Page 152 - DMGT525_MATERIALS_MANAGEMENT

Unit 10: Value Analysis

international competition, fast changing technology and paradigm shift in information Notes
and communication. They observed that traditional budgeting mechanisms are more
mechanical and trend based because decision are taken at the top and there is parroting
back syndrome, which inhibits critical analysis.
Arunajatesan (2001) was skeptical about the efficacy of corporate rushing to information
technology if made without analyzing the cost compatibility, staff competence and problem
of obsolescence. However, he opted for the pursuit of cost improvement as a permanent
objective to guide the management in daily business and not just an ad-hoc effort of
cutting cost and get distracted with main focus of customers’ retention. Many companies
are retrenching in the face of economic downturn or reduce cost to maintain financial
stability because they see cost reduction as an end in itself, but they need to broaden their
vision by recognizing that cost reduction is only one component of cost management
(Courtney 2002). A virile tool of cost management is value analysis, which is needed to
achieve sustained growth because it addresses other components of the company’s
management structure, process and technology (David and Kogan 2001). In the operation
of value analysis, product design features are evaluated relating to cost and construction
while elements not contributing to functions are eliminated (Jarvis, 2002).

According to Courtney (2002), value analysis takes a company through three levels in
evolutionary cycle. These cycles are:
1. Business Function (Tactical): Here, a company’s processes are concentrated on the
business function within a single department. Manager tends to fixate on isolated
cost centers such as human resources, real estate, training or research and development.

2. Business Aligned: The Company’s processes are focused on cost-enterprise efforts
that involve the whole value chain. For example, a company creates a business to
cross-sell to customers through online and traditional channels, realize cost
efficiencies, build customers loyalty and increase sales.
3. Ecosystem aligned: At this highest level, a company moves beyond its own
boundaries into the connected world. Its processes are highly involved, enabling it
to develop alliances and partnerships with other companies to better manage cost.
Here, cost management is fully integrated into a company’s culture, strategies and
operations that bring benefits of sharing centralized facilities and resources such as
corporate headquarters, top management, and research and product development
(Adekanola, 2007). Companies at this level see cost management not only in terms
of reducing expenditures or increasing operating efficiencies, but also in term of
doing things in new, different and imaginative ways.

Courtney (2002) concluded that the growth of the ecosystem had opened up more
opportunities for the formation of organizations that can adapt quickly to change,
deliver predictable value and efficiency, achieve significant competitive advantage,
and realize significant cost saving but it requires imagination and bold
leadership.
Value Analysis Process
Jarvis (2002) asserted that value analysis is based on the application of a systematic work
plan that may be divided into six steps namely orientation, information, analysis,
innovation, evaluation, implementation and monitoring. At orientation stage, what to be
analyzed is identified and this will typically be one of manufactured items, a process or
service while information stage identifies and prioritize the customer of the item. Analysis
phase is the stage when functions of the product are analyzed by functional analysis,
Contd...

LOVELY PROFESSIONAL UNIVERSITY 147