Lecture 4

Operations Management
Dr. D Jinil Persis
Assistant Professor, IIM Kozhikode
Value Engineering

“Value engineering (VE) is an organized effort directed at analysing the function of

goods and services for the purposes of achieving basic functions at the lowest overall
cost, consistent with achieving essential characteristics defined by customer”
𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 (𝑈𝑡𝑖𝑙𝑖𝑡𝑦)
𝑉𝑎𝑙𝑢𝑒 =
𝐶𝑜𝑠𝑡

Methodology to
• Solve problems
• Reduce costs
• Improve quality
• Improve performance
• Maintain intended functions
Value Index
Value index= worth/cost
• You have two options - Fixture 1 or Fixture 2
• Primary function
• To hold work piece
• Cost of Fixture 1 is $ 20 and brings $100 worth in a product and Cost
of Fixture 2 is $10 and brings $90 worth in a product.

VI1=5; VI2=9
Steps in Value Engineering/Analysis
Information
Function phase Creative phase Analysis phase Evaluation phase
phase

Recommendation Implementation
phase phase

Function Analysis system Technique (FAST)

Case study - Fireclay bricks production
Problem: In a refractory plant, capacity augmentation from 12000
tons/year to 26000 tons/year is planned on Rs. 3.2 crore investment.
Areas of improvement Given to value engineering team:
1. Tube mill and auxiliaries
2. Drier and auxiliaries
3. Presses (Available 3 presses) - 26000 tons/year
4. Incentive scheme
5. Access to plant site
 Analysis and recommendations
Tube mill and auxiliaries Function: Produce fines

Alternatives Effects Net benefit in capital investment (in Rs. Lakhs)

Vibro mill with bucket elevator Tube mill and pneumatic conveyor eliminated 16
Tube mill with bucket elevator Pneumatic conveyor eliminated 6
Outsource fines Tube mill complex eliminated 50
Drier and auxiliaries Function: Avoid cracks
Alternatives Effects Net benefit in capital investment (in Rs. Lakhs)
Fire without Drying 7-8 % moisture crack 8
12 hrs drying in a drier No moisture crack practically -
Pulversier 4-5% moisture crack 40
Channel Dryer Negligible moisture crack 8
Timing of incentive scheme
Alternatives Effects Net benefit in capital
investment (in Rs. Lakhs)
Two full time industrial engineers Work content & effective
time improvement
30% increase in output
Analysis and recommendations (contd.)

Presses Function: Apply pressure

Alternatives Effects Net benefit in capital
investment (in Rs. Lakhs)
600 t hydraulic press 800 t & 600 t presses are 30
400 SR Press eliminated
400 friction screw press
600 t hydraulic press & 400 friction screw press Steel ladle brick production
400 SR Press sleeves production

Access to plant
Alternatives Effects Net benefit in capital
investment (in Rs. Lakhs)
Road Transport cost of raw 4 / annum
materials reduces
Value Analysis
• For existing product
• Cost reduction and cost prevention without compromising quality,
reliability, performance and appearance
• Systematic application of recognized techniques which identify the
function of product and service, establish monetary value for the
function and provide necessary function reliably at lower overall cost
• Finding the most effective method to improve the value of the
product
𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 (𝑈𝑡𝑖𝑙𝑖𝑡𝑦)
𝑉𝑎𝑙𝑢𝑒 =
𝐶𝑜𝑠𝑡
Value Analysis Example
Blast Create Refine

• Identify the product • Different alternatives • Develop best alternative

• Collect relevant information • Critically evaluate • Implement the alternative
• Define different functions alternatives

Parts Before After

1 189 144
2 90.63 83
• Change of material
3 153.7 148.3
• Change of shape
4 21.6 24.6
• Change in design
5 22 20
• Change in production process
6 5.68 5.34
7 14.26 14.26
8 5.15 5.12
9 10 10
Total 512.2 451.6
Sectional View of Two Piece Ball Valve Total weight Before 512.24
Ball valve Body Contributes considerable amount of weight
in assembly (about 30% to 40% of the total weight) after 451.62
 Process strategies
Flexible flow
Job shop
• Process decision: organization’s approach to
transform inputs to output (goods/services) Batch shop +Repetitive
• Process focus Intermittent flow

Variety
• Product focus
• Repetitive focus Continuous flow
Continuous flow shop

Volume
Volume Variety Matrix

Process Matrix
 Decoupling Point –

of customization
Delivery time, level
Engineer to order

RM Customer’s order entry

Inventory

Parts/components

Subassemblies
Finished goods

Finished goods

Supplier Process 1 Process 2 Process 3 Process 4 Customer Push

Make to stock

Supplier Process 1 Process 2 Process 3 Process 4 Customer Pull

Make to order

Supplier Process 1 Process 2 Process 3 Process 4 Customer Conwip

Just in time
Flow based operations decisions
Sourcing and
Layout Inventory Lot sizing
procurement
decisions decisions decisions
decisions

Workforce Capacity Marketing Scheduling

decisions decisions decisions decisions

Equipment
choice