1. No category

PROCEEDINGS OF T H E
HOW
TO
SAVE
CONFERENCE
APPLY VALUE ANALYSIS
Ted
R.
IN
— 1978
PROCUREMENT
Thompson
S i n c l a i r Community C o l l e g e
Dayton, Ohio
Value Analysis started i n the
Procurement Department of General
Electric
Company some t h i r t y y e a r s ago t h r o u g h a
systematic a p p l i c a t i o n of a questioning
a t t i t u d e toward a l l elements of c o s t s .
The g r o w t h and d e v e l o p m e n t o f
Value
A n a l y s i s / V a l u e E n g i n e e r i n g has gained i t s
g r e a t e s t impetus from the
competitive
forces of the marketplace.
T h e s e compet i t i v e f o r c e s h a v e made i t i m p e r a t i v e
that p r o g r e s s i v e companies develop
vigorous p r o g r a m s i n - h o u s e and w i t h
their
suppliers or vendors to reduce m a t e r i a l
c o s t s of the f i n i s h e d products- through
Value A n a l y s i s .
We m u s t g r o w m o r e a n d
more e f f i c i e n t i n o r d e r t o s u r v i v e and
prosper i n the competitive
marketplace
through a constant search for m a t e r i a l s
and methods o f m a n u f a c t u r e w h i c h w i l l
a s s i s t i n t h e d e v e l o p i n g o f new
sources,
new a n d b e t t e r p r o d u c t s , n e w m a t e r i a l s ,
and s y s t e m s and m e t h o d s .
1.
Renegotiating w i t h present suppliers.
2.
E l i m i n a t i n g i t e m s by a s k i n g t h e
q u e s t i o n , "Does t h e p a r t p e r f o r m an
e s s e n t i a l f u n c t i o n ? " and i f t h e answer
i s n e g a t i v e , then look f o r ways to
e l i m i n a t e the p a r t .
Should the answer
be p o s i t i v e , d e t e r m i n e w i t h t h e
assista n c e o f d e s i g n e n g i n e e r i n g how
the p a r t
o r p a r t s c a n be r e v i s e d t o r e d u c e
costs.
3.
R e s e a r c h and t e s t t h e m a r k e t
through a comprehensive source
survey.
4.
Consider suggestions
regarding
changes i n s p e c i f i c a t i o n s and/or m o d i f i c a t i o n s i n d e s i g n or p r o c e s s i n g methods
from vendors or s u p p l i e r s .
See
Exhibit
A—Request for
Quotation.
5.
C h a n g i n g t h e method o f manuf a c t u r e ; i . e . , a screw machine p a r t
m i g h t become a h o t - f o r g e d p a r t , a h o t f o r g e d p a r t may
j u s t as
satisfactorily
be made a s a c o l d - f o r g e d p a r t .
A
f o r g i n g may
become s t a m p i n g o r a c a s t i n g .
See E x h i b i t
B.
6.
Changing the b a s i c m a t e r i a l a f t e r
a c a r e f u l review of a l t e r n a t i v e s which
c o u l d be l e s s e x p e n s i v e b u t
satisfactory.
7.
R e v i e w o f t h e p a r t by t h e makeor-buy group as to whether t h e r e i s
some c o m p a n y t h a t m a s s p r o d u c e s s i m i l a r
items f o r example b o l t s .
8.
R e v i e w a n d e x a m i n e own
company
f a c i l i t i e s for efficiency in handling
s t o r i n g and m a n u f a c t u r i n g .
9.
Use s t a n d a r d i z a t i o n methods.
10.
Buy e c o n o m i c a l l y , m a k i n g c e r t a i n
that q u a n t i t y breaks are used, c o n s i s t e n t
with requirements;
i . e . , blanket orders
and s y s t e m s c o n t r a c t i n g .
11.
R e v i e w t r a n s p o r t a t i o n and
storage costs.
Keep i n v e n t o r y c o n s i s t e n t
w i t h l e a d time
requirements.
12.
Study of packaging
and
coordinate
w i t h s t o r a g e and
handling.
13.
Review c l o s e l y m a t e r i a l s p e c i f i cations; i . e . , steel, chemicals,
oils,
paint, paper, e t c . as to s i z e ,
chemical
standards, packaging
and
modifications.
14.
E x a m i n e and e v a l u a t e c o m p e t i tors' products at regular intervals.
Remember t h a t no one h a s a c o r n e r on a l l
of the resources, technology,
and
ingenuity of the business world.
Theref o r e , we m u s t b e o b j e c t i v e t o c o m p a r e .
15.
Have "open h o u s e " and
seminar
for
suppliers.
