A VALUE CREATING PARADIGM
Dr. Ahmed Al-Ashaab, LeanPPD technical coordinator, Manufacturing and Materials Department, Cranfield University, shares with LMJ readers the research he is conducting on lean product development.
The increased international competition in the current open global market is putting pressure on companies to improve the performance of their product development. This is to sustain and improve market share through the production of a high quality product in a cost effective manner in shorter time.
Organisational survival and long-term growth depend on the introduction and development of new products. Manufacturing companies are in need of a new model that goes beyond lean manufacturing to ensure the transformation of the enterprise into a lean environment. This is a response to customers and market demands of value creation, incorporating sustainability and customisation.
I believe that significant change in enterprise performance can come from the adoption of lean thinking throughout the entire product life cycle. Lean Product and Process Development (LeanPPD) is a 4-year project sponsored by the EU-PF7. The LeanPPD consortium has five industrial partners – Rolls-Royce plc, Visteon Engineering Services- UK, VW-Germany, Sitech-Poland and Indesit-Italy – plus other six European universities and research centres.
Lean concepts were derived initially from the Toyota Production System, one of its main lessons being to produce what is needed, when it is needed, in the time that is needed, with the minimum amount of resource and space. The whole objective of lean is the elimination of waste: this is good to achieve, but an isolated success within a manufacturing company is not sufficient.
What is needed is a new paradigm that will take the lean manufacturing and lean thinking concepts from waste elimination into value creation. In order to make a significant change in enterprise performance and saving ultimate system costs, there is a need for the entire enterprise to undergo a lean transformation. Lean design is going to be an important part of this lean transformation, as up to 80% of the manufacturing cost is determined in the design stage. It is important to note that a complex design product cannot easily be “leaned out” during production. Hence the production of affordable and sustainable products would require an effective lean design and engineering.
In order to create a product development model that is fit to consistently perform in a rapidly changing market and environment, a changeless core is required. LeanPPD research found that the focus should be on value creation, provision of knowledge environment, continuous improvement and process that encourage innovation and collaboration. Figure 1 illustrates the LeanPPD Conceptual Model. The aim of the project is to develop a new model and its associate tools based on lean thinking that will consider the entire product life cycle, providing knowledge based user centric design and development environment to support value creation to the customers in terms of innovation and customisation, quality as well as sustainable and affordable products.
The LeanPPD Project has been developing several enables, namely: set-based concurrent engineering, lean assessment tool, product development value mapping tool, lean knowledge life cycle, a new A3 thinking for design problem-solving and lean design guidelines. These enablers are the building block of the model and are being tested using several industrial case studies. A short description of the enablers that we have developed at Cranfield University follows.
Set-based concurrent engineering: Design participants practice SBCE by reasoning, developing, and communicating about sets of solutions in parallel. As the design progresses, they gradually narrow their respective sets of solutions based on the knowledge gained and they commit to staying within the sets so that others can rely on their communication. SBCE is the core enabler of the LeanPPD model and it has been developed based on the following key principles: strategic value research and alignment; map the design space; create and explore multiple concepts in parallel; integrate by intersection; and establish feasibility before commitment.
Lean knowledge life cycle: It is a methodology which enables companies to systematically capture, re-use and create knowledge in product development. It consist of seven stages: knowledge identifications; previous project and domain knowledge capture; knowledge representation; knowledge sharing; KBE; knowledge provision and use; and dynamic knowledge capturing. Each stage entails several tasks that are necessary to carry on the work.
A3 thinking approach: It is a product design problem-solving approach. The research has designed a new A3 template (called A3LAMDA) to support knowledgedriven design gathered from the integrated actions of visualising, solving, learning, reflecting and creating. This is to support the generation of lean design.
Lean design guidelines: These ensure the successful realisation of customer value, which is maximised, as well as ensuring that the product is manufacturable in a cost effective manner where harm is eliminated during production and that manufacturing waste is minimised during production as well as minimising resource consumption during production and operation.
The LeanPPD research team at Cranfield University has been engaging with several companies in action research to ensure an industry-driven approach to the project as well as to test the enablers using industrial pilot projects. At Rolls-Royce, SBCE is being used to enhance the company’s existing product development process and a case study for the development of helicopter engine is being used to test the process. At Visteon, the LeanKLC and the new A3 thinking approach have been used to solve design problems of EMC (electro magnetic compatibility) as well as to create the EMC knowledge. A EMC knowledge-based demo has been developed and a different way for its provision has been considered in the form of a smart checklist. The principles of lean design have been used to support the development of an oil/water separator which resulted into a new design with about 40% less manufacturing cost.
We realise that more research is needed and more industrial interactions are required. Therefore Cranfield University is organising Industrial LeanPPD Workshops with the objective to showcase the state-of-the-art methods and tools based on action research. This has been a very good mechanism to disseminate the LeanPPD project results as well as gaining the industrial interest for further collaboration.
Craig L. Squires, a certified value specialist and president of SAVE International, explains why companies can’t afford not to use value engineering if they are to innovate.
