analysis is done to assess
the net savings as results of the value
analysis.
Application of value
analysis
1. Capital goods - plant, equipment, machinery,
tools.
2. Raw and semi-processed material, including fuel.
3. Materials handling and transportation costs.
4. Purchased parts, components, sub-assemblies.
5. Maintenance, repairs, and operational items.
6. Finishing items such as paints, oils, varnishes.
7. Packing materials and packaging.
8. Printing and Stationery items.
9. Miscellaneous items of regular consumptions.
10. Power, water supply, air, steam & other utilities
(services).
Reason for using value
analysis
 There are numerous reasons for using value
analysis as a means of logical cost
reduction
 These reasons can be divided into two

sources that lie within the business and

secondly those that are encouraged by
the market for the product or service
1. Within the business

 Design related issues

Products with known problems from the
pilot production stage continue to be
produced but require remedial, corrective
actions, and engineering change requests
 To avoid an explosion in the number of

unique parts associated with each new

product; many companies have introduced
standard components, platform strategies
and supplier rationalization programmes
Cont

 The ability to design products is perceived as main

factor to maintain the quality, cost and delivery
performance of the product.
 need to continuously reduce the costs of products in
order to compete against comparatively cheaper
imports
 Safety and Compliance Requirements for products in
the market or being sold within markets that have
different safety legislation entails that value analysis
activities must be used to reconsider the compliance
of a product with the existing legislation and
Cont
 To get Improvement of Product Margins
 Value analysis is often used to overcome

the perpetual and expected price reductions

between a supplier and a customer.
 many businesses utilize Value analysis to

reduce costs and to protect their own profit

margins
 To restore identified problems with existing

product designs or to reduce the costs

linked with failure (including warranty,
complaints and poor quality within the
factory and with the customer)
2. Market induced Reasons
Pricing Practice:
 The conventional approach to setting the price

of a product has been to determine the costs of

the product and then to add a 'margin' to
provide the profit.
 In the current competitive situation, the market

tends to establish the satisfactory price that can

be recommended for a product
 As such, companies with high costs and a

relatively fixed market price will get less profit if

costs are not managed appropriately and
reduced constantly
The initiation of E-Commerce
 The new information technology available to

clients means that product purchasing is

now a global effect
 Therefore in order to maintain a relationship

with an existing customer and to keep this

relationship, enhancing the value and
lessening the costs of existing products will
be imperative to gain competitive
advantage
Compliance with Quality Regulations
 Most of the quality management systems,

such as ISO9000 series, need companies to

operate a formal design review process to
make certain that the quality of the product
can be assured.
 This is an element of the quality

accreditation system that is observed and

audited by external agencies.
 companies that not succeed to comply with

these procedures will fail to meet the

criteria for the quality award and can lose
business consequently
New Technology and Materials
 The innovation and invention of new

processes and materials means that this

form of innovation can be integrated within
existing product designs such that the
reliability and quality of the product can be
improved whilst simultaneously reducing
costs.
Environmentalism:
 The increasing awareness of environmental

issues is reforming the buying behaviour of

customers and consumers
 It is successfully redefining the esteem

value of a product and can, through

legislation, influence what materials can be
used in the production of products and
therefore environmental pressures serve to
redefine the 'use' value through changes in
product specifications.
Benefits from value
analysis
1. Better purchasing techniques
2. Better suppliers and manufacturing methods
3. Lower operating costs of existing product.
4. Standardisation and re-evaluation
5. Substitution & packaging
6. Better material handling
7. Better inventory control
8. Lower maintenance and overhead cost
9. Prevention of unnecessary cost of new
product
10. Greater return on investment results
Limitation of value
analysis
 Value analysis if applied to all the materials and
products, will prove very time consuming and
expensive.
 It is generally adopted on a selective approach basis
 Value analysis technique should be used only under
the supervision of a senior officer by the analysts
who should be an expert and an experienced person
well versed in his job.
 Value analysis does not have any superior
theoretical basis.
 It is only a procedure developed from experience in
the assembly line of the factory.
 To summarize, value analysis is a procedure
with huge possibilities. It is systematically
used to accomplish economic benefit and
enhance efficiency.
 The major advantage of value analysis is to
reduce cost.
 Value analysis is very vigorous and offers
concrete, financial and people-based benefits.
 The process removes unnecessary load, costs
and importantly it enables people to recognize
products, processes and constant upgrading.