Purchasing & Value Analysis


Published on

This presentation is designed to give purchasing, materials, supply management, sourcing, contracting, logistics, acquisition and procurement personnel a process of value measurement to quantify the value of purchased goods or services. Learn how to use Value Analysis to target goods and services where cost can be reduced, performance improved, quality enhanced, non-essentials eliminated, downsized, or consolidated through a step-by-step process of value identification and measurement.

The genesis of value analysis and value engineering can be traced to similar, parallel developments in the late 1940’s taking place at General Electric Company and Ford Motor Company. As a concept definition: it is the organized and systematic effort and study directed at analyzing the functional requirements of the system, product, equipment, facility, service or project for the purpose of achieving the lowest overall total cost at the best value. This means consistent with the needed performance, reliability, quality, and maintainability.

Join the trend of many purchasing, sourcing, contracting, and supply management organizations who are reaping the rewards of Value Analysis (VA) and Value Engineering (VE) as a practical tool to improve performance and reduce the cost of goods and services. Their experience with cost reduction projects reveals that by merely determining what things cost and documenting cost breakdowns, one can reduce costs 5%. Improving the choice of material, conceptual design, and methods can further reduce cost by another 10%. Finally, developing a better way to perform what a project or a service was originally intended to do, one can save even more—20-30% and beyond!

Not convinced of the critical importance of value analysis/value engineering VA/VE--- then you must not be interested in product enhancement, service concept augmentation, cost reduction, and profit improvement. Those kinds of payoffs don’t come easily, however. Success depends on three things: understanding of the concept by those who will be involved, strong top management support, and enthusiastic team or project oriented direction to get and keep the program rolling.

No wonder that Purchasing magazine for years dedicated an annual issue to its “Value Analysis of the Year” Awards. Why? According to experts, VA/VE can make a difference: simple projects can take anywhere from one day to six weeks to implement with savings up to $2,000; intermediate projects can range from six weeks to six months with savings of $2,000 to $10,000; and complex projects can take six months to six years with savings ranging from $10,000 to $1 million.

Published in: Business, Technology
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Purchasing & Value Analysis

  1. 1. Purchasing & Value Analysis A Presentation to BVPPA by Thomas L. Tanel, C.P.M., CTL, CCA, CISCM President & CEO CATTAN Services Group, Inc. College Station, TX Created by CATTAN Services Group, Inc. © 2000
  2. 2. Value
  3. 3. Introduction to Value Analysis (VA) and Value Engineering (VE) How it Began Terms used for VA/VE Defining VA/VE
  4. 4. Causes of Unnecessary Costs Lack of time Lack of complete info Lack of measurements of value Lack of cost knowledge Honest but wrong beliefs New technology Lack of communications/poor human relations NIH attitude Fear of embarrassment Habits and attitudes Customs/traditions
  5. 5. Range of Application VA/VE applies to everything because everything has a function. A few of the components or items of any system, project or product usually constitute a majority of the cost. As the baseline becomes more detailed, more information becomes available and more detailed studies can be conducted. VA/VE is a problem solving technique.
  6. 6. A-B-C Purchase Classification of Value A B C Annual Total Purchasing Expenditures/ Buys 70-85% 10-25% 1-5% Annual Total Number of Suppliers 5-20% 20-30% 50-60% Annual Total Number of Services, Products, and Materials 10-20% 25-30% 50-60% Annual Total Number of PO Transactions 5-10% 15-25% 50-70% Percentage
  7. 7. What is Value Analysis? Value Analysis is an organized creative approach Value analysis focuses on the function
  8. 8. VA/VE Conceptual Tools Three general conceptual tools are basic to the operation of a value analysis/engineering program: Design analysis Cost analysis Brainstorming
  9. 9. Asking the Right Questions The in-depth questioning is basic to the VA/VE approach. The technique was developed at both Ford Motor and General Electric, independently, in the late 1940‟s. These basic questions used by both Ford and GE are as applicable today—perhaps even more so, as they were then.
  10. 10. Asking the Right Questions— Ford Motor Ford‟s purchase analysis group subjected key parts and assemblies to these questions: Why are we buying this particular item? Is it the best and most economical product for the purpose? Is there a more economical method of manufacture that would produce an equally useful product? What constitutes the best price in terms of ultimate cost?
  11. 11. Asking the Right Questions— Ford Motor (Con‟t) What constitutes a fair price? What is the best source? How can we help suppliers to reduce the costs of production? How can we eliminate or minimize extra costs in handling, packaging, and transportation?
  12. 12. Asking the Right Questions— General Electric GE‟s „attack‟ under the guidance of Larry Miles of their Purchasing department, took the form of the famous “Tests for Value”: Does the use of the material, part, or process contribute value? Does it need all of its features? Can a usable part be made by a lower cost method?
  13. 13. Asking the Right Questions— General Electric (Con‟t) Is it made on proper tooling, considering quantities used? Do materials, reasonable labor, overhead and profit total its cost? Will another dependable supplier provide it for less? Is anyone buying it for less?
  14. 14. Value Is
  15. 15. Value
  16. 16. Function
  17. 17. Value Analysis—Equation Quality/Worth Value = Cost
  18. 18. How To Get Started in VA/VE Identify what it is and what does it do? Obtain and review all available cost information Try to anticipate roadblocks Promote cooperation with VA/VE effort Seek guidance from those in management that assigned study
  19. 19. Value Analysis— How To Get Started  You take the lead !  Recruit support as you go  Get a success under your belt---credibility !  Sell – Value Adding – Cost Elimination/Avoidance
  20. 20. Five Guidance Points from Management 1. After determining the scope 2. After gathering most info, review facts and assumptions 3. After function analysis, review the breakdown on cost and worth 4. After the creative step and preliminary judgment of ideas 5. After final judgment of ideas and ideas are selected for development
  21. 21. VA 7—Step Process 1. Information Step 2. Function Step 3. Creative Step 4. Judicial Step 5. Development Step 6. Presentation Step 7. Implementation Step
  22. 22. VA/VE Job Plan—Philips Example
  23. 23. Follow-Up Phase
  24. 24. VA/VE Study Accelerators
  25. 25. VA Is the Way—Ten Ways to Reduce Co$t Use it to reduce cost in design, concept or SOW Use cross-functional teams to approve product or service offering changes Consolidate supplier base using full service partners Reduce paperwork with supply base by using more EDI/E-Com Bundle any engineering changes or project scope changes quarterly Move towards common methods and standard items or services used at multiple sites or facilities Use returnable dunnage or containers instead of nonreturnable Identify and eliminate unnecessary testing, measuring and diagnostics Reduce the number of prototypes or models Consolidate “A” purchases with suppliers’ if possible
  26. 26. Four Basic Mental Powers
  27. 27. The Creativity Formula
  28. 28. Steps in the Creative Process Orientation Incubation Preparation Synthesis Analysis Verification Ideation
  29. 29. Major Blocks to Creativity