In today’s global market, the companies that not only find ways to make the best use of limited resources, but also find ways to deal effectively with the demands and pressures of an ever-increasing pace of change will have the best chance to succeed.
Value engineering (VE) is a powerful tool and methodology that embraces and drives creative thinking. The long list of organisations that use it as a key component of their innovation strategies might be very surprising, especially considering the level of sophistication and the number of users outside the United States, the country where the concept of VE was conceived.
An integral aspect of VE is the concept of function, which focuses on understanding “what something must do” before developing alternatives for “how to do it”. Value engineering can be defined as an organised effort to improve value by analysing and evaluating the functions and essential characteristics of a system, product, process, project, etc. in order to achieve its necessary and supporting functions in the most efficient and profitable manner. It also helps people understand how to optimise the use of resources such as time, money and people to improve overall results and outcomes.
Business leaders are always looking for a competitive edge and for ways to improve their profits and shareholder value. Innovation and process excellence are today’s buzzwords that catch attention and attract crowds. Walk into a room of project managers and mention six sigma, lean, and even relative newcomer agile and chances are most will know how each can be used as a tool for improvement. However, if you ask ten people who know of value engineering to say what it is, when to use it and how to use it, chances are you will get ten different answers.
Some people think VE is purely a cost reduction exercise that often takes place late in a project in order to stay in budget or cut expenses. Others see it as limited to certain types of industries or applications. Those who understand its true capability to improve quality and drive innovation are positioned to reap the full benefits in their businesses and projects.
The purpose of this article is to provide an overview of VE to help understand why it is so powerful, flexible and adaptable including brief explanations of when, why and how to use it.
WHAT VE CAN DO
VE involves team-centric activities and phases that are designed to understand first and foremost what the customer values and is willing to pay for in order to target strategic areas for improvement and innovation. With regards to manufactured goods, customers value what products can do and generally (other than quality issues) not how all the parts and pieces fit together to make the final product. As long as the same function is delivered by a product without compromising quality or other key factors important to the customer, the parts and pieces that made the product work can be analysed and delivered in new and creative ways.
The phases of the value methodology are designed to help to assess the current business situation, identify and develop strategic alternatives, judge the viability of each alternative, select an approach and then take decisive action. This approach helps teams consider how to design and deliver a product, project, process or service to satisfy the customer’s needs in proportion to the relative importance the customer gives them. And, to look for opportunities to combine, reduce or eliminate functions that the customer does not value or want.
The best way to get value from VE is to use it in the very early stages of a project when the target concept is understood but decisions on how to proceed have not been made yet, except at a high conceptual level. This allows enough time and flexibility for valuable ideas that come up during the creativity phase of VE to be incorporated into the project. If VE is conducted later in the project when options have already been defined and incorporated into the design or plan, it may be too late to use great ideas for value improvement. And, if ideas are used, it is likely to cost more time and money to go back and rework some of the plans.
Cost reduction is often emphasised by business leaders and managers, especially during times of economic stress. However, even under normal market conditions, reducing cost may be set as a very high or top priority. When low or reduced cost is emphasised as the primary business objective, it is often in order to achieve some other business outcome such as to overcome competition, to improve profit margin and/ or to increase market share. If one views cost reduction as a way to achieve these kinds of business objectives, then other valuable solutions to the real problem or opportunity at hand might not be considered by those working on the strategic options.
Therefore, rather than accepting cost reduction as the sole focus, VE leaders will work to ascertain the higher-level business objectives and put cost in the right context for overall value improvement. Doing so up front creates a more holistic focus for the team to innovate with new ideas and related profit potential and ROI for the product, project, process or service that supports the business objectives. With this mindset, teams may find that improving function performance while maintaining or even increasing cost can generate the optimum value impact.
As an example to illustrate the power of first understanding what drives revenue for any business (the customer!), consider the market for wristwatches. Customers are able to choose from a wide range of styles and prices in this market segment, but all the products must perform the same basic function: indicate time.
For a customer considering a luxury watch such as a Rolex, the decision likely involves quality and esteem more than utility. For a customer with limited finances shopping for a commodity brand, the focus is likely more based on utility. The parts and pieces along with the market value of the two watches are very different but each shares the basic function of “indicate time” that is the primary purpose of the product type. If either did not perform the basic function, the value to the customer would be substantially diminished or lost completely. In function thinking, the “what it must do” is indicating time, but the “how” aspects involving the parts and pieces supporting the basic function are very different. If the makers of Rolex concerned themselves purely with reducing cost in order to deliver value, the brand would be diminished. For brands competing at the low price end of the market, reducing cost could be a major aspect of product design and development. The value engineering methodology helps to develop understanding of what aspects of value to target in order to develop the right strategic business approach to the market.
This function-based thinking was a major breakthrough that occurred many years ago when the world was filled with very different technologies and products. It doesn’t happen often, but every now and again something new comes along that has a ripple effect around the world and changes not only the way people think, but also the competitive landscape. Those that learn and adapt become stronger, those that don’t fall behind in a Darwinian battle of the fittest. As with many significant intellectual breakthroughs in history, great human need spurred great personal invention by a person looking for an effective way to deal with challenge.
