Value Analysis

and
Value Engineering

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 What is Value

• The value is what customers are demanding –

the right combination of product quality, fair
price for goods and services
• Value is ultimately defined by the customer
• Value is dynamic
• Traits: speed, cost, quality and flexibility

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 What is Value
• Value=performance / cost
• Performance=quality + speed + flexibility
• Offer products that perform
• Give more than the customer expects
• Give guarantees
• Avoid unreasonable pricing
• Give the customer the facts
• Build relationship

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 Value analysis
• DEFINITIONS:
• A task to find more economical way of making
or buying a product
• A systematic approach to lower the cost keeping
same level of performance
• A study of the relationship of design, function
and cost of product, material or service with the
objective to reduce cost
• Investigation of performance with respect to
function and unit price to develop most effective
spec at lowest cost

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 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
contributes proportionally to the function
of the product
• To achieve continuous performance/
cost/quality improvement

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 Value Engineering

• Value Analysis is applied to existing

products which are in the market for
continuous improvement of its value

• Value Engineering is the application of

Value analysis techniques during new
product design and development

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 Application of value Analysis

This attacks two aspects of the product

• The use function or the ability of the product to perform
according to spec
• The aesthetic function, appearance or style of the
product

• Analysis: 1. The purpose of the product

2. Basic/ Primary Function
3. Secondary Function

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 Checklist – Value Analysis

• Select an item of high annual rupee volume

( annual consumption value)
• Identify the function
• Is the item necessary, does it add value or it can be
eliminated
• Can spec be made less stringent to save cost
• Can packaging be made cheaper

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 Steps for Value Analysis
• Establish the objective (cost reduction)
• Appoint team of people from different connected
functions
• Analyze the mfg process
• Analyze the use
• Decompose and analyze characteristics
• Hold a brainstorming session
• Sort the ideas
• Select the best and develop a plan of implementation

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 Benefits of Value Analysis

• Better purchasing techniques

• Better suppliers
• Design modification
• Lower operating costs
• Standardization/substitution
• Better packaging
• Better material handling
• Lower cost of maintenance

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 Material Requirement Plan (MRP)

• This is one of the inventory control methods for Input

material requirement
• This is a computer based information system designed to
handle ordering and scheduling of inventories
• The input for this control is the
“Master Production Schedule”
• This determines when to order and
how much to order

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 Process of MRP

• Master Production Schedule is analyzed which is based

on customer commitments
• The requirement of all input materials is calculated
based on production schedule
• Input materials are ordered on suppliers based on lead
time and quantity of each input material is firmed up
• Delivery schedule is given to suppliers based on MRP
output

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 Objectives of MRP

• To improve customer satisfaction/service by meeting

and improving on delivery schedules promised to the
customers ( Analysis of on-time delivery)
• To reduce inventory costs by reducing inventory levels
• To improve plant operating efficiency
• To utilize plant capacity fully by highlighting spare
capacities

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 Benefits of MRP

• Accurate planning of input materials requirement

• Accurate ordering on suppliers based on computation of
MRP software
• Accurate Capacity planning
• Highlights spare capacity and overloading of machines
• Alteration of delivery commitments if required
• Accurate inventory control

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 MRP System Output

• Order schedule plan for input materials

• Changes in planned orders
• Exception items to draw attention
• System performance report
• Stock out reports
• Delivery promises kept
• Inventory forecasts

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 KANBAN
• What is Kanban?
• Kan means visual and ban means a card (signboard)
• This is one of the techniques to control inventory
• This is generally used for sub-components which are
required for main assembly of the component
• Kanban means a “signboard” or “billboard”and is a
concept related to JIT system
• This signboard indicates a requirement and is known as
“pull” system of requirement (MRP)
• A communication tool in JIT production and control
system
• Designates a pull production means of communicating
need for product or service
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 Kanban

• It is a system of continuous supply of components, parts

and supplies, such that workers have what they need,
where they need it, when they need it
• Kanban is directly associated with JIT delivery
However, Kanban is not another name for JIT delivery
It is a part of larger JIT system
There is more to managing a JIT system than just
Kanban and there is more to Kanban than just inventory
management

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 Kanban
• Let us take an example of a car assembly line where 100
cars are manufactured everyday
• Hence 100 carburetors are required everyday
• These 100 carburetors come on a pallet from mfg line
• There are two boxes or bins , each can take 100
carburetors , bin A and bin B
• When the empty bin A comes back to mfg line means the
assembly line needs the filled box
• While the empty bin A is being filled by mfg 100 new
carburetors, the assembly line is using the carburetors
from the bin B in the meantime
• When the bin B gets empty , it is sent to mfg line for a
refill, This keeps repeating and assembly line gets the
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filled bin as and when they need ( JIT )
 Pull / Kanban Systems