The m a j o r a r e a s o f c o n c e r n f o r V a l u e
A n a l y s i s e f f o r t a r e (1) M a t e r i a l c o s t s
which are used d i r e c t l y i n the manufact u r e o f a p r o d u c t o r MRO
m a t e r i a l s and
s e r v i c e s t o o p e r a t e t h e company; (2) P r o duction c o s t s which i n c l u d e s the d i r e c t
labor c o s t s through a change to the
m a t e r i a l c o s t , c o s t s a v i n g s t h r o u g h an
organized program of i n t e n s i v e r e s e a r c h ,
c o v e r i n g p r i c e s , f u n c t i o n s and d e s i g n o f
t h e m a t e r i a l s , s e r v i c e s , l a b o r and
machines used i n producing
products.
Techniques
for a successful
Value
A n a l y s i s / V a l u e Engineering which have
c o n t r i b u t e d to p r o f i t improvement are
through the a s s i s t a n c e of s u p p l i e r s or
vendors, reviewing annual c o s t s for
m a t e r i a l s , s e r v i c e s and l a b o r and u s e o f
t h e f i g u r e s a s t h e b a s i s f o r j o i n t committee
efforts.
T h e l i s t may
be p r e p a r e d i n c o m m o d i t y
form or i n terms of the b a s i c b i l l
of
materials for each major product.
From
t h e l i s t y o u c a n i d e n t i f y some new
cost
improvement i d e a s .
The p r o j e c t s w i l l v a r y i n t y p e s
and
complexities therefore requiring different techniques which are necessary for
the development of the f u l l savings of
each p r o j e c t .
There a r e s e v e r a l ways to
reduce c o s t s such a s :
67
PROCEEDINGS OF T H E
SAVE
CONFERENCE
— 1978
Make o r Buy
P a c k a g i n g and H a n d l i n g
Q u a n t i t y change
Vendor s e l e c t i o n
Schedules
Market c o n d i t i o n s
Competitive s i t u a t i o n
Financing
Source c l a s s s p e c i f i c a t i o n
Price
T h i s i s a prime source f o r c o s t r e d u c t i o n i d e a s , u t i l i z i n g new m a t e r i a l s ,
new methods and new p r o d u c t s .
Sources o f supply have been v e r y
c o o p e r a t i v e i n s u p p l y i n g p a r t s , commodit i e s and s e r v i c e s t o t h e i r c u s t o m e r s .
They have been e f f e c t i v e i n c o s t r e d u c t i o n and V a l u e A n a l y s i s i m p r o v e m e n t p r o g r a m s , many t i m e s o r i g i n a t i n g w i t h t h e
s u p p l y ; o t h e r t i m e s s u g g e s t e d by t h e
buyer or customer.
The s u p p l i e r knows
t h e b e n e f i t s and c o n v e r s e l y t h e p r o b l e m s
c o n n e c t e d w i t h y o u r p r o d u c t i o n o r manuf a c t u r i n g ; hence, a s u g g e s t i o n a s t o des i g n t h a t i s s t a n d a r d w o u l d be welcomed
by a p r o f e s s i o n a l b u y e r .
T h i s type o f
cooperation could i n c r e a s e the s i z e of
production runs, a d e c r e a s e i n manufacturi n g c o s t s and t h e a v o i d a n c e o f u s i n g a
s p e c i a l p e c u l i a r p a r t , thus r e s u l t i n g i n
a s a v i n g s . A check l i s t of q u e s t i o n s
t h a t a s o u r c e m i g h t a s k c o u l d be a s
follows:
a.
Would a r e v i s i o n i n m a t e r i a l
s p e c i f i c a t i o n s w i t h o r w i t h o u t an accompanying redesign, o f t h e p a r t o f f e r any
prospects of a c o s t reduction?
b.
Would a r e d e s i g n o f t h e p a r t t o
permit r e v i s e d processing generate a
cost reduction?
c.
Would c h a n g e s t o t h e p a r t d e s i g n
t o make i t more s u i t a b l e t o y o u r e q u i p ment o r p r o d u c t i o n s c h e d u l e s p r o d u c e
cost savings?
d.
Would t h e s u b s t i t u t i o n o f an
i n d u s t r y s t a n d a r d p a r t o r a p a r t you a r e
p r o d u c i n g i n g r e a t e r volume f o r o t h e r s
r e s u l t i n a reduced p r i c e ?
The p u r c h a s i n g man, t o do h i s work
p r o p e r l y , s h o u l d know t h e f u n c t i o n o f
an i t e m b e i n g r e q u i r e d i n o r d e r t o h e l p
the r e q u i s i t i o n e r o b t a i n f u n c t i o n a l
value.
T h e p u r c h a s i n g man may h a v e
n o t h i n g b e t t e r t o s u g g e s t t h a n w h a t was
r e q u i r e d — h e would then u t i l i z e h i s
purchasing s k i l l s to procure the p r e c i s e
item r e q u i s i t i o n e d .
