Value_Engineering___Methods_and_Techniques

Value Engineering Methods and Techniques Sudeep D’Souza 9/1/2009 Value Engineering (VE) is a method to reduce cost of a product or a process while maintaining the same quality levels. This paper deals with the methods of reducing cost through VE projects and ways means to generate VE ideas. Why Value Engineering' In today’s competitive market space where costs are spiralling out of control, budgets are being tightened and inflation rates are rising, there is a growing need to manage and control costs. Costs can be controlled by cutting down labour, reducing investments or selling out low production investments entities of the business. For companies who do not want to take such drastic measures, Value Engineering is a solution. Value Engineering would reduce the cost of products, boost sales and hence increase overall profits. What is Value Engineering' Larry Zimmerman defines Value Engineering as a management technique using a systematized approach to seek out the best functional balance between the cost, reliability and performance of a product or a project. Value Engineering was developed in 1947 just after World War II at the General Engineering Electric Company by Lawrence Miles. He was asked to find ways to produce products using fewer available materials and resources. This method was later adopted by other companies and the method spread. How can Value Engineering be implemented' The primary focus of a Value Engineering project is to reduce cost while keeping the level of quality of the part or the process the same. Value Engineering projects can be implemented in the following ways. Simple Smart Design (SSD): SSD is a process of redesign to reduce part count either by combining different parts of an assembly into one, or combine the functions of several parts This reduces the parts. cost of producing several different parts and can increase in quality. For eg., The cast base ring (Figure 1) had 3 parts which were welded together and had a problem with leakage. By executing SSD, the 3 parts were combined into one single casting (Figure 2) and the single leakage was eliminated thereby improving quality and saving on cost. Figure 1 Figure 2 2|Value Engineering-Methods & Techniques Sudeep D’Souza Material Substitution: For every material of a part, there can always be found a less expensive substitute. Metal can be replaced with plastic. Plastic can be replaced with EPS1. Non structural metal parts can be replaced with cardboard. Material surcharge2 can also be looked at to determine material substitutes. By leveraging pricing differences in materials component costs can be reduced. For e.g., the material of the coarse filter in a dishwasher was changed from sheet metal (Figure 3) to plastic (Figure 4) to obtain considerable savings. Figure 3 Figure 4 Supplier Change: In the highly competitive market today, several suppliers supply parts at very competitive prices. By moving from a supplier who would supply the part at even a 30 cent cost saving per part, the company could eventually save $30K, provided the design of the part is the same. In most cases, the part is either redesigned or the material changed to yield higher savings. For e.g., In the compressor market, Embraco held a monopoly, however nowadays, several other compressor supplier such as Danfoss, Samsung and LG provide compressors are a much more competitive price. Price Compensation: In this method, quotes are obtained from different suppliers. The lowest quote is chosen and the current supplier is asked to lower the price of the part so as to meet the price of the lower quote. This method ensures a competitive market. By using Price compensation, the companies can stay with their current supplier provided he is willing to supply the parts at the lower price. Low Cost Country Suppliers: Parts or processes can be moved from a country where the labour is expensive to a Low Cost Country (LCC) such as China, India, South Korea or Brazil where the labour is less expensive. These parts can then be shipped back to the home country for further processing or assembly. Due to globalisation, the transportation costs have also been reduced and this ensures that even after adding transportation costs, the cost of producing the part remains cheaper than if manufactured in a High Cost Country. Long term contracts: Contracts can be made with the suppliers over a long term basis to supply at a reduced cost. Negotiations can be made with raw material suppliers such as plastics or metal over a long term with confirmations of single sourcing to obtain that raw material at a lower than market cost. 1 2 EPS -> Expandable PolyStyrene Surcharge is the tariff levied on certain materials to reduce their import. 