Page 328 - DMGT501_OPERATIONS_MANAGEMENT

Operations Management

Notes The objective of the Function Cost Matrix approach is to draw the attention of the analysts away
from the cost of components and focus their attention on the cost contribution of the functions.
The Function Cost Matrix displays the components of the product, and the cost of those components,
along the left vertical side of the graph. The top horizontal legend contains the functions
performed by those components. Each component is then examined to determine how many
functions that component performs, and the cost contributions of those functions.
Detailed cost estimates become more important following function analysis, when evaluating
value improvement proposals. The total cost and percent contribution of the functions of the
item under study will guide the team, or analyst, in selecting which functions to select for value
improvement analysis.
A variation of the Function-Cost Matrix is the Value Analysis Matrix. This matrix was derived
from the Quality Function Deployment (QFD) methodology. It is more powerful in two ways.
First, it associates functions back to customer needs or requirements. In doing this, it carries
forward an importance rating to associate with these functions based on the original customer
needs or requirements. Functions are then related to mechanisms, the same as with the Function-
Cost Matrix. Mechanisms are related to functions as either strongly, moderately or weakly
supporting the given function. This relationship is noted with the standard QFD relationship
symbols. The associated weighting factor is multiplied by customer or function importance and
each columns value is added.
These totals are normalized to calculate each mechanism's relative weight in satisfying the
designated functions. This is where the second difference with the Function-Cost Matrix arises.
This mechanism weight can then be used as the basis to allocate the overall item or product cost.
The mechanism target costs can be compared with the actual or estimated costs to see where
costs are out of line with the value of that mechanism as derived from customer requirements
and function analysis.

14.3.3 Importance of Value Analysis

Implemented diligently, value analysis can result in:
1. reduced material use and cost
2. reduced distribution costs

3. reduced waste
4. improved profit margins
5. increased customer satisfaction

6. increased employee morale
14.4 Centralized vs Decentralized Purchasing

There are many ways to run a purchasing department. What business functions are included is
one. Some companies include various material management responsibilities, inventory control,
warehouse and logistics in the one department. In larger companies you might find all of these
functions as separate departments. The major question is always whether to be centralized or
decentralized. This is usually a decision of top management, Chief Purchasing Officer, Director
of Purchasing or possibly the Chief Executive Officer or owner. There is no magic formula to
determine which way is the best.

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