Operation ManagementTerm Paper Presentation On

Value AnalysisValue Engineering &

Business Process Reengineering

Presented By :Devanshu Sharma

( 131417)Sakash Agrawal

(131419)Sudhir Kumar (131421)T. Hari Kumar (131449)

Harsha Vardhan (131429)

INTRODUCTION

Value = Worth you get ----------------

For the price you pay

Value Analysis was developed after WW-II in USA at General Electric (GE) in 1947. Because of WW-II, there were shortages of skilled labor, raw materials, and component parts at GE.

Lawrence D. Miles, Jerry Leftow, and Harry Erlicher at GE looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved product, or both. This led them to the discovery of a systematic process for cost reduction without compromising on the desired quality of products. They named their process as “VALUE ANALYSIS”.

WHAT IS VALUE ANALYSIS

Value Analysis is an effective tool for cost reduction and the results accomplished are far greater.

It improves the effectiveness of work.

It is an organized approach to a problem.

It is value applied at the design stage itself.

It reduces unnecessary costs, obvious and hidden which can be eliminated without adversely affecting quality, efficiency, safety and other customer features.

DEFINITION - Value Analysis can be defined as a process of systematic review that is applied to existing product designs in order to compare the function of the product required by a customer to meet their requirements at the lowest cost consistent with the specified performance and reliability needed.

CLASSIFICATION OF VALUE

Value can be divided into the following classifications :-

Use or Functional Value: The properties and qualities which accomplish a use, work or service.

Esteem Value : The properties, features or attractiveness which cause us to want to own it.

Cost Value : The sum of labour, material and various other costs required to produce it.

Exchange Value : Its properties or qualities which enable us to exchange it for something else we want.

OBJECTIVES OF VALUE ANALYSIS

To provide better value to product/service

To improve the company’s competitive position

To ensure that every element of cost

Labour Materials Suppliers and Service contributes proportionally to the function of the product .

To achieve continuous performance/ cost/quality improvement.

To eliminate unnecessary cost.

APPLICATION OF VALUE ANALYSIS

1) Capital goods – plant, equipment, machinery, tools, etc.

2) Raw and semi-processed material, including fuel.

3) Materials handling and transportation costs.

4) Purchased parts, components, sub-assemblies, etc.

5) Maintenance, repairs, and operational items.

6) Finishing items such as paints, oils, varnishes, etc.

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).

ADVANTAGES OF VALUE ANALYSIS

It leads to improvements in product design so that, most appropriate products are produced

High quality (value) is maintained.

All-round efficiency is achieved by eliminating waste of various types.

Cost savings provide a measure for judging managerial effectiveness

New ideas are generated and incorporated.

Teams spirit and morale are improved.

Areas requiring attention and improvement are pin pointed.

For many of the world’s leading companies, including names like Hewlett Packard, Sony, Panasonic, Toyota, Nissan, and Ford, VA process of design review has provided major business returns.

The key to realizing these returns is through using knowledge of:

the customer requirements, the costs of the product, manufacturing process & the costs associated with failures due to poor or inadequate product

design. All these inputs to VA process are vital if decisions regarding product and process re-design are to yield lower costs and enhanced customer value.

Value Analysis Workability

What is it? (a pencil) What is it used for? (writing) What is the main function of this product? (making marks,

writing) What is the method, material or procedure that was used to

realize the main function? (a graphite stick & 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 cost and what must be the total cost?

Important Note Focus your VA on the main function, because, during the analysis, the secondary functions may change. The group/committee/team may choose different secondary functions to realize the main function.

An Illustrative Model

SELECTION & ORIENTATION

ANALYSIS

RECORDING IDEAS

SPECULATION

INVESTIGATION

RECOMMENDATION

IMPLEMENTATION

THE PHASES OF VALUE ANALYSIS

# Stage Description

1.SELECTION & ORIENTATION

To select those critical areas where a potential for cost reductions is expected. Use the common Pareto’s ABC analysis. General scope, restrictions and aims of the study is defined.