3|Value Engineering-Methods & Techniques Sudeep D’Souza Parts Standardisation: In any product, there would be several parts which could be standardised. Parts could also be standardised across the family of units. By standardising the parts, companies could call upon the “Economies of Scale”3 and use this as a lever to reduce cost. Where do Value Engineering ideas come from' It is easy just to say these are the ways one can reduce cost on a product or process, but where do ideas come from and how does one know which idea can be better implemented in what product' Here are a few ways of coming up with VE ideas. Brainstorming: The easiest way of generating Value Engineering ideas is brainstorming. In this method a cross functional team is called for and ideas can be generated for Value Engineering projects. Teardown: This is an extension to the Brainstorming technique. Engineers usually find it difficult to come up with ideas of the top of their minds. In a teardown, the unit which needs to be value engineered is broken down into its constituent parts in either a virtual or physical environment. By taking each part at a time ideas can be generated to reduce the cost of that specific part. Physical parts would give a point of focus for the team to generate VE ideas. Competitor Cost Comparison: One of the longer but more fulfilling methods of generating ideas is Competitor Cost Comparison or Like Grade Quality (LGQ) comparison. In this method, the companies and their competitors models of the same price range are tore down and their constituent parts are compared on the basis of design, material used, weight, quality and ease of assembly. The cost of the parts can be determined and compared. By looking at each of these parts, the ones with the lowest cost can be compared and ideas can be generated based on this. These ideas can be put into an idea hopper and turned into VE projects. Determining if a Project is feasible Several ideas may be generated but only few are feasible. There are many methods to determine if a project is feasible. The one we will be looking at is payback. Payback for a project is calculated as = Yield for a project is the cost reduced the project for that product in one year. Investment is the amount of resources such as time, money and manpower required to take the project from idea generation to its implementation. 3 “Economies of Scale” -> Higher the volume, lower the price. 4|Value Engineering-Methods & Techniques Sudeep D’Souza The larger the payback period, the more feasible the project is. If the yield is greater than the investment i.e., payback is greater than 1, the entire investment can be recovered in 1 year and it makes a very good project. However, this is rarely the case. For a project to be feasible, most companies take a payback period greater than 0.5. If a project is generated which is less than 0.5 it can be shelved to be implemented at a later date when conditions change to enable its implementation. Benefits of Value Engineering Value Engineering • • • • • Reduces the total life cycle cost of the part or process, Optimises the Quality and Performance, Minimises the waste in manufacturing or design by reducing the unnecessary parts or actions, Simplifies and Improves Reliability and System performance and Identifies potential risks and solutions. Limitations to Value Engineering • • • Value Engineering should be performed as early as possible. This would reduce the redesign time later and achieve a higher money yield. For a product, many parts are under contract with different supplier and cannot be changed unless a contract is broken or the period of a contract is completed. Generating Value Engineering ideas demands lots of creativity from the engineers. Conclusion Value Engineering is a widespread method in the companies of today to reduce cost on products and enjoy benefits such as improved profitability, better processes and improved quality products. The method to generate ideas for VE projects also gives a learning experience to the companies’ engineers and would help in building quality and Value into the products during the design time. Value Engineering give an edge to those companies implementing it in today’s competitive world. 5|Value Engineering-Methods & Techniques Sudeep D’Souza References Value Engineering, A Practical Approach by Larry W. Zimmerman and Glen D. Hart Value Engineering, Analysis and Methodology by Del L. Younker Department of Defence - http://rtoc.ida.org/ve/ve.html 12Manage, Value Engineering (Miles and Erlicher) http://www.12manage.com/methods_miles_value_engineering.html http://www.12manage.com/methods_miles_value_engineering.ht About the Author Sudeep D’Souza has a 4 year experience with Satyam Computer Service Ltd. in the field of design. He has worked in CAD, New product development and Value Engineering. He is a certified Six Sigma Green Belt, holds a BSCM certification Belt, from APICS and held the post of Change Implementation Board Chairman for GE Appliance’s Sourced Products. 6|Value Engineering-Methods & Techniques Sudeep D’Souza