Featured Best Practice Business Process Improvement Technique

Featured Best Practice

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Best Practice 047

Cost Impact Analysis

A New Approach to Value Engineering

Traditionally value engineering has been used to reduce product cost by systematic methods of:

Identifying the most important features of a product (by use of such tools as paired comparison, and functional analysis)
Identifying how those features can be delivered with lower costs by:
- Reviewing the technology
- Reviewing the materials used
- Looking for over-engineering

Value engineering can be applied in a level by level way for example at product level then at the next level and so on, working down the product structure.

In the traditional approach a combination of logical analysis and creative thinking is employed, which together are extremely powerful in understanding the functions of the current product (logical analysis) and developing new ways of delivering those (creative thinking)

A much more radical approach is possible however which combines selling techniques, with a wider range of structured and creative methods:

The steps are:

Identify the products to on which to focus (using Product life cycle positioning, Pareto analysis on cost of sales value, Product design parameters, & product life cycle analysis)
Within the high cost / turnover products, identify high cost constituent parts
Create a project team, with and without, product knowledge
Define purpose of product from a customer perspective (purpose analysis, FAB analysis)
Define the purpose of its constituent parts from a customer perspective
Define the impact of these constituent parts on the higher level purpose (“bangs per buck”)
Define the cost of these constituent parts using "parts count reduction" as a major cost criterion
Create an Impact / ease matrix to identify low impact / high cost constituent parts
Brainstorm how these purposes can be alternatively delivered in a similar way to conventional value engineering starting at product level and working in high cost order.
Take each of these purposes and identify which of the alternatives look simple or inexpensive to implement, using democratic decision making.
Create a list of avenues to explore according to the matrix impact / ease of implementation.
Go do the quick hits only!
Move on to the next product in your list
When you have accommodated 80% of your total cost of sales, start the process off again, and use these techniques in new product design.

You have now made a real difference in a short space of time!

In one company where we did this we took 10% off the product cost of their highest cost of sales value item, followed by 15% off the second highest in 14 weeks! We also in the process improved the perceived needs of the customers involved.

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Speed of Beneficial Impact

Short term

Type of benefits