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VALUE & COST ENGINEERING
SURVIVAL OF THE FITTEST
Hardly anything jeopardizes the economic success of a company as directly as products whose cost structure does not meet market requirements. As product cycles and global price competitions become shorter, there is an increasing pressure on companies to continually optimize their manufacturing and product costs. Value and Cost Engineering provides the ideal approach.
A modern myth says that NASA has developed a special “million dollar” space pen for its manned space missions because conventional ballpoint pens did not work in weightlessness. His mine consisted of a pressurized gas cartridge, inside of which a small metal cylinder pressed the special ink. The Russian cosmonauts, on the other hand, solved the problem in their own way – using pencils. Even if the story later turned out to be an invention of the media, it makes clear that a high degree of innovation alone is not always decisive for the success of products. Rather, they must meet the needs of customers, but at the same time must not be equipped with costly, superfluous functions that are not honored by the customer and thus represent a cost disadvantage to the competition. A holistic approach that develops strategies and requirements directly and across functions is therefore highly critical to business success. In addition, with accelerating innovation and ever-shorter product life cycles, the speed at which manufacturers are able to dynamically adjust their product costs is becoming increasingly important.
COST CONSIDERATION MUST UNITE DIFFERENT PERSPECTIVES
This is precisely where Value and Cost Engineering (VCE) comes in. This is a cross-functional approach aimed at optimizing the relationship between product functions and costs, thereby increasing the value of the product. This can be positively influenced either by the improvement of functions or the reduction of costs. First, the requirements of the customers in the addressed target markets are clarified and then the suitable product functions are defined that are able to fulfill them. Based on this, cost management methods are applied which determine the best possible costs within the framework of a dual approach – top-down and bottom-up. In the top-down approach, the required manufacturing costs are derived from the achievable selling price, whereas the bottom-up approach shows the ideal manufacturing costs. By adding the actual costs, the cost deltas become visible.
DECREASING ABILITY TO INFLUENCE COSTS IN THE PRODUCT LIFE CYCLE
In order to influence the manufacturing costs, different starting points can be used: Starting with the functional scope, through the production technologies to the suppliers. The following applies: the later the measures for product cost optimization take effect, the less influence can be exerted on these costs and thus on the savings potential. Basically, three starting points for VCE measures can be distinguished along the product life cycle. (see Fig. 1)
1 . VCE QUICK WIN COST REDUCTION
VCE Quick Win aims at the direct adaptation of the cost structures of products that are already ready for volume production (redesign) and uses proven levers to influence manufacturing costs that offer potential for rapid cost reductions, such as supplier workshops, should costing analyses or cross-functional cross-out workshops. (see Fig. 2). In order to generate fast and measurable results, the VCE Quick Win approach follows a structured implementation plan with clear rules for the selection and prioritization of the measures to be implemented (see Fig. 3). This ensures maximum effectiveness of the measures implemented.
2. VCE END-TO-END APPROACH
In comparison, the VCE end-to-end approach starts with the specification of customer requirements and describes continuous measures for the complete new development (Greenfield Development) of a product or product line up to the minimization of material costs in the after-sales area. Four elements are decisive for the success of the end-to-end approach:
- A deep understanding of target markets and customer requirements to evaluate product variants
- The derivation of suitable product functions to meet customer requirements, including a cost assessment
- The optimal design of the underlying value chain, taking into account make-or-buy scenarios, optimized manufacturing networks, integration of local R&D competencies as well as an exact supplier portfolio and logistics
- Concepts and methods for optimal planning and rapid adaptation of marketing and pricing activities
To ensure an optimal value and cost structure across all phases, the VCE end-to-end uses a comprehensive toolkit of proven VCE and procurement methods (see Fig.4).
In addition to approaches aimed at redesigning the cost structures of individual products or product lines, the establishment of a VCE organization includes the development and integration of VCE measures into the product development process (PEP) as well as comprehensive empowerment of employees in the organization to ensure sustainable cost and value optimization.
PERMANENT PRODUCT COST OPTIMIZATION ALONG THE ENTIRE PRODUCT LIFE CYCLE
The increasing dynamism of volatile industrial markets is forcing companies to constantly adjust their product costs. Only those who have the tools to constantly review the cost structures of their own product portfolio and leverage to effectively reduce their manufacturing costs will survive in the high-speed logic of modern industrial markets. Against this background, ROI’s VCE approach provides an effective tool to enable an effective and, above all, rapid adjustment of product costs at all stages of the product life cycle. From Quick-Win to reducing manufacturing costs to end-to-end development of market-driven new products, to building a VCE organization that ensures sustained VCE optimization at every stage of the product development process. Especially against the background of ever-shorter product life cycles and aggressive global (price and quality) competition, these measures are becoming a decisive competitive factor.