Understanding Value Engineering, its Key Benefits and Scope

This article provides a clear-cut insight into how world-class organizations have achieved a competitive edge through Value Engineering & Analysis. Value Engineering & Analysis has vast applications and after having worked with numerous customers on their value engineering requirements, this paper is articulated to provide a concise understanding of the methodologies and the holistic approach required to internalize Value Engineering into the organizational DNA to reap benefits across all product lines.

Value Engineering (VE) is a process rather than a program. It is a systematic process used by a multidisciplinary team to improve the value of a project through the analysis of its functions. Value is defined as a fair return or equivalent in goods, services, or money for something exchanged.

Value methodologies can be applied during any stage of a project’s development cycle, although the greatest benefit and resource savings are typically achieved early in development during the conceptual stages. Broadly, VE consists of four activities:

VE concepts can be applied to business as well as technical situations and consequently help management take informed result-oriented decisions.

Often, VE initiatives are reactive to market pressures. This means post product launch, VE is initiated as a reaction to field failures, market feedback, and competitive pressures. For example, after you have launched your product, a competitor brings in a product at a lower cost or the same cost but with better features. Then it becomes almost essential to re-visit your product, to stay in the race. Projects that have already experienced benefits in cost, schedule or scope from VE analysis, but the star benefit of VE is in the R&D phase where it can potentially improve the efficiency of the process by 20%-35%. VE at this point produces maximum benefit because recommendations can be implemented without delaying progress or causing significant rework of completed designs. R&D is hard-pressed on deadlines for product design.

Mostly, this results in over-designed parts or products with a higher factor of safety than necessary. This gives an independent team a lot of room for value engineering since R&D may have a bias towards the designs they’ve developed.

All organizations are at different maturity levels of VE initiatives. VE begins as a response to market feedback which we call reactive VE. Once the benefits become visible, VE is adopted as a tool for cost reduction and quality improvement.

Finally, organizations reach a proactive VE phase where VE results are fed into continuous improvement and product development. These many times result in product or technology innovation and give companies a leap forward in the market.

Proactive VE can also feed in information from competitive teardown and benchmarking activities to R&D, which can help R&D develop more efficient designs for future product lines. Significant improvements can occur if value engineering is done in the R&D phase of the product lifecycle. Close to 75% of the product cost is frozen by the end of this phase. However, there is no comparative cost, quality and performance data. So, this becomes challenging as one needs to anticipate the issues that might occur during production or in the field after product launch.

Cost reduction, weight reduction, quality improvement, and feature enhancement are noticeable and expected results of VE initiatives. While the average cost improvement from VE is 6%, cost reduction is not always the most significant benefit. Many other outcomes accompany VE activities.

Often, VE results in breakthrough technology, new designs and IPs for the organizations and gives them a competitive edge. Innovations for alternate materials have also come out of VE initiatives. VE done for the manufacturing process can help in process streamlining and optimization as well as variant reduction.

Despite all the benefits that VE can bring to an organization, the fate of VE initiatives is not as rosy as it seems. Our experience with various automotive OEMs reveals that as many as 70% to 80% of VE programs perish when instant results do not occur because of budget constraints or lack of dedicated VE team.

Out of the rest, 60%- 70% fail to reach the implemented stage on a vehicle program because they do not meet expected gains. Internal teams face roadblocks selling VE initiatives to the top management. Not all new projects go for value engineering, only those that promise long-run savings or extend the active engineering life of the vehicle model are selected.

Management here plays a major role as they must take a call for implementation of VE results based on the total cost of change analysis, so they need to be convinced of the overall gains.

Following factors emerge as differentiators when we dive deeper and try to analyze organizations who have achieved a competitive edge through VE from those who are struggling with their VE initiatives:

The process also gives VE a systematic approach for problem-solving, a result-driven program management and schedule adherence. This means that VE projects reach the implementation stage and there is a buy-in from top management for the solution.

To realize sustained benefits from value engineering sustained and focus efforts, a dedicated team and a fundamental strong process are very essential. Successful organizations look at VE as an instrument to grow business.

Value Engineering & Analysis gives a breather to the design group for developing new product lines and platforms. Leveraging VE for extending the Active Engineering Life (AEL) of a vehicle program is an art. World-class OEMs have gained technology leadership through this.

Suneel Pandita is a Business Leader for Mechatronics Practice at KPIT Technologies. Suneel has over 2 decades of experience in the automotive industry and has lead and managed various engineering and technology developments.