2. ANALYSIS

Examine the data at a VA group/team meeting. Record the minutes of each brainstorming session. Apply the Tests for Value. Propose further action.

3. RECORDING IDEAS

Write down the minutes of analyses meetings and circulate them to group/team members for further queries.

It includes the agenda for the next meeting.

4. INNOVATION/CREATIVITY

Arrange team meetings in order to discuss the ideas analyzed and any new information obtained.

Think upon practical measures for reducing costs and increasing value.

# Stage Description

5. EVALUATION

Investigate suggestions for reducing costs and to make them practical and acceptable to client management.

Obtain definite prices and costs in order to estimate cost reductions accurately.

6. RECOMMENDATIONS

Recommend cost reductions to client management. Present the recommendations in a comprehensive report. Recommend a member to act as an implementation consultant for VA

recommendations.

7. IMPLEMENTATION& MONITORING

Implement the recommendations accepted by the company management. Monitor the results as suggested in VA report.

Jot down the feedback of the management upon completion of VA assignment.

CONCLUSION

Value analysis is a technique with immense possibilities, and systematically employed, it can achieve great economies and increased efficiency.

Although good results have been obtained in several individual cases in some industries, only a large scale and systematic application of this technique in all industries, and in defense production, can result in substantial economies on a national scale.

To conclude, we can say that benefits of value analysis include,

Reduced production cost, Materials and distribution cost, Improved profit margin, Increased customer satisfaction.

WHAT IS VALUE ENGINEERING?

VE 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 is an orderly, equipment , tool, a service or a method of working.

Value Engineering is defined as 'the professionally applied, team based, function - oriented, systematic application of recognized techniques (function analysis) which

1. Identify the "function of a product, process, project, facility design, system or service,

VALUE ENGINEERINGUses:

• Value Engineering (VE) has been used to refer to the design stage or before the fact.

• Value Engineering (VE) approach is used for new products, and applies the same principles and techniques to pre-manufacturing stages such as concept development, design and prototyping.

• Value Engineering (VE) is a powerful Change Management and Problem Solving' tool with over a century of worldwide application track record.

• VE is used to create functional breakthroughs by targeting value mismatches during product, process, and project design.

A product goes through 3 stages 1.Developmental 2. Growth

3. Maturity before being out of date.  

WHEN VALUE ANALYSIS

Function in VALUE Engineering

Function: Value analysis defines a "basic function" as anything

that makes the product work or sell. A function that is defined as "basic" cannot change. Secondary functions, also called "supporting functions",

described the manner which the basic function's were implemented.

Value is not a matter of minimizing cost. In some cases the value of a product can be increased

by increasing its function (performance or capability) and cost as long as added function increases more than its added cost.

APPLICATIONS OF VALUE ENGINEERING

From a generic point of view, VE1. Enables people to pinpoint areas that need attention and

improvement.2. Provides a method of generating ideas and alternatives for possible

solutions to concern.3. Provides a means for evaluating alternatives. .4. Allows one to evaluate and quantify intangibles and to compare

apples with oranges. Some application areas are - Defense; Automotive; Aeronautical;

Software development; Water treatment; Civil engineering; systems and procedures, venture analysis, forecasting, resource allocation, marketing, Client services; Work processes; Documentation; Organizational development;

Function analysis

Creative and speculative techniques

Measurement techniques

Value Analysis

Value

Essential parameter

Analyze process

PRINCIPLES OF THE VALUE METHODOLOGY

Phase I - SELECTION PHASE:

Group of 4-6 members is formed.

Members should be from equivalent levels.

Team must be interdisciplinary.

Commitment for the implementation.

Outside facilitator can be inducted.

One of the members should be an expert.

Team members must have an open mind.

Phase II - INFORMATION PHASE:

Functions are classified into "basic" & "secondary“

Accurate marginal cost data is needed.

Gather all the information

Identify and define the components

Ask for detail of costs.

