Innovate current products

Most manufacturing companies’ annual reports, press releases, and documents dedicate some time to describing the future, whether it’s the next generation of products, the five-year plan to develop a market-leading product with huge growth and margin potential, or the R&D partnership with a world-class academic establishment that will accelerate work on version 2.0.

All great and sexy stuff, but does this focus on the future come at a cost? And is the cost that the business forgets about its current portfolio – products that exist and that are already popular in the marketplace?

As much as these companies should be looking ahead to the future, they also should be reviewing current “old faithful” products and bring the sexy back to them.

Value Engineering

Conducting value engineering (VE) exercises on a product forces a business to challenge its current product offerings.

Lawrence Miles, a GE employee during the Second World War, created the principles of value engineering (or value analysis – VaVe) while working in purchasing. He collaborated with vendors to obtain lower costs by removing unnecessary material or substituting with different materials, which were invaluable in that era of raw material and skilled labour shortages.

After the war, he formalized and rolled out this process within GE with great results. The technique soon spread to defence, health care, and many other industries. Today it is widely recognized, although underutilized, as a tool to help focus on what is (and what is not) important in a product.

VE revolves around the concept of function.

Function is what the product (or service) is intended to do.

Value, therefore, is the consistent, reliable performance of the function to meet customer requirements at the lowest cost, or in terms of a simple equation:

Value = Function/Cost

Lean manufacturing is an excellent way to improve and streamline operations in the factory, but its emphasis is generally on direct labour. Six Sigma activities are also a smart way to improve a factory output by a focus on reducing or eliminating errors and defects. However, one of the reasons that VE can help a business save money immediately is that it is commonly focused on direct materials, a typically higher percentage of the overall product cost than direct labour.

To illustrate how the use of functions can help save direct material costs, consider a simple screw. If we look at cost-saving strategies for the part, we inevitably focus just on the part. So we might think to reduce the length of the threaded part, decrease the surface finish quality, change the type of material, or change the head.

But what is the primary function of the screw? It is to affix parts together.

If we consider cost-saving strategies from a function perspective, we might consider alternatives to screws; perhaps riveting would be cheaper or the two parts could have a snap that would eliminate the need for the screw entirely. Alternatively, could a tongue and groove design, commonly found in wooden floors, options be used?

By considering the function of the part, we see that the number of potential cost-saving options increases vastly. As Miles himself was fond of saying, “Blast, create, refine.”

How VE Helps 

As products mature in their life cycle, businesses often make decisions to change them without thinking of the wider implications.

Perhaps a quality investigation of a problem did not include a successful root cause analysis, so to mitigate and prevent a future failure, the company made the decision to add another component (for example in material or specification), and by extension, cost, to prevent a reoccurrence. Perhaps a customer complaint led to a change of product for one customer, which spread to all customers. Perhaps a change that was initiated as a short-term bridging solution became the overall solution. Perhaps a change in market requirements resulted in the product being permanently overspecified. Perhaps a production issue led to a supplier or manufacturing location change, which resulted in a design change.

Bringing Sexy Back

Clearly the focus of R&D departments is on the next product, the game-changer, the exciting product with a unique selling point and a clear value proposition.

However, VE projects can deliver product cost reductions, which can be used to increase margin and hence go right onto the bottom line or savings that can be used to reduce price and win more sales while still maintaining margin. All of these are vital in challenging market conditions. These savings are on established products, so they can be identified, executed, and the business can see the advantage immediately. And an immediate financial benefit sounds sexy in any business plan.

Paul Corrigan is a consultant on Argo’s product value management (PVM) team. Andreas Doerken is senior vice president and Denis Messmer is vice president at Argo Consulting, www.argoconsulting.com.