• Pull / Kanban is a method of controlling the flow of

production through the factory based on a customer’s
demand.
• Pull Systems control the flow of resources in a
production process by replacing only what has been
consumed.
• They are customer order-driven production schedules
based on actual demand and consumption rather than
forecasting.
• Implementing Pull Systems can help you eliminate waste
in handling, storing, and getting your product to the
customer. Pull Systems are an excellent tool to use in the
areas where cellular or flow manufacturing can not be
achieved. 19
 Benefits of Kanban system

• It reduces inventory in the system by mfg the exact

quantity that is required and the quantity is not based on
demand forecast
• It eliminates product obsolescence as the mfg is done
only to the extent of the quantity that is required to
execute the orders on hand
• It ensures implementation of JIT system
• It helps to implement Kaizen system
• Reduces waste and scrap
• It provides flexibility to respond rapidly to changing
demand
• Reduces total cost by preventing overproduction
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 KAIZEN

It is a system of continuous improvement in

• quality
• technology
• processes
• company culture
• productivity
• safety
• leadership

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 KAIZEN

• Kaizen is focused on making small improvements

on a continuous basis and finding creative solutions
instead of capital expenditures

• KAI………to change or modify

• ZEN……..to improve

• =modify to improve

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 What is Kaizen

• Kaizen is a system in which every employee is

encouraged to come up with small improvement
suggestions in their area of work on a regular basis
• This is a continuous exercise
• 60/70 suggestions per employee per year are written
down, shared and implemented

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 Process of Kaizen

• Ideas are not for major changes

• Ideas are little changes on a regular basis
always improving productivity, safety and effectiveness
and reducing waste
• To support the higher standards, Kaizen also involves
providing the training, materials and supervision
needed for employees to achieve higher standards

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 Elements of Kaizen

• Quality Circles
• Improved Morale
• Teamwork
• Personal discipline
• Suggestions for Improvement

• Happy employee is a Productive Employee

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 FIVE “S” Program

• Sort (clean up)

• Systematize (organize)
• Sweep (regular cleaning)
• Standardize (simplify)
• Self Discipline

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 Kaizen Problem Solving Tools

• Pick a project (Pareto Principle)

• Gather data (Histogram and control chart)
• Find cause (Process flow diagram and fish bone
diagram), Brainstorm
• Pick likely causes, seven deadly wastages
• Try solution (PDCA),” plan do check act”
• Implement solution
• Monitor results
• Standardize on new process

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 Kaizen v/s Innovation

• Small improvements • Major improvements

• Fair knowledge • Technology or equipment

• Personal involvement • Money investment

• Many people • A few champions

• Improve the process • Improve results

• Even in slow economy • Mainly in good economy

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 Steps to Implement Kaizen

• Discard conventional fixed ideas

• Think how to do it, not why it can’t be done
• Start by questioning current practices
• Do it right way, if you make a mistake, correct it
• Do not spend money for Kaizen, use your wisdom
• Find root cause of the problem
• Seek wisdom of 10 people
• Kaizen ideas are infinite

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 Benefits of Kaizen

• Involves every employee in making a change

• Focuses on identifying problems at their source and
addresses seven deadly wastages
• Continual small changes add up to major immediate
benefits
• Results: Improved productivity, quality, safety, faster
delivery, lower costs and greater customer satisfaction

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 JUST IN TIME (JIT)

• JIT means just in time hence no wastages

• INPUT……Process……output
• Process has wastages like scrap , waiting
• Process is a summation of activities such as
operation, inspection, delays, storage,
transport and everything else that happens
between the beginning and end of the process
• Operation does not include inspection and
other delays

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 OPERATION

• There are two types of operations:

1. DO
2. Make ready

• Warming up an iron till it reaches desired temp is ‘Make

Ready’ operation
• Ironing is a ‘Do’ operation

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 SEVEN DEADLY WASTAGES

Waste arising from -

1. Over producing
2. waiting
3. Transporting and unnecessary motion
4. Processing; Cpk
5. Unnecessary stock on hand
6. Producing defective goods
7. Time spent in changeover of setup

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 Management Orientation

• Process Oriented v/s Result Oriented

• Process oriented mgmt: keep doing things right first
time – result good automatically
• Concentrate on causes , ensure that the causes operate as
per design
• Concentrate on perfecting the causes in the process
• Result oriented: get good profit , I don’t care How

