‘Follow the money’ has always been a handy investigative tip. And it’s one that’s vital to any VA/VE (Value Engineering) project. Here’s why.
What is VA/VE?
VA/VE is an intelligent cost reduction strategy that can be put in place by any electronics manufacturing business. It’s a process that is driven by close analysis and optimisation of products to ensure they are always delivering best value in the marketplace.
And it’s a process that starts and ends with ‘following the money’.
4 ways the VA/VE process ‘follows the money’
1. VA/VE FOLLOWS THE MONEY - TO UNCOVER WASTE IN UNEXPECTED PLACES
How your money is currently being spent in sourcing, manufacturing and distribution can tell the story of your product‘s challenges more clearly than any other metric.
P&L can fluctuate across the OEM product lifecycle. And in volatile market conditions margins are hard to maintain. What starts life as a profitable product that offers great value to your customers can end up a few years down the line as a bloated and uncompetitive cost centre.
But does your business understand why?
When sales dip or profits decline, managers often push for savings in procurement and process based on incomplete data. Instead of conducting thorough cost analysis, they will work on hunches, squeezing suppliers and reducing quality in order to boost margins in the most ‘obvious’ areas.
But the reality is that subtle forces may be causing costs to mount up and waste to accumulate unnoticed in the hidden reaches of a value chain. For example, through:
- Changes to import duties
- Raw material or component scarcity
- Rising labour costs across the value chain
- Extra logistics bureaucracy
- Packaging and delivery costs
Recently, one OEM we spoke to found their electromechanical end products were being delivered using some of the most expensive hardwood pallets and boxing solutions on the market. The choice of such high cost, high spec materials was entirely unnecessary, but without an investigation into the specifics of their delivery choices they would still be paying the premium today.
The systematic investigation of a VA/VE process helps you look past your assumptions about waste. It follows the money throughout the product lifecycle to show you exactly where you’re spending unnecessarily and passing those costs on to your end users.
2. VA/VE FOLLOWS THE MONEY - TO MEET CUSTOMERS NEEDS MORE EXACTLY
In Value Engineering a multi-disciplinary team ‘follows the money’ to bring insights that a lone specialist might miss. This expert VE team can comprise engineering, product managers and logistics specialists.
A cross disciplinary approach is fundamental to the success of VE because it can reveal unexpected truths about the way your product is being used in the market and the value your customers derive from it.
Together this team can properly understand the cost and function of every part of your product and suggest viable alternatives to the way you currently do things.
When cross functional insight uncovers hidden opportunities - a case study
Nvdia is an American gaming tech company who were having difficulty meeting customer demand for their programmable graphics units (GPU).
An internal investigation showed their powerful chips were being bought up by non-gamers to support a variety of uses, causing a shortage for their core audience. As the team said in a recent blog post:
“Nvidia GPUs are programmable. And users are constantly discovering new applications for them, from weather simulation and gene sequencing to deep learning and robotics. Mining cryptocurrency is one of them.”
Armed with this information Nvidia decided to remove functionality from the gaming chip that was useful for Bitcoin miners but unnecessary for their core gaming customers.
This saved their own production costs, while at the same time increasing value for gamers by ensuring continuity of supply. Meanwhile, having identified a new market need, they developed a second product specifically targeted for the crypto-currency mining market.
Here is a redesign decision that came out of deep knowledge of consumer behaviour that wouldn’t necessarily reside in the engineering team itself. And in classic VE style, it increased value for intended customers while retaining and even expanding the profitability of their product suite overall.
The team at NVDIA followed the money to identify unnecessary spending on their GPUs. In doing so, they added value for their customer base, as well as identifying a whole new lucrative market in need of an additional product.
3. VA/VE FOLLOWS THE MONEY - TO PURSUE BEST VALUE
‘Following the money’ means tracking down and eliminating unnecessary spending throughout the product lifecycle. But it also means pursuing the latest materials and manufacturing techniques to make a product that offers the best possible value for your customers.
It may be years since proper functional and cost analysis was carried out on your product. The way you are doing things right now may be based on outdated manufacturing processes that is adding to expense, while limiting your products' potential market and applications.
Can products be made lighter, smaller and more flexible to meet new customer demand? Can new fabrication techniques or the latest materials make products more compact to decrease transportation costs or use warehouse space more effectively?
Employing techniques like FEA (finite element analysis) can show you how design can be altered and optimised for new use-cases without sacrificing strength and other aspects of performance.
VA/VE follows the money to see where 'best value' really lies.
4. VA/VE FOLLOWS THE MONEY - BY DOING THE MATHS
‘Following the money’ means assembling the financial evidence to support business decision making. Putting together calculations to model the different outcomes of competing solutions will help you see what VE measures will have the greatest impact and if they really make financial sense.
And you need to ‘Follow the money’ after you’ve completed your value engineering changes, too. Tracking impact on costs, sales and profit margins following the implementation of a project is vital to prove ROI and the success of your process.
If you follow the money successfully across a product’s lifecycle it’ll lead you to where inefficiencies are lurking and where there are opportunities for optimisation.
It’ll show you where you are wasting resource and where you can act to drive greater value for money and meet customer demand more successfully.
As you continue to ‘follow the money’ you’ll be able to build a sound financial case for making the right changes to the product, as well as track the impact those changes make on your overall profitability.