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Value Analysis for Material Cost Reduction

  • Prem Vrat
Chapter
Part of the Springer Texts in Business and Economics book series (STBE)

Abstract

This chapter discusses value analysis (VA) as a powerful cost reduction technique which systematically identifies the hidden, unnecessary costs in a product, a part, or a process and eliminates them to provide the necessary function at a minimum cost. A systematically conducted value analysis program can cut down costs by 15–20 % due to cheaper material, relaxed tolerances, less expensive manufacturing processes, etc. VA is a company-wide activity, but materials management function can be a major beneficiary as materials account for the largest share of total cost of doing business. VA is a function-cost approach which defines the function – both primary and secondary using two words: a verb and a noun. It then generates value alternatives in a creative manner to provide the same function at a lower cost and results in cheaper, lighter, faster, better accomplishments of the needed function. Some prominent tools and techniques of value analysis include: value tests, checklist, Pareto analysis (20:80 rule), FAST (Functional Analysis System Technique), function-cost matrix, paired-comparison method, and decision matrix for multi-criteria evaluation of value alternatives. Brainstorming is a very powerful technique for creating value alternatives. Value analysis can lead to cost avoidance if it is used right at the product/project design stage because nearly 60 % cost reduction potential exists at that stage. It leads to rational choice of materials, specifications, tolerances, manufacturing processes, and packaging.

Keywords

Value analysis Hidden Unnecessary costs Tolerances Function-cost Primary and secondary Value tests Pareto analysis FAST Brainstorming Packaging 

References

  1. Dobler DW, Lamat L Jr, Burt DN (1984) Purchasing and materials management: text and cases. The Southeast Book Company (With special arrangement with McGraw Hill International Book Co.), TaiwanGoogle Scholar
  2. Hari Prasad B (2001) Application of value engineering on hydraulic system of assault bridge: a case. Unpublished M.Tech. dissertation in industrial engineering, Mechanical Engineering Department, IIT New DelhiGoogle Scholar
  3. Miles LD (1972) Techniques of value analysis and engineering. McGraw-Hill Book Co, New YorkGoogle Scholar
  4. Mudge AE (1971) Value engineering: a systematic approach. McGraw-Hill Book Co, New YorkGoogle Scholar

Copyright information

© Springer India 2014

Authors and Affiliations

  • Prem Vrat
    • 1
  1. 1.ITM UniversityGurgaonIndia

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