In 1947, at General Electric, this shift to a new paradigm in strategic thinking involving function began based on an elegantly simple (yet conceptually complex) methodology. In the years following World War II, GE and other large manufacturers were facing severe shortages of many types of raw materials due to the great amounts that had been consumed in the war. Faced with this and other challenges related to product costs, Lawrence D. Miles made a conceptual breakthrough when he realised that people buy products for what they do, and not how they do it. Since the basic function defined the reason for the product’s existence, the way supporting functions helped to make the basic function possible represented a great opportunity for value improvement.
More importantly, it was discovered that the basic function usually makes up a relatively small portion of the total cost compared to the supporting functions. This understanding opened up a myriad of possibilities for delivering the supporting functions with different parts, processes, materials and so on that result in substantial cost savings while still preserving quality and performance.
Mr. Miles changed the question from a process-oriented way of thinking of “How does it do it?” to a functionoriented way of understanding “What must it do?” because customers ultimately pay for what things do and not how they do it. Process thinking can be described as “how things work together to achieve a result”. And, function thinking can be described as “what a product must do to deliver value”.
With this new understanding, Miles began to evaluate the functions of GE’s products and worked to understand and define those functions in order to improve the performance and quality while simultaneously reducing the product cost. He soon realised that “all cost is for function” and came up with the following formula to describe the conceptual basis of his thinking:
VALUE = Function/Cost
With this new approach, it was now possible to not only achieve significant cost savings, but to do so without affecting quality or performance. In many cases, quality and performance were not only maintained, but actually improved while cost was kept stable or reduced.
In today’s fast-paced business environment, it is easy to emphasise schedule at the expense of thoughtful planning and structured approaches like value engineering. When VE is applied in the right way, it not only saves time but improves quality, enhances communication and understanding, drives new ideas and helps to optimise the use of precious resources. Not using VE usually results in more time to achieve and less optimum result.
In addition to the benefits already outlined, VE has many other less-obvious advantages including:
- Enhances team alignment and communication;
- Helps target areas for improvement that, if improved, will achieve the biggest value impact;
- Helps team members achieve alignment with each other and executive leadership in the project priorities;
- Participants work together to achieve success;
- Professional respect for the contributions of other disciplines is enhanced;
- Team performance time is compressed without compromising quality.
So where did this new approach to innovation begin? Lawrence D. Miles was the one working at GE that invented this function-oriented thinking. He originally called it value analysis and it later came to be known as value engineering due to a request by the U.S. Navy. The method is still often referred to as value analysis and is also known as value management (especially in Europe). By 1959, there were enough practitioners that a society was formed known as The Society of American Value Engineers (SAVE). Considering the methodology helped “save” so much money and other resources, the society name was especially appropriate.
In the 1960s, the method was discovered by others around the world and the foundations for its growth were established in Asia and Europe. Japan and Germany, in particular, immediately saw the value of this methodology, which quickly spread through the manufacturing sectors in those countries. While in the United States the method was often used with cost reduction as a primary objective, Germany and Japan were looking for ways it could be used to also improve quality and drive creativity and innovation.
By the 1970s, the impact of VE began to be felt by dominant US manufacturers as new products from Europe and Asia began to stream in and gain market share due to their improved performance and cost effectiveness. Japan experienced a boom in the use of VE and its practice became firmly entrenched not only on the project level, but moved all the way up the corporate ranks to be used in strategic planning and related executive thinking and decision making.
In the 1970s and 80s, when people around the world saw a rapid evolution of products produced in Japan, they became curious about how this advancement was achieved in such a relatively short timeframe. The wellknown impact of Deming and Drucker’s management philosophies, which had been widely circulated and adopted, came back in business media and economic coverage along with stories of vertical integration and kaizen. The story that didn’t make it back was the very substantial impact of VE on Japanese business as a force for creativity.
Introduced by Dr. Ueno in the 1960s at Sangyo Noritsu Daigaku (Sanno University), VE was quickly embraced as a way to enable structured innovation. It quickly spread in Japan’s manufacturing industry and was every bit as important to the rapid rise of world competitiveness as any other of the key ingredients.
In the late 1970s, South Korea (led by Samsung), eager to develop its own industries and emulate the success of Japan, sent people to investigate what had made the biggest impact in this transformation and found that value engineering was a core aspect of this success. After working to develop a South Korean VE capability, the method started to be applied in the 1980s and early 1990s on a wider scale. In 1990, how many consumers around the world had any idea there were companies like Samsung, Hyundai and LG preparing to rise in global economic ranks, just as Japanese companies had done? Today, VE is booming in South Korea due to the results shown by these and other companies in that country.
Taking a global view, it is not surprising to discover that large global companies that use VE not only on specific projects but incorporate the thinking and methods into their way of doing business reap the greatest rewards. Some examples are too good to ignore.
In the relatively short period of time (between 1991 and 2011), Samsung rose from a national manufacturer of consumer goods to the #1 consumer electronics manufacturer in the world. Value engineering was one of the key aspects of Samsung’s focus on innovating its way to the top of the market, with new products of high quality that were extremely price competitive.