Value Analysis | Management Optional Notes for UPSC PDF Download

Introduction

• Value analysis is a significant mechanism for achieving cost reductions with far-reaching results. It improves the efficiency of work processes through a planned approach to problem-solving, particularly emphasizing value at the design phase. Originating after the Second World War at General Electric in the late 1940s, the practice of value analysis has evolved, incorporating new techniques and methodologies into its formal process. In today's competitive landscape, companies are under pressure to reevaluate their product offerings to provide greater customization without incurring high costs.
• In theoretical literature, value analysis is defined as a systematic review process applied to existing product designs to compare the necessary functions required by clients with the lowest cost while maintaining specified performance and reliability. Emphasizing pre-production design improvements, value analysis aims to enhance product quality. It requires a skilled team and a structured process.
• The primary objective of value analysis is to enhance the value of products and services, thereby improving the company's competitive position. It ensures that every element of cost, including labor, materials, suppliers, and services, contributes equally to the product's function, while also eliminating unnecessary expenses. Value analysis aims to generate innovative ideas to reduce costs and enhance the utility of products, such as simplifying designs, using alternative, cost-effective materials, and adopting efficient production techniques.

Tools of Value Analysis

Approaches to Value Analysis: Value analysis employs a variety of techniques and approaches to ensure the delivery of high-value products, services, and systems. It utilizes nine specific methods and concepts, which include:

• 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 a multi-faceted concept encompassing both tangible and intangible aspects. It represents the willingness to pay for the performance delivered by a product or process. Good value is achieved when performance is well-defined and delivered at the lowest life cycle cost. The perception of value can vary among different customers, but common characteristics include high performance, capability, emotional appeal, and style relative to cost (Garg, 2012). Various types of values include:

• Esteem Value: Association of an item with certain people, places, or things.
• Exchange Value: The value that enables the object to be traded for other items.
• Use Value: Property that serves a specific use, function, or service.
• Cost Value: The sum of all costs involved in manufacturing the product.

Steps of Value Analysis:

Value analysis involves a series of steps aimed at enhancing the value of a product while minimizing costs. The basic steps include:

• Product Identification: Identify the product for value analysis, ensuring it can contribute to sales income without becoming outdated.
• Information Collection: Gather relevant technical, manufacturing, cost, and marketing information about the product.
• Function Definition: Identify primary, secondary, and tertiary functions of the product and specify the value function of each.
• Alternative Generation: Develop different alternatives to enhance the value of the product based on its functions and manufacturing details.
• Evaluation: Compare and critically evaluate the generated alternatives in terms of validity, feasibility, and financial and technical requirements.
• Alternative Development: Thoroughly develop the most suitable alternatives identified during evaluation, including drawings, models, and discussions with relevant departments.
• Implementation: Convert the selected idea into prototype manufacture, record results, and conduct cost and functional analysis to assess net savings.

Application of Value Analysis:

Value analysis principles can be applied to various aspects of products, including:

• Capital Goods: Plant, equipment, machinery, and tools.
• Raw and Semi-Processed Materials: Including fuel.
• Materials Handling and Transportation Costs.
• Purchased Parts, Components, Sub-Assemblies.
• Maintenance, Repairs, and Operational Items.
• Finishing Items: Such as paints, oils, and varnishes.
• Packing Materials and Packaging.
• Printing and Stationery Items.
• Miscellaneous Regular Consumption Items.
• Power, Water Supply, Air, Steam, and Other Utilities (Services).

Reasons for Utilizing Value Analysis

Internal Reasons within the Business:

• Design-Related Issues: Challenges stemming from design processes and the lack of control systems for product performance reviews post-production.
• Continuous Product Improvement: Addressing problems identified during pilot production, minimizing unique parts proliferation, and meeting client demands for quality, cost, and delivery.
• Cost Reduction and Profit Protection: Mitigating perpetual price reductions, enhancing product margins, and undertaking corrective actions to rectify existing design problems.
• Compliance and Safety Requirements: Ensuring adherence to safety legislation and standards, necessitating value analysis for compliance reassessment.

Market-Induced Reasons:

• Evolving Pricing Dynamics: Market-driven pricing necessitates constant cost management to maintain profitability amidst fixed market prices.
• Influence of E-Commerce: Global product purchasing necessitates enhancing value and reducing costs to retain customer relationships and gain competitive edge.
• Quality Regulations Compliance: Formal design review processes are mandated by quality management systems, essential for meeting accreditation criteria and customer expectations.
• Technological Advancements: Integration of innovative processes and materials into product designs to enhance performance and reduce costs.
• Environmental Considerations: Growing environmental awareness reshapes product value and specifications, driving the adoption of sustainable practices.

Benefits of Value Analysis:

• Enhanced Purchasing Techniques.
• Improved Suppliers and Manufacturing Methods.
• Reduced Operating Costs.
• Standardization and Re-evaluation.
• Substitution and Packaging Optimization.
• Enhanced Material Handling.
• Improved Inventory Control.
• Lower Maintenance and Overhead Costs.
• Prevention of Unnecessary New Product Costs.
• Improved Return on Investment.

Limitations of Value Analysis:

• Selective Adoption: Applied selectively due to time and cost considerations.
• Need for Expert Supervision: Requires oversight by experienced personnel.
• Lack of Theoretical Foundation: Lacks a superior theoretical basis, relying on practical experience.

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Conclusion

Value analysis offers significant potential for economic benefits and efficiency enhancements by systematically reducing costs and improving processes. Its dynamic nature and concrete benefits make it a valuable tool for businesses seeking to streamline operations and enhance competitiveness.