Page 162 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 8: Supply Chain Management

forward buying and diverting practices may make as much profit all the way through these Notes
buying practices as they create through non-promotional sales to consumers. Manufacturers
offer discounts to retailers presumptuous the retailer will pass the savings on to consumers. The
discounts also can speedily move a large amount of inventory when the manufacturer needs to
reduce stock. As more retailers make use of the forward buying strategy, manufacturers such as
Procter & Gamble are switching to every day low pricing (EDLP) strategies in its place.

Self Assessment

Fill in the blanks:

4. Purchases represent about ……………… percent of the cost of the finished product.
5. Three criteria most often considered by firms selecting new suppliers are price, quality,
and ……………… .

6 A ……………… decision should be viewed as an investment decision.
8.3 Value Analysis/Value Engineering

What provides value to the product? A way to consider the customer’s view in designing products
is by analyzing the value they see in the end product. It is important that the value be designed
into products.
Value Engineering is an organized creative technique directed at analyzing the functions of a
product, service or system with the purpose of achieving the required functions at the lowest
overall cost consistent with all the requirements, which comprise its value, such as performance,
reliability, maintainability, appearance, etc.
Value, in general, is defined as the ratio of the function and cost. It reflects what the product,
service or system accomplishes and at what cost. Thus:

Value = Function/Cost
Where, ‘Function’ is expressed as units of performance, and
‘Cost’ is expressed as a monetary unit.
Value engineering is used as a generic term and generally includes value analysis.

Did u know? What is the purpose of value analysis/Value Engineering?

The purpose of both value analysis (VA) and value engineering (VE) is to simplify products
and processes.
VA specifically deals with products already in production and is a cost reduction technique. It is
used to analyze product specifications as shown in production documents to achieve similar or
better performance at a lower cost while maintaining all functional requirements defined by the
customer. Value engineering is performed before the production stage, and is considered a cost
avoidance method.

Value Engineering starts with the classification and identification of a product, service or system.
The functions of the product, service or system are identified. Each function is evaluated and
compared. The process involved in value engineering is as follows:

Step 1: Identify each of the functions of the product or service and list them down.

LOVELY PROFESSIONAL UNIVERSITY 157