Collect too much information than collect too little.

Attitude must challenge traditional assumptions.

Cost function matrix or value analysis matrix

Select for value improvement analysis

VE At Job Plan

Preparation

Information

Analysis

Creation

Evaluation

Development

Presentation

Follow-up

Business Process Reengineering

Business Process Reengineering involves changes in structures and in processes within the business environment. The entire technological, human, and organizational dimensions may be changed in BPR.

Information Technology plays a major role in BPR as it provides office automation, it allows the business to be conducted in different locations, provides flexibility in manufacturing, permits quicker delivery to customers and supports rapid and paperless transactions.

In general it allows an efficient and effective change in the manner in which work is performed.

LPG has created instability and intensive competition in the business environment. Competition is continuously increasing with respect to

• Price• Quality and selection• Service• Promptness of delivery.

This competition has intensified because of: Removal of barriers International cooperation Technological innovations

All these changes impose the need for organizationaltransformation, where the entire processes, organization climate and organization structure are changed.

Reengineering is the vital rethinking and radical (major/thorough) redesign of business processes to achieve dramatic improvements in critical modern measures of performance such as cost, quality, service and speed.

Process is a structured, measured set of activities designed to produce a specified output for a particular customer or market. It implies a strong emphasis on how work is done within an organization. “

Business processes are characterized by three elements:

the inputs, (data such customer inquiries or materials),

the processing of the data or materials (which usually go through several stages and may necessary stops that turns out to be time and money consuming) and

the outcome (the delivery of the expected result).

The problematic part of the process is processing. BPR mainly intervenes in the processing part, which is reengineered in order to become less time and money consuming.

An example of a business process:

Credit card approval in a bank.

An applicant submits an application. The application is reviewed first to make sure that the form has been completed properly. If not, it is returned for completion. The complete form goes through a verification of information.

This is done by ordering a report from a credit company and calling references. Once the information is verified, an evaluation is done. Then, a decision (yes or no) is made. If the decision is negative, an appropriate rejection letter is composed. If the decision is positive, an account is opened, and a card is issued and mailed to the customer.

The process, which may take a few weeks due to workload and waiting time for the verifications, is usually done by several individuals.

An example of BPR application.

A typical problem with processes in vertical organizational structure is that customers must speak with various staff members for different inquiries.

For example, If a bank customer enters into the bank determined to apply for a loan, apply for an ATM card and open a savings account, most probably must visit three different desks in order to be serviced.

When BPR is applied to an organization the customer communicates with only one person, called "case manager", for all three enquiries.

If his loan is rejected the case manager explains the reason

and if it is passed:

while the loan application team was processing the loan application, the case manager "triggered"

the account team to open a savings account and

the ATM team to supply the customer with an ATM card.

The customer leaves the bank having

a response for his loan application, a new savings account and an ATM card,

And all these without having to move around the desks for signatures and documents.

All the customer's requests were satisfied at the same time in parallel motion.

Assuming a customer calls the company to ask why his order has not yet arrived to its premises.

"Let me transfer you to the accounting department to check if the order was invoiced" responds the telephone operator.

The customer must explain his problem to the accounting department again. "We had invoiced your order, but I don't now if already shipped to you. You need to call the logistics department, unfortunately I could not transfer you since they are located in another city".

The customer calls the logistics department and explains the situation again.

The logistics manager responds "that although the order should have been distributed to you, I haven't yet received the order from them in the production department".

"Please hold on a minute, I will try to talk to them to find out what happened".

The inventory manager tried to help out the situation, since he felt that the customer was getting aggravated from the other side of the phone.

After a while he said "Sir I am sorry, it is the finish department's fault. Somebody had forgotten your order in the finish storage. I will have it send out to you as soon as possible."

After this odyssey the customer was seriously considering whether he would place another order.

So in these types of cases the golden rule is:

THE CUSTOMER MUST SPEAK WITH ONE PERSON, the case manager.

All internal controls are the responsibility of the order processing team.