Value Analysis for Material Cost Reduction

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.