This presentation is designed to give purchasing, materials, supply management, sourcing, contracting, logistics, acquisition and procurement personnel a process of value measurement to quantify the value of purchased goods or services. Learn how to use Value Analysis to target goods and services where cost can be reduced, performance improved, quality enhanced, non-essentials eliminated, downsized, or consolidated through a step-by-step process of value identification and measurement. The genesis of value analysis and value engineering can be traced to similar, parallel developments in the late 1940’s taking place at General Electric Company and Ford Motor Company. As a concept definition: it is the organized and systematic effort and study directed at analyzing the functional requirements of the system, product, equipment, facility, service or project for the purpose of achieving the lowest overall total cost at the best value. This means consistent with the needed performance, reliability, quality, and maintainability. Join the trend of many purchasing, sourcing, contracting, and supply management organizations who are reaping the rewards of Value Analysis (VA) and Value Engineering (VE) as a practical tool to improve performance and reduce the cost of goods and services. Their experience with cost reduction projects reveals that by merely determining what things cost and documenting cost breakdowns, one can reduce costs 5%. Improving the choice of material, conceptual design, and methods can further reduce cost by another 10%. Finally, developing a better way to perform what a project or a service was originally intended to do, one can save even more—20-30% and beyond! Not convinced of the critical importance of value analysis/value engineering VA/VE--- then you must not be interested in product enhancement, service concept augmentation, cost reduction, and profit improvement. Those kinds of payoffs don’t come easily, however. Success depends on three things: understanding of the concept by those who will be involved, strong top management support, and enthusiastic team or project oriented direction to get and keep the program rolling. No wonder that Purchasing magazine for years dedicated an annual issue to its “Value Analysis of the Year” Awards. Why? According to experts, VA/VE can make a difference: simple projects can take anywhere from one day to six weeks to implement with savings up to $2,000; intermediate projects can range from six weeks to six months with savings of $2,000 to $10,000; and complex projects can take six months to six years with savings ranging from $10,000 to $1 million.

1. Purchasing
& Value Analysis
A Presentation to
BVPPA
by
Thomas L. Tanel, C.P.M., CTL, CCA, CISCM
President & CEO
CATTAN Services Group, Inc.
College Station, TX
Created by CATTAN Services Group, Inc. © 2000

2. Value

3. Introduction to Value Analysis
(VA) and Value Engineering (VE)
How it Began
Terms used for VA/VE
Defining VA/VE

4. Causes of Unnecessary Costs
Lack of time
Lack of complete info
Lack of measurements of value
Lack of cost knowledge
Honest but wrong beliefs
New technology
Lack of communications/poor
human relations
NIH attitude
Fear of embarrassment
Habits and attitudes
Customs/traditions

5. Range of Application
VA/VE applies to everything because
everything has a function.
A few of the components or items of any
system, project or product usually constitute
a majority of the cost.
As the baseline becomes more detailed, more
information becomes available and more
detailed studies can be conducted.
VA/VE is a problem solving technique.

6. A-B-C Purchase Classification
of Value
A
B
C
Annual Total
Purchasing
Expenditures/
Buys
70-85%
10-25%
1-5%
Annual Total Number
of Suppliers
5-20%
20-30%
50-60%
Annual Total Number
of
Services, Products, and
Materials
10-20%
25-30%
50-60%
Annual Total Number
of PO Transactions
5-10%
15-25%
50-70%
Percentage

7. What is Value Analysis?
Value Analysis is an organized
creative approach
Value analysis focuses on the
function

8. VA/VE Conceptual Tools
Three general conceptual
tools are basic to the
operation of a value
analysis/engineering
program:
Design analysis
Cost analysis
Brainstorming

9. Asking the Right Questions
The in-depth questioning is basic
to the VA/VE approach. The
technique was developed at
both Ford Motor and General
Electric, independently, in the
late 1940‟s. These basic
questions used by both Ford
and GE are as applicable
today—perhaps even more so,
as they were then.

10. Asking the Right Questions—
Ford Motor
Ford‟s purchase analysis group subjected key parts
and assemblies to these questions:
Why are we buying this particular item?
Is it the best and most economical product for the
purpose?
Is there a more economical method of
manufacture that would produce an equally useful
product?
What constitutes the best price in terms of
ultimate cost?

11. Asking the Right Questions—
Ford Motor (Con‟t)
What constitutes a fair price?
What is the best source?
How can we help suppliers to reduce
the costs of production?
How can we eliminate or minimize extra
costs in handling, packaging, and
transportation?

12. Asking the Right Questions—
General Electric
GE‟s „attack‟ under the guidance of Larry Miles
of their Purchasing department, took the form
of the famous “Tests for Value”:
Does the use of the material, part, or process
contribute value?
Does it need all of its features?
Can a usable part be made by a lower cost
method?

13. Asking the Right Questions—
General Electric (Con‟t)
Is it made on proper tooling, considering
quantities used?
Do materials, reasonable labor, overhead
and profit total its cost?
Will another dependable supplier provide it
for less?
Is anyone buying it for less?

14. Value Is

15. Value

16. Function

17. Value Analysis—Equation
Quality/Worth
Value
=
Cost

18. How To Get Started in VA/VE
Identify what it is and what
does it do?
Obtain and review all
available cost information
Try to anticipate roadblocks
Promote cooperation with
VA/VE effort
Seek guidance from those in
management that assigned
study

19. Value Analysis—
How To Get Started
 You take the lead !
 Recruit support as you go
 Get a success under your belt---credibility !
 Sell – Value Adding – Cost Elimination/Avoidance

20. Five Guidance Points from
Management
1. After determining the scope
2. After gathering most
info, review facts and
assumptions
3. After function analysis, review
the breakdown on cost and
worth
4. After the creative step and
preliminary judgment of ideas
5. After final judgment of ideas
and ideas are selected for
development

21. VA 7—Step Process
1. Information Step
2. Function Step
3. Creative Step
4. Judicial Step
5. Development Step
6. Presentation Step
7. Implementation Step

22. VA/VE Job Plan—Philips Example

23. Follow-Up Phase

24. VA/VE Study Accelerators

25. VA Is the Way—Ten Ways to
Reduce Co$t
Use it to reduce cost in
design, concept or SOW
Use cross-functional teams
to approve product or
service offering changes
Consolidate supplier base
using full service partners
Reduce paperwork with
supply base by using more
EDI/E-Com
Bundle any engineering
changes or project scope
changes quarterly
Move towards common
methods and standard
items or services used at
multiple sites or facilities
Use returnable dunnage or
containers instead of nonreturnable
Identify and eliminate
unnecessary
testing, measuring and
diagnostics
Reduce the number of
prototypes or models
Consolidate “A” purchases
with suppliers’ if possible

26. Four Basic Mental Powers

27. The Creativity Formula

28. Steps in the Creative Process
Orientation
Incubation
Preparation
Synthesis
Analysis
Verification
Ideation

29. Major Blocks to Creativity