World-Class, Lean Performance in the SMEs - Small and Medium Enterprises - by Carlo Scodanibbio, Industrial & Business Consultant - Lean Management Consultant

Carlo Scodanibbio
Industrial & Business Consultant
Lean Management Consultant

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Value Analysis and Value Engineering

Monsters are very intelligent.
When offered a product (or a service) they put their mind-computer into gear, examine the product and very quickly evaluate the situation:

utility, worth, cost, value

The offered product or service carries certain elements of utility, which may be of interest to the monster. Through an appraisal of those elements, the monster converts them into elements of worth.
On the other side, the offered product or service carries a (selling) price, which is a cost to the monster.
While utility and worth are subjective entities, cost is objective.
In a "ziff", the monster makes his own (subjective) correlation between worth and cost: by doing so, he calculates the value of the offered product/service. The value to him. So, subjective again.
The decision-making process that follows is very fast:

worth, cost, value

Yes, monsters like me and you are very sharp and very fast in deciding the overall resulting value of a products or a service. If that correlation worth-cost is right or seems to be right, we go for it. If not, we quit. Finito.

So, to satisfy monsters, an enterprise should ensure that the products/services it offers carry a reasonable/good/high appeal to the market. This is done by maximising the worth/cost ratio.

Most enterprises achieve that effect in one or more possible ways: by experience, by entrepreneurial "feeling", by scientific market surveys, by luck and even by coincidence.

The world-class enterprise achieves that effect through the use oh healthy Value Analysis - Value Engineering principles.
Yes, the Value Management philosophy (more ») intervenes once more to give clear indications of the path to follow.....

In a nutshell:

  • VE - Value Engineering is a discipline consisting of an "organised way of thinking to examine all the cost components of a product (or service, or system) in order to determine whether any cost item can be reduced or eliminated without detracting its functional, quality or aesthetic elements", thus maintaining an adequate level of worth or even enhancing it.
    Value Engineering is applied to new products/services, at design/development stage.
  • VA - Value Analysis does the same as Value Engineering, but for existing products/services.

The Value Engineering discipline includes the overall Value Analysis approach, as well as the so called Value Assurance method.

Value Engineering can equally and beneficially be applied to products, services, and processes of any nature.

The principles of Value Engineering, when applied to Manufacturing processes, originate such disciplines as Lean Manufacturing and Flow Production.

The principles of Value Engineering, when applied to Service processes, originate such disciplines as Process Improvement and Management and Process Engineering.
How does Value Engineering work?

Firstly, it considers and analyses value in a product/service and makes a distinction between USE VALUE, ESTEEM VALUE, EXCHANGE VALUE and MARKET VALUE. Where:

USE VALUE is the core concept that leads to all other aspects of economic value.
It is the value that originates from the possibility of exploiting the "use" (the functions) of a product or service.

ESTEEM VALUE is value that contributes to enhance/increase a person's self esteem.
Product/service functions/features "touching" a person's sense of aesthetics, prestige, morale, etc. are very important.
in fact, today, it is the "cocktail" of use and esteem value that determines monster satisfaction.

EXCHANGE VALUE is value that a product/service has "on the market". Governed by the law of supply and demand.

MARKET VALUE is the final measure of product value and is determined by the market (monsters' hard law....).

Those above are the four most significant aspects of Economic Value. It's easy to note that Economic Value is both subjective and objective.
In VA/VE all aspects of Economic Value are always considered from the customer point of view.
Secondly, Value Engineering is concerned with functions.
It involves an objective assessment of functions performed by parts, components, products, equipment, procedures, services - anything that costs money.
The VE approach is aimed at identifying the functions necessary to provide the wanted level of use value and esteem value at the lowest possible cost, thus assuring the correct market value and exchange value of the proposed new product or service.
This is done without sacrificing or compromising on all the essential reliability, performance, and maintainability parameters of the value-engineered product/service.

The functional analysis is the core exercise for the Value Engineering Team.
A number of questions need to be answered. Example:

  • What is the function?
  • Is it the right function to satisfy the demanded qualities?
  • How much does it cost?
  • What else would achieve the function?
  • How much would the alternative cost?

Immediately, the link between Value Engineering and Quality Function Deployment (more ») pops out crisp and clear. The new product/service core functions are those apt to satisfy the clients' demanded qualities identified by the QFD method.

Hence the necessity of performing the Value Engineering exercise in strict association with the Quality Function Deployment exercise, and not isolated nor "in sequence".

The VE approach is therefore based on an integrated Team exercise. Rather than QFD Team or VE Team, the new-world enterprise should consider a product/service development team able to use at the right time the right discipline, be it Quality Function Deployment, or Value Engineering, or FMEA........
This is the heart of the modern Concurrent Engineering approach (more »).
Then, the VE methodology is rather simple and straight-forward.
Being a "thinking tool", it is based on a logical and rational "drill" implemented in stages.
So there are well defined steps:

  • a Preparation Stage - and then
  • an Information Phase
  • a Functional Analysis Phase
  • a Speculation/Creative Phase
  • an Evaluation Phase
  • an Implementation Phase
  • a Presentation Phase

A number of tools and techniques are available to the team. Certain forms may be beneficially used. Past experience helps considerably.
But what is really important is the choice of the team members, their preparation, and the concurrent approach.

The SME should conveniently simplify and personalise the traditional VE method.

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