Page 142 - DMGT525_MATERIALS_MANAGEMENT

Unit 10: Value Analysis

(d) Reduce the Price PR(N) and reduce the cost of Production C(N) in a higher proportion. Notes
Considering all the above four alternatives and simultaneously taking into account the
behaviour of the market, one has to realize that the user wouldn’t mind a higher price, if,
he is satisfied that the additional performance which he will get, will more than compensate
the additional price which he would pay for that product.
10.1.2 Value Analysis

Lawrence Miles conceived of Value Analysis (VA) in the 1945 based on the application of function
analysis to the component parts of a product. Component cost reduction was an effective and
popular way to improve “value” when direct labor and material cost determined the success of
a product. The value analysis technique supported cost reduction activities by relating the cost
of components to their function contributions.
Value analysis defines a “basic function” as anything that makes the product work or sell.
A function that is defined as “basic” cannot change. Secondary functions, also called “supporting
functions”, described the manner in which the basic functions were implemented. Secondary
functions could be modified or eliminated to reduce product cost.

As VA progressed to larger and more complex products and systems, emphasis shifted to
“upstream” product development activities where VA can be more effectively applied to a
product before it reaches the production phase. However, as products have become more complex
and sophisticated, the technique needed to be adapted to the “systems” approach that is involved
in many products today.
The first Value Analysis (VA) program was established in the General Electric, USA by about
1947, since then the programme has received considerable attention and many successful
applications have been reported. Though the technique started with analysis of purchased items
it has been extended to manufactured items as well.
The idea behind Value Analysis is not new. The approach to the problem essentially differs from
that of the other Cost Reduction techniques. A customer when buying a product weighs its
functional and other features (appearance, attractiveness, get-up) against its price and judges the
value of the product. Manufacturer in turn, in order to enhance the value of his products must
ensure that he offers all the necessary functional features at the lowest possible price. This
functional approach is the basic criteria of value analysis. It tries to obtain a “function” and “not”
the “part”, at a lesser cost.
This has the fundamental base, as the user is not at all interested as to how the part looks like, or
what it is made of, as long as the desired function is performed to his satisfaction along with the
required level of Quality & Reliability.

Self Assessment

Fill in the blanks:
1. Value can be expressed as maximizing the function of a …………… relative to its cost.

2. Component cost reduction was an effective and popular way to improve “…………….”.
3. A function that is defined as “………….” cannot change.
4. The first Value Analysis (VA) program was established in the ……………………….

LOVELY PROFESSIONAL UNIVERSITY 137