Meaning of Value Analysis

The purchasing manager conducts value analysis that aims mainly at achieving cost effectiveness and maintaining the required level of quality. Value analysis is an organized effort that studies in detail the ‘value’ of material. Value Analysis reviews the design changes with the objective of eliminating high cost materials and the materials that are technically obsolete and reducing the number of parts. After analyzing the functions and cost of material, the purchasing manager evaluates the possibilities of using the material.

Value Analysis

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.

The Value Analysis technique was developed after the Second World War in America at General Electric during the late 1940s. Because of World War, 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. Since this time the basic Value Analysis approach has evolved and been supplemented with new techniques that have become available and have been integrated with the formal Value Analysis process. Today, Value Analysis is enjoying a renewed popularity as competitive pressures are forcing companies to re-examine their product ranges in an attempt to offer higher levels of customization without incurring high cost penalties. In parallel, many major corporations are using the Value Analysis process with their suppliers to extend the benefits of the approach throughout the supply chain. Businesses, big and small, will therefore benefit from understanding and applying the Value Analysis process. It is likely that those companies that do not take the time to develop this capability will face an uncertain future as the lessons and problems of the past are redesigned into the products of the future.

“Techniques of Value Analysis and Engineering tells you why so much unnecessary cost exists in everything we do. . . how to identify, clarify, and separate costs which bear no relationship to customers needs or desires. . . how to place a dollars-and-cents value on different customer functions. . . how to divide a problem into “mind-sized” steps, each one of which is solvable and the sum of which solves the major problem.” – Lawrence D. Miles

Value Analysis evaluates the materials by seeking answers to the following questions:-

  • What is the function of the item?
  • Is it possible to run the system without the item?
  • Can the item be substituted with a standard part?
  • How much does the item cost?
  • How much does the substitute, if any, cost?
  • Can the functions performed by two or three materials be clubbed together and be replaced by any other material?

Value Analysis involves the coordinated efforts of the engineering, production and the purchasing personnel and helps in reviewing purchase activities to ensure that expenditures result in the receipt of appropriate value.

Value Analysis is considered to be a process, as opposed to a simple technique, because it is both an organized approach to improving the profitability of product applications and it utilizes many different techniques in order to achieve this objective.

The step by step procedure of Value Analysis is given below:

  1. Examine all the products/materials that are being reordered and identify each product/material that needs an improvement.
  2. Gather all possible information about the designs, costs and so forth of the product.
  3. Form a team that includes experts from various functional areas that are related to the functions performed by the material.
  4. Generate alternatives by generating new ides and evaluate different ways of accomplishing the task.
  5. Evaluate the alternatives on criteria like cost and feasibility and eliminate the non feasible alternatives.
  6. Refine the feasible alternatives and select the optimal one.

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