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 Value Added Activities

• VA activities add value to the product

• Do operations are VA items, the rest are non VA
activities
• Amount of time spent on NVA exceeds the time on VA
activities
• Result oriented mgmt attacks VA activities to make them
more efficient in the belief that VA activities matter most.
This way they lose more than what was gained, due to
NVA

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 NVA Activities

• NVA activities should be eliminated or

made efficient in terms of time
• Many companies have increased
production and simultaneously increased
inventories
• Wastage deals with time, loss of time,
increases throughput time , i.e. time
between getting an order to realization of
money
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 TQM

• TQM is a combination of
JIT, TQC ,TPM, Kaizen, Pokayoke
• Today many Japanese companies work
with zero breakdowns, zero defects, zero
accidents and zero speed loss
• Faster information flow brings down the
lead time and lesser need to maintain
high inventory

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 Pokayoke

• To avoid inadvertent errors

• Systematic technique to avoid errors at
work
• Briefcase – upside down
• Autoriksha – Rod on the right side
• Sockets – 5 amp and 15 amp
• Connectors of computers
• Interlocking – limit switch microwave – if
you open the door the micro will stop
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 SQC and SPC

• Statistical Quality Control

• Statistical Process Control
• Product Quality has two aspects
a) Controlling
b) Verifying
Old Method: Inspection only sorts out
OK and REJECTED products
This can neither improve Quality of the product nor
prevent the Rejection from recurring hence
Inspection is not QUALITY CONTROL

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 Controlling

• ACT>>>>PLAN>>>>DO>>>>>CHECK>>>>ACT
• This is called PDCA Cycle
• Every function of the co contributes to achieve required
product quality at economic cost
• Checking of quality is assigned to the workers who
make the product
• Returning inspection to its origin

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 Verifying

• Means verifying the variations which need to be

controlled
• Higher the variability inferior is the quality
• Statistical Techniques help to measure the variability
• Inputs…..controllable/uncontrollable…..
process…..measurement, evaluation, controls….output
• The sources of variation: MEN, MACHINE MATERIAL,
METHOD and MEASUREMENT

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 Types of Variations

• Chance causes (natural causes or uncontrollable causes)

• Assignable causes ( unnatural causes or controllable
causes)
• When variation is due to chance causes the process is
under control or stable
• When the variation is due to assignable causes the
process is out of control

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 Principles of SPC

1. No two things are exactly alike

2. Variation can be measured
3. Things vary according to a definite pattern
4. Large no of measurement cluster around
middle
5. It is possible to determine the shape of
distribution curve
6. Variation due to assignable causes distort the
normal distribution curve

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 Normal Distribution curve

• When we measure each piece from a machine or an

operation and make a Tally of measurements, we shall
have a curve which is called a normal distribution curve
• If we do not measure each piece, but collect some pieces
and measure, then chances are:
• = 68% (34+34) + or minus 1sigma
• =28% (14+14) + or minus 2 sigma
• = 4% (2+2) + or minus 3 sigma
• Most measurements tend to cluster around the middle of
this bell shaped curve

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 Problem Solving Techniques
Quality Tools

• Flow Diagram….. process flow

• Brainstorming….. involve many people
• Data collection…..actual data for statistical analysis
• Graphs………. to get the trend
• Stratification ……segregate the data
• Cause and effect Diagram……to find root cause
• Pareto charts……… to differentiate vital few
• Scatter Diagrams… .to find relationship between variables
• Histogram………. to study process capability
• Control Charts…… for online QC

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 Six Sigma

• Six Sigma- (The statistical Representation) is a

process of Quality measurement, which helps
the organization in the improvement of their
Quality
• Six Sigma is a systematical process which helps
the organization to eleminate the defects which
prevent it from reaching perfection
• Six Sigma ensures the QC, TQM and Zero Defect
• When a process attains six sigma level it means
that there is no room for the product to fail
• Six sigma is professionalizing of the Quality
Management functions
Sigma % Good PPM/DP Cost of Quality as % of
Level MO Sales

2 95.45 45500 Over 40%

3 99.73 2700 25 - 40%

4 99.9937 63 15 - 25%

5 99.999943 0.57 5 - 15%

6 99.999999 0.002 Less than 1%

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 What is TQM ?

• Total Quality Management (TQM) is a structured system

for meeting and exceeding customer needs and
expectations by creating organization-wide participation
in the planning and implementation of improvement
(continuous and breakthrough) processes
 Total Quality Management

• Total: Involve all functions to have customer focus and

give reliable delivery of product+service in line with
customer’s expectations at lowest cost

• Quality: Design and manufacture the product+service to

achieve zero defect and 100% customer satisfaction

• Management: Lead to achieve quality for customers by

communicating the vision, mission and values to all
employees and creating continuous improvement
culture
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