How Does Value Engineering Help Reduce Material Cost?

Muthukumaran Kanniappan December 3, 2014

IMG_6499In today’s evolving manufacturing world, an ever-changing marketplace creates unique demands that stress low-cost production and high-quality, feature-rich products. For companies large and small, maintaining a profitable balance between product cost and bottom-line quality is essential practice.

Value engineering and alue analysis (VAVE), along with other design optimization methodologies, is used to meet these needs by reducing bottom-line material costs, which could occupy anywhere between 40 - 60% of entire product cost and is by far the largest contributor to product cost. VE, when used optimally, can guarantee RoI improvements from 5:1 to 10:1.

If high material costs, variable overheads and inefficient, complex product design are everyday detractors to your product manufacturing, there is a fair chance that value engineering can help you optimize your costs and materials in a progressive, profitable way.

The VAVE approach

To overcome marketplace margin pressures and rise in global competition, many engineering leaders choose to value engineer their products in an attempt to lower their bottom-line costs. This is most effectively done when the product is assessed holistically and VAVE efforts are carefully structured prior to wide implementation.

When assessing product design to determine VE applicability, engineering leaders should measure the following to determine potential ROI, alternative materials and modifications to streamline engineering:

  • Product BOM, and individual cost of material parts
  • Parts that may be exchanged for cost-effective alternatives, without compromising key features
  • Part functions, and other opportunities for cost reductionby reducing complexity

Once you’ve created a detailed framework of your production design components, and have highlighted areas with cost reduction potential, it is time to test these opportunities through a VE pilot. Following break-even analysis and cost estimations, a VE pilot can provide the validation needed for wide implementation.

Full implementation, which can take anywhere from 6 months to years depending on your product, can reduce material cost significantly through engineering modifications, part simplification and use of alternative materials; these elements work in tandem to provide guaranteed ROI and increased cost efficiency, ideal for optimizing your product lifecycle and possible extending product lifecycle.

When is VAVE Most Practical?

A decisive factor in value engineering implementation is determining whether or not VAVE is a realistic, profitable venture for your design specifications; sometimes, VAVE is not always the best choice for certain products or design operations. For optimal design cost management, the ideal VAVE implementation occurs with products in actual use, or have been in the field a while.

For products with at least one-year in the field, VAVE can optimize tool and part lifecycles to generate material savings with relative ease, and help engineering leaders make any necessary process changes for full cost reduction potential. Engineering leaders can use VAVE at this point to optimize design FOS (factor of safety) as it relates to real performance data, rather than preliminary estimates.

What Your Company Can Expect Through VAVE

VAVE at the product design level builds its own worth by creating cost savings through various engineering processes, including:

  • Implementation of alternative materials, for lesser cost than materials currently being used
  • Reengineering of complex assemblies within the product to perform similar functions thereby reducing part count
  • Extended product lifecycle and returns
  • Careful process structuring, which helps engineering leaders identify critical parts with high potential for cost savings
  • Modifications for both products in the field and similar products in the design and development phase
  • Alternative manufacturing methods

Implementing VAVE through measures such as these is a worthwhile step for engineering leaders due largely to its clear ROI; you can expect full investment returns from 5:1 to 10:1, as affected by product volumes and life cycles. You can typically expect full ROI within a single fiscal year. Every core benefit that value engineering brings for product engineers can be ultimately traced back to generating bottom-line ROI for product design.

The big questions on VAVE most often deal with determining how your company can streamline the use of materials, tools and various parts in a meaningful way to reduce costs. By implementing a structured value engineering approach, you can identify what solutions are necessary to limit spending and maximize spending dollars.

The ROI provided by VAVE does more than give credence to parts optimization; it can be used with virtually any product in the field or in design, to give companies competitive marketplace advantage, and help them become a leader in their industry.

5-Ways-To-Reduce-Product-Cost

 

Topics Product Cost Optimization Product Development Solutions