Organizational Aspects of Value Analysis (VA)

At the outset, let it be clear that VA requires top management support. The VA also requires team work. The VA function can be organized as per the needs of the organization – its size, operations, product line etc. It can be administered by the staff at the corporate office or it may be run on decentralized basis or a balanced combination of both. A decentralized and local VA group is accepted as a helpful service. This is especially effective when manufacturing units are set up on product line basis and are autonomous cost and profit centers. VA however is not as firmly entrenched as marketing, finance and other corporate functions. There are frequent resistance problems to VA. Its endorsement at the top level leads to acceptance at lower levels. VA is also affected by the management level to which it reports – it must be wide enough to cover all areas affecting the validity of the study, high enough to communicate with decision makers responsible for implementation, powerful enough to control and take responsibility for the administration and assignment of VA group.

Benefits from Value Analysis (VA):

There are several direct and indirect benefits which can accrue from the introduction and practice of Value Analysis (VA). Some of these are:

1. A reduction in cost of existing products or systems
2. Prevention of unnecessary cost in new products or systems. These two are quantifiable and can be easily measured.
3. The introduction of VA leads to overall cost consciousness and a general attitude change towards costs.
4. Product Value gets improved and the quest for new materials and processes get encouraged; it provides a great boost for import substitution.
5. Systems relating to cost and estimating usually benefit from reorganization necessitated by the wider use of cost information.
6. Finally, a greater return of investment results. In other words, greater accrue.
7. VA is a very important tool in contracts, and it is good to have a VE Incentive Clause to encourage a contractor to reduce the costs. There could be sharing of resultant benefits in a fair manner.

VA through Vendors:

Some materials managers claim that VA is an MM technique. However, when it comes to actual application of VA by material professionals in their various functional areas; the record is not exactly impressive. Even in organizations which take VA seriously, the involvement would appear more from other disciplines – industrial engineering, production, R & D etc – than from materials management.

Against this backdrop, C K an MM Consultant suggests vendor’s involvement for VA. In the USA it is obligatory for defense contracts above certain value to include a VA clause. This is a highly desirable step, not necessarily confined to defense orders. There is a strong case to involve case to involve vendors in VA for major contracts, particularly in new projects and top their innovative skills. The benefit of any cost reduction brought about by vendors. VA efforts must be shared fairly between them and buyers’ organization. The former ought to get preferences in the placement of orders and other concessions. This approach need not be limited to work contracts. Whenever the specifications are not rigid or critical and depending upon the value, volume and frequency of demand, this practice is relevant and beneficial to both vendors and buyers.

Incidentally, many materials managers do not seem to be aware of a national body functioning in India to promote VA. We are referring to the Indian Value Engineering Society (INVEST) with headquarters in New Delhi at 9 Commercial Center (North), Panchshila Park, New Delhi 110 017. Its quarterly organ, THE INVAVE publishes interesting articles and Indian case studies on the subject. This society, affiliated to the world body, has been doing excellent work in spreading the concept of VA in this country.