VALUE
A
$
SIGN ON EVERY DECISION
Identify a n d Remove U n n e c e s s a r y
Value Analysis
A p r o g r a m o f V a l u e A n a l y s i s and C o s t
R e d u c t i o n endeavors would h e l p i n maint a i n i n g a r i g h t f u l p l a c e i n t h e marketplace since i t i s mutually b e n e f i c i a l .
Many p e o p l e f r e q u e n t l y c o n f u s e
standard purchasing s k i l l s with Value
Analysis techniques.
"How" t o buy i s a
p u r c h a s i n g s k i l l w i t h k n o w l e d g e o f Make
o r Buy, N e g o t i a t i o n , S o u r c i n g , C o m p e t i t i o n , S e r v i c e , P r i c e s , I n t e r v i e w i n g and
M a r k e t s ; w h e r e a s "What" t o b u y r e l a t e s
to t h e f u n c t i o n ; i . e . , s i z e , methods,
m a t e r i a l s , need, s t a n d a r d s , s p e c i f i c a tions.
S e e E x h i b i t C.
Is the Bridge Between "What"
"How" to Buy It.
MARKETS
. " -.
Cost
to Buy
JUNCTION
:
INTERVIEWS
-
PRICES
STANDARD
COMPETITION
A buyer of the p u r c h a s i n g department
f u l f i l l s h i s function completely i f ,
when g i v e n a r e q u i s i t i o n , he u s e s a l l
t h e s k i l l s a t h i s command t o o b t a i n t h e
i t e m r'equired from t h e b e s t p o s s i b l e
s o u r c e a t the most economical p r i c e .
Conventional purchasing can involve
judrcious balancing of a combination or
a l l of the f a c t o r s i n completion of a
requirement, such a s :
S I Z E
MAKE
OK BUY
METHOD
SOUFCLWG
SERVICE
68
SPEcntCATIOtf
MATERIAL
j
MEED
and
PROCEEDINGS OF T H E S A V E CONFERENCE
EXHIBIT
— 1978
A,
No. 3 0 8 7 6 5
REQUEST FOR QUOTATION
THIS IS NOT
AN
ORDER
RETURN TO:
PURCHASING
DEPARTMENT
li X" is in block, Ihis order is subject to otochment entitled ALLISON DIVISION CONDITIONS APPLC
I ABLE TO
0 PURCHASE ORDER S
ISUED UNDER GOVERNMENT CONTRACTS. Seller acknowe
l dges rece.pt of such oltATTENTION
ochment.
R E Q U E S T E D
DELIVER!'
OF
DATE
C L O S I N G
7/t - 1 LOT
b5/_
QUANTITY
DATE
5/7
MATERIAL
UNIT PRICE
QUOTE QUANTITIES BELOW
27912-81
RING
750 PC
1000
B/P ENCL
WE WELCCME SUGGESTIONS REGARDING CHANGES I N S P E C I F I C A T I O N S AND/OR MODIFICATIONS I N DESIGN
OR PRODUCTION METHODS WHICH W I L L A I D I N REDUCING COSTS WITHOUT IMPAIRING QUALITY, OR WHICH
W I L L IMPROVE THE QUALITY AND/OR PERFORMANCE OF THE PRODUCT ON WHICH YOU ARE QUOTING.
IU
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i dciate* !tat woX
r cr mae
tnai .n.tied lit ir,:s Request loi Q.ijlaa
ticn is (or use n
i der) the a
l test
• Iflev.ihIeui tkifiKClu-jit.tthe
.ate ol Cun-.n! L\.st ur PK
in
ig Data' set forth in the Am
r ed Servcies Procurement Rr..ljt.ini 3 *;!i
;07 J Goveinnitl contrail elqumng (if you are the successful bd
e bul>k 10 Ihe e
l u ded
i es SQAR (Suppe
ilr Quahyt Assuaince Requre
imen)t wherea
s
a
I
d
u
n
n f. oeuoe
ts S -'vhtd
' ion MLI Q 98b3A [lie matera
i l devilee
i d miil be in act od
l
I rtn.caliGi! MLI I i'/Mik alieie
.r a
l test 'e/iioi ul the specfciato
in n
i dciated
left of this ciiuis checked, it is unjeislonif thai the Asilon Dmsoin of General Moo
trs ard
i or t) S. Goven
rment hjj
h
tse thnisgntqu
tjotaao
ha
tiundti isif (or a m
il e and matea
i l and. oi an esm
it ae
td
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jct to -.'ubseou-int pnee Oce
tnin nao
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rig upon (be fjee and 'e.trie .ide nee
i ol •.hal te appcilabe
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isl descubed heren
i,
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' o
l r pup
iu ol accepa
tnce by the Buyer wtihn
i iity days aftei reieipt ty the 8uyri ul th.i quutauo.i Buyer rescues the i^nt lo ree
i ct any and all quotao
tins.
