If you’re adopting a Value Engineering strategy, you’re going to need to follow its systematic methodology to bring real long-term benefits to your business.
But what are the 6 classic steps that make up a successful Value Engineering process?
But where does Value Engineering start?
So, you’ve identified a product in your portfolio that is in danger of becoming nothing but a cost centre for your company? It may be a product that has historically been vital to your business but whose profitability and/or market share is waning. Are your component, raw material and/or assembly costs rocketing? Are they making your current working practices uncompetitive? Is component obsolescence threatening your product's future? Are your clients reporting dissatisfaction with price - or the way the product functions compared with its rivals?
Maybe all the above are true.
How can you rebalance these elements of cost, customer value, performance and price to bring your product back into the black?
This is where Value Engineering may be able to help.
What is Value Engineering?
Value engineering is a systematic, organised approach to providing necessary functions in a project at the lowest cost. Value engineering promotes the substitution of materials and methods with less expensive alternatives, without sacrificing functionality. It is focused solely on the functions of various components and materials, rather than their physical attributes.
But how can you get the Value Engineering process right?
A value engineering process promises to find sustainable cost-saving opportunities for you across the product lifecycle, while retaining and even adding value for your customers.
But it’s hard to get right. You need a mixture of analytical skill, multi-team collaboration, product expertise, creativity and good old-fashioned discipline to get your teams working together to deliver the goods.
If you don’t adhere to a planned and disciplined methodology, you stand in danger of simply following your hunches, restricting your thinking unnecessarily and, in the end, not transforming your insight into solid and practicable plans.
And as Katherine Bethany from the SAVE international (the international institute for Value Engineering) reminds us:
Performing value engineering correctly requires an analysis of the functions of the project or product or system being studied. The outcome solves problems and reduces life-cycle costs while improving performance and quality. If a process does not include the function analysis, or the recommendations and solutions from the study, or the improvements to quality and performance, then it is not a true value engineering study.
So, the purpose of the Value Engineering 6 part methodology is to make your process as systematic, objective, and results-driven as possible.
The 6 stages of the Value Engineering process
Value Engineering starts by working out where the true value of your product lies for your customers - to reveal how you can reduce your costs without compromising the functions and quality that fundamentally drive your sales. It then moves on to defining, costing, proposing and implementing these solutions in the most efficient and practical way possible.
You'll need to create a plan for your process based on these 6 classic stages and stick to it. It will keep you focused on the objectives of your project and show you exactly what should come next.
Step 1: Information Gathering
The Value Engineering process starts by examining every part of your product’s lifecycle to identify its cost elements. That is, everything you currently spend in manufacturing, maintaining and distributing the product.
To do this, start by breaking down costs into cost buckets including Bills of Material and Process costs. Process costs include everything from production build and test, to delivery logistics. In Value Engineering nothing is off the table for consideration - from the way you source materials to the way you dispatch your products. In this way, opportunities for intelligent cost reductions can be identified and exploited wherever they may lie.
Use the Pareto analysis to identify the different elements that make up your entire product cost or COG’s (Cost of Goods).
As an OEM your Pareto Analysis may look something like this:
Assign a monetary value to the cost elements (based on figures located in your systems) and calculate the percentage they contribute to your COG’s.
When you’ve analysed the costs of your product certain facts will become obvious. It will be clear where your largest cost centres are and what the principle focus for your value engineering project should be.
For example, looking at the table above, the main cost drivers for this product are cable assemblies and sheet metal parts. This implies the VE process should involve production and electrical engineering - looking closely at cable assemblies to win new efficiencies and reduce the labour content involved.
Step 2: Creative thinking
This is the fun part. VE teams conduct a series of workshops to brainstorm creative ideas and new approaches to building and delivering the product. It may be so long since a product was last analysed that much of your current process and materials are outmoded, inefficient and becoming obsolete. Leave no stone unturned in your search for an optimal way of doing things.
With a cross-discipline team, you should explore the ‘functions’ of each of the identified cost elements of the product. ‘Function analysis’ should be used to think clearly about what what each of these elements or components actually does for a customer (the value it brings to them) rather than ‘how it works' right now.
From this starting point the team are free to completely re-imagine how the product is manufactured or even the entire way it works - if its value to your customers can be maintained or improved in doing so.
A Value Engineering process can recommend making the following kinds of changes:
- Changing the raw materials and components you use (make substitutions for more effective, efficient, and value-adding products)
- Removing redundant features that are not used or valued by customers
- Combining existing functions and components for greater efficiency
- Improving build processes (from changing the order of assembly to outsourcing where appropriate)
There are no ‘wrong ideas’ at this point - every perspective and possibility is explored and added to a list of potential ideas.
Step 3: Evaluation
In the evaluation phase, the advantages and disadvantages of each idea you have explored are listed. When the disadvantages exceed the advantages, the alternative should be dropped in favour of other more solid alternatives. The team typically performs a weighted matrix analysis to group and rank alternatives, and the best alternatives are selected for consideration in the next phase.
Step 4: Development
This is where we take a deeper dive into the highest-ranking ideas coming out of the creative workshops. This phase of the process entails:
- Detailed development of chosen ideas
- Descriptions, sketches and estimates
- ROI calculations
- Project plan preparation
Ensuring you are building a tight case around the potential for savings is essential. Make sure your re-design ideas are sound and your savings’ calculations are robust.
For example, how long will it take to re-coup the non-recurring engineering costs involved in your ideas? Spending £10K for an annual saving of £1K across the remaining five years of a product’s life cycle may not make great business sense!
Step 5: Presentation
Your VE lead now needs to bring your ideas to the board for approval.
- Prepare your presentation and report for the board
- Ideas should include more than one option
- They should be backed up by meaningful numbers
- Including timescale/project plans
At this stage, the board should have all the details they need to approve your recommendations. They may want to add in or tweak suggestions of their own, but as soon as this has been done you should be in a position to roll out the suggested changes. Don’t go in to this meeting under prepared, or the whole process risks stalling.
Step 6: Implementation
Execute the project plan:
- Reassemble team members
- Project GO or NO GO decision
- Review and assign actions
- Execute project plan
The Value Engineering implementation is now in place. Processes will be changed, new materials sourced and being used. But your job doesn’t end there.
The VE team leader needs to monitor and track progress of the VE changes to ensure they are having the intended effect. Looking at the impact on costs, sales and profit margins following the implementation of a project is vital to prove ROI and the success of your process. It will also help you see how the Value Engineering process can be improved and adapted next time to produce even better results.
Getting it right
And there you have it. It’s as simple as that. Except it’s not. There’s a lot that can go wrong. There’s a lot of work involved to get your 6 steps working properly and your teams operating seamlessly as one. At every stage, the progress of the Value Engineering project risks stalling because everyone’s got their day job to do, time is short and new priorities are emerging within the business. As you start to plan your Value Engineering project you should carefully consider if you have the resource internally to keep the momentum going on such a critical but resource-hungry process. If not, you should explore options for consultation and third party support as you run your initial workshops and plan required change.
After all, the Value Engineering opportunities are extraordinary, but they can only be realised if the company-wide energy and commitment can be sustained over time. Until the process can become part of the ‘way you do things’ you may need a helping hand to define and deliver on your VE goals, working practices and objectives.
This blog was originally published in 2021 and updated with new information and insight in June 2023.