By Paul Hardiman
Cost reduction is a serious concern for most businesses and lean practitioners across the global economy. A variety of approaches have been developed over the years in different communities.
The father of value analysis and value engineering
Value analysis/value engineering (VA/VE) was originally conceived during World War II in the United States when critical material shortages forced many manufacturers to substitute materials and designs. When the General Electric Company found that many of the substitutes were providing equal or better performance at less cost, it launched an effort in 1947 led by Lawrence D. Miles (1904-1987) to improve product efficiency by systematically developing less costly alternatives.
Miles was a vacuum tube design engineer who had developed a number of patents. He combined several ideas and techniques to develop a successful method for ensuring value in a product. The overall goal of Miles’ technique was to produce a functional product without compromising on its quality. In 1961 Miles wrote the definitive book on the subject, Techniques of Value Analysis and Engineering.
The eight phases of VA/VE
VA/VE proposes that a project be managed in eight phases: orientation; information; function analysis; creative; evaluation; development; presentation; and implementation. The first phase involves careful identification of the problems to be addressed, breaking down the issues step by step into their constituents to assess potential gains and establish priorities. At the end of the information phase the scope project is refined on the basis of all the data gathered. This makes up the input to the functional analysis – one of the distinctive elements in VA/VE. The functions of the entity is classified and its inter-relationship determined prior to costing each function. The scope of the project is then refined further in light of analysis. The alternative ideas generated in the creative phase are assessed and prioritised in the following phase with the appointment of idea champions for each viable avenue. At the end of this phase the best ideas are put into development where life cycle costs are determined to see if the potential benefits outweigh the costs. Major risks are identified at this stage and ways should be found to mitigate them.
The presentation phase is the start of the organisational approval process. The presentation should ideally be less than half an hour and should:
- Describe the workshop objectives;
- Identify the team members and recognize their contributions;
- Describe the “before” and “after” conditions for each alternative;
- Present the costs and benefits, advantages and disadvantages, and >impact of each alternative
- Identify strategies to overcome roadblock;
- Demonstrate the validity of the data sources;
- Suggest an action plan and implementation schedule.
In the implementation phase final approval is secured on the basis of a written report and steps are taken to enhance the prospects of success. Early disclosure is recommended to warn the originators of any objections to the proposal elsewhere in the organisation. This early warning gives the originators an opportunity to incorporate explanations and details into the final report to overcome the objections. These preliminary discussions often produce additional suggestions that improve the proposal and enable the decision-maker to contribute directly.
Implementation depends on the rapid approval by the decision-makers for each organisational component affected by the proposal. The VA/VE team members should serve as liaison between decision-makers and other stakeholders by preparing information that weighs the risks against the potential rewards and by identifying potential roadblocks and solutions.
Function analysis system technique and SAVE International
From this quick review we can see that VA/VE involves careful iterative development of the problem to be addressed and careful management of the organisational dimension of making the proposed changes. A major turning point in the development of VA/VE came in 1963 when a function-logic diagramming procedure called “function analysis system technique” (FAST) was created by Charles W. Bytheway.
In 1959 the Society of American Value Engineers (SAVE) was incorporated. SAVE International® is the main international society for the advancement and promotion of value methodology, with members in more than 35 countries working in a variety of fields, including construction, product design and manufacturing, transportation, health care, government and environmental engineering. SAVE covers education and training, publications, tools for promoting the value methodology, certification, networking and recognition. In 1973, SAVE embarked upon a formal certification program for the competence of professional value engineers, which has evolved to include three levels of certification.
The first federal law in the USA requiring value engineering was passed in 1981: The Clean Water Act. Subsequent success of application of value engineering resulted in the first issuance of Circular A-131 by the Office of Management and Budget in 1988 which required federal departments and agencies to use value engineering as a management tool to reduce program and acquisition costs. That was followed by Public Law P104-106 in 1996 covering the acquisition of IT by defence agencies. The head of each executive agency must design and implement process for maximising the value and assessing and managing the risks of the information technology acquisitions. Legal requirements for VA/VE are now quite common in the US.
Value Analysis first came to the UK in 1957 and the Value Engineering Association was formed in 1966 as an initiative by the Ministry of Technology. It became the Institute of Value Management in 1971. There is a European Association for the Management of Training and Certification in Value Management with a European Governing Board, which was founded following an initiative by the European Council of Ministers to strengthen Europe’s innovative capacity and competitiveness.
In the US, VA/VE is strong in the defence industries and in 2010 the Department of Defence funded the Institute of Defence Analysis to explore the synergy between VA/VE and lean six sigma. This study concluded that opportunities for synergy between the two approaches include the following:
- Function analysis and the FAST diagram. The disciplined use of function analysis is the principal feature that distinguishes the VA/VE methodology from other improvement methods. Function analysis challenges requirements by questioning the existing system, encouraging critical thinking, and developing innovative solutions.
- Cost focus – VA/VE only develops alternatives that provide the necessary functions. By examining only those functions that cost more than they are worth and identifying the total cost of each alternative, VE explicitly lowers cost and increases value.
The IDA authors suggested that VE does not take the place of lean six sigma (LSS) efforts, but it does present significant opportunity to enhance LSS. They recommended that LSS training be augmented to include the VE approach to function analysis, creativity, and associated elements of evaluation and development.
CIMG developed a cost innovation strategy to move upmarket. Graaff was once again the source of new technology but CIMG used its lower cost design and engineering capabilities to improve on the new technologies. This drive went on to tackle the replacement of expensive aluminium in its refrigerated containers with cheaper steel. Taking steel treatment technology from Germany it was able to improve the performance of steel until it matched the performance of aluminium. The result was that between 1997 and 2003 production of refrigerated containers went up sevenfold.
The next stage meant increasing the variety of products offered to customers at low cost. For example, CIMG were able to reduce the set-up time for model changes in production from twenty to five minutes. Currently CIMG has over 40 per cent market share in the international container business and 56 per cent market share in the dry marine container market. It has 12 production bases in South, East and North of China.
Zeng and Williamson have collected a number of similar Chinese case studies in different sectors including, Lenovo in IT, Pearl River Piano and Wanxiang in automotive universal joints. These developments are set in a wider context in a major study that has just been published by Nesta, China’s Absorptive State: research, innovation and the prospects for China-UK collaboration. This report lists ten key findings: the first is that China is increasingly adept at profiting from global knowledge and networks.
Secondly China is maintaining its overall priority of becoming a more innovative economy under its new leadership with more emphasis on quality, efficiency and evaluation. Having reviewed the evidence Nesta concludes that China is embracing diverse innovation paths. Nonetheless in the last five years a number of Chinese multinationals have emerged as global majors and China’s capability for incremental re innovation has become a major national asset. The report sets out the advantages of UK collaboration