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SHIPPING
POINT
DELIVERY
DATE
SIGNED
CN
OUH PI.UCMSSIS
CONCORDANT WITH CLAUSE 32 AND 33 OF OUR PURCHASE
TFR'.'S AND CON1HTIONS INDICATE IF YOU ARE A
SMAI 1 OR 1 ARuf BUSINESS AND WHETHER YOU ARE IN
A LABOR SURPLUS AREA
SMALL Q LARGE Q LA-BOR AREA [ ] NON-LABOR AREA
[•AIE
. NOTE —F
I BILLING AND/OR SHP
I PN
I G IS 8Y
OTHER THAN FK
I M QUOTING. WE MUST BE
X^L^LW ADVS
I ED HEREON
O R H E R
69
IOU
PROCEEDINGS OF T H E S A V E CONFERENCE
EXHIBIT
—
1978
OLD DESIGN
B
AHoy Steel Saved $11,000. Yearly. T h e manufacturer of a tractor cylin
der head bolt reduced his cost per piece and realized an annual saving of
$11,000. by switching from hot rolled steel bars to cold drawn alloy steel.
This modification was at the suggestion of the supplier's machining
specialist.
Replace Casting with Stamping.
As a casting, a part requires considerable machining and costs $1.76.
A stamping to perform the same
function costs $.25. T h e tool charge
was $.10 per piece. Total savings
amounted to $1,410. a year.
Was complex configuration with
formed sheetmetal end and
machined flange
STAMPING
Change i n Material Produces Cost Reduction of $7,260. A cork stopper
had been used to plug the end of a steel cooler tube during shot blast operation. This stopper was good for only two operations. Buyer suggested use
of more expensive rubber stopper which would last indefinitely.
3 M
STEEL
SCREW -lc
TAP
HOlE_.... Ic
Total 2c
NEW DESIGN
L o w e r Cost Design Provides
Same Function. A brass screw engaging a tapped stud was used in
the assembly of a particular electrical cover. I n a new assembly, the
same purpose is accomplished by
using a plated steel screw long
enough to engage a tapped hole in
the base of the device, and the stud
is eliminated. Thus, the stud made
no contribution to the value of the
product.
Simplified configuration with
folded wire mesh welded together
at end and sheet metal formed
flange
T w o Steps in Value Analysis Cut Costs over 50%. Value analysis pointed
the way for reducing the cost of a stainless steel valve stem. T h e first stage
was a revision of purchasing practice, finding the right vendor and setting
ordering quantities at their most economical point. It was subsequently
determined that a two-piece assembly could be made, performing the same
function, which would result in a reduction of cost. A n over-all price reduction was effected from $.45 to $.20. About 35,000 of these parts are
used per year.
EXHIBIT
Value. Analysis
70%
IMPROVEMENT
SCREEN A S S Y
T H I S RECOMMENDATION HAS
B E E N I M P L E M E N T E D AND T H E
IMPROVEMENT I S
3
$2.03/PC
PCS USED/ENGINE
ONE Y E A R P O T E N T I A L
IMPROVEMENT.
$9,435.35
70
C
Is the Bridge Between "What"
"How" to Buy It.
to Buy
and
SAVE
PROCEEDINGS O F T H E
EXHIBIT
CONFERENCE
— 1978
D—Front
VALUE ANALYSIS & ENGINEERING
CASS STUDY REPORT
PURCHASING DEPARTMENT
P a r t - Assembly -• Commodity or S e r v i c e
I d e n t i f i c a t i o n No.
Scheduled Completion Date
Quote No.
Issued
Present C h a r a c t e r i s t i c s :
Study No.
Date
I n i t i a t e d by
P l a n t No.
Vendor Information
Name
Value questionnaire Sent
Vendor P a r t i c i p a t e d
Quote Quantities
P . 0 . No.
Issued
*
Proposed C h a r a c t e r i s t i c s :
R e f e r r e d t o V. A. & E . D e p t .
Remarks
Cost Information
Description
Units
Present
Proposed
Improvement
No. Units
X
T o t a l Unit Improv't
Inc.
Revised Tool Cost
Due to Proposals
Dec.
T o t a l Adjusted Iraprov't
Referred to
Approved by V . A & E .
Approved by
Distribution
71
Tooling
Data
PROCEEDINGS O F T H E
EXHIBIT
SAVE
CONFERENCE
D—Back
VALUE A N A L Y S I S CASE STUDY
What i s the item?
Uhat i a i t s
function?
What i s i t s worth?
What i s i t s
cost?
What e l s e w i l l do t h s j o b ?
What does i t
cost?
Summary & c o n c l u s i o n .
72
— 1978