During the Second World War, one of the most serious problems faced by companies engaged in the war effort was the shortage of materials. This led to experimenting with substitutes, quite often in very unorthodox ways. In many cases, the experiments clicked and surprisingly there were a large number of instances where the substitutes were much cheaper and functioned more efficiently than the original material.
After the war, Harry Erlicher, the Vice President of purchasing, General Electric Co. (USA) felt that this problem of finding out substitute could be done in a more scientific way and as a deliberate approach, rather than by an ad hoc crisis approach. He entrusted this job to a team of engineers headed by Lawrence Miles. In fact it was Miles the term Value Analysis and its synonym, Value Engineering. This team under his stewardship pioneered this technique and perfected it and, it is said, saved their company $ 200 million over a period of 17 years. In America, the technique is very widely used and is given deal of importance.
In fact, the US Defense Department insists that Value Analysis should be applied in all contracts in excess of $100,000. Mr McNamara is on record as having said that in the year ending July, the Defense Department saved $ 4.6 billion by using Value Engineering without any adverse effect in our strength and combat readiness.
In India, the technique is catching on, but slowly. The basic difference between us and the Americans is that when they see something that is useful to them, they grab it. We are less enthusiastic in accepting change.
LD Miles, the father of this concept, wrote in 1961, a book, Techniques of Value Analysis and Engineering. Navy Bureau of Ships was the first organization to use VA in 1954. Society for American Value Engineers (SAVE) was established in 1959. VE programs came in vogue in many companies of the US, UK, and Japan. In India, now we have Indian Value Engineering Society (INVEST) to create awareness of this approach and to propagate this concept.
Types of Value
It is usually difficult to specify value mainly because values change from person to person. Generally speaking, there are seven classes of value – economic, moral, aesthetic, social, political, religious and judicial.
Of these, only the economic classification can be considered to be objective. It is the only on which can be measured. The others can be evaluated only subjectively.
Within the class “Economic value” there are four subdivisions:
1) Use Value: Properties which accomplish a use, a work or a service.
2) Esteem Value: Properties which make the ownership of the object very desirable.
3) Cost Value: Properties which are the sum of the labor, materials, overheads and other costs required to produce that object.
4) Exchange Value: Properties that make the object possible of being trades for other items.
It is apparent that only “Use value” is objective.
In almost everything we buy, we relate what we get to what we have paid for in terms of performance, reliability appearance etc.
If we can collectively term these as “function” then we can express value in a mathematical way i.e.
Value = Function / Cost
By cost, we mean the total cost (e.g. of material, labor, overheads etc) required to produce the article. If we keep the function constant, we see that we get greater value when our costs come down.
Value can be increased –
1) When we reduce costs
2) When we improve function
3) By (1) and (2) together
4) When we increase function by a disproportionately low increases in costs.
Usually most of us lack the ability to measure value. In industry most of us are performance or delivery oriented and we hardly search for or get cost information. Practice of value analysis sharpens this latent ability to determine worth and measure value and more than all to eliminate unnecessary costs.