Value Engineering—sounds a bit confusing, doesn’t it?
Let us start with a definition. Investopedia states that:
“Value engineering is a method to enhance a project’s value by optimising functions and reducing costs, often through material or method substitutions, without sacrificing quality.”
We are trying to reduce the cost of a product by experimenting with its components.
YES, and NO!
So, what is Procurement supposed to do?
This is the part where procurement steps in. As value engineering is not cutting corners, and :
- Finding a cheap substitute of an inferior quality
- Skipping a step in the process because the end user will not be able to notice it
- Using toxic materials just to get the result faster
- Bringing the specifications just above the expected failure rate.
The role of procurement is to connect a problem with someone who has a solution. Hence, we need to be here at the top of the game and aware of:
- New materials
- New technologies
- Tools and machines that can increase production efficiency
- Processes with close to 100% usage of the raw material
When doing value engineering, I would suggest that the procurement team start from the end:
- Can elements of the product be reused or recycled
- Can we do something with the packaging or other elements that will be used once only, like support elements, protection, etc?
- What is the waste during manufacturing, whether at the vendor or our side? Can we make a change in the design to reduce it?
- How can we simplify the product?
- Can our vendor recommend a small change in the supplied product that will not impact the overall quality but make their production easier, faster, or cheaper?
Don’t think of Value Engineering as some huge project with millions in savings. For example, I agreed with the vendor to give me the salami pre-cut instead of one piece. To the vendor, having large machinery it is zero cost. For me, a couple of thousands in time saved on the cutting machine we had.
Having cleaning chemicals with higher concentration? Lower transport and storage costs, as the quantity required is less. A bit of spend on training the team on how to dilute correctly.
Making a flag pole 18 instead of 15 meters? It is the same cost, you have to use 3 pieces of 6-meter pipes.
Some good (and bad) examples
The results of a wrongly done value engineering exercise are evident in Construction. I have attached two examples, where value engineering resulted in building damage and lawsuits 10X the estimated savings.
Project Management Risk – The Real Cost of Value Engineering
Downtown state office tower needs immediate repairs to avoid ‘catastrophic failure’
So, be careful.
And here is a positive example. Elon Musk made a couple of changes in Tesla and SpaceX that resulted in significant savings.
Elon Musk, the engineer, and the future of Twitter, Tesla and SpaceX
And one where I am not sure, shall I categorise it as a positive or negative example? The times when mobile phone manufacturers removed chargers from the new device boxes
Sources:
Value Engineering: Definition, Meaning, and How It Works
