188 / 252
176
CHAPTER 8
PURCHASING ANALYSIS TOOLS AND TECHNIQUES
8.2.1 VALUE ANALYSIS IN ACTION
Probably the best way to understand value analysis is to review an example of
where it has been carried out in practice, and such an example is an envelope
used by an overnight courier company. One of the key ‘drivers’ for this initiative
included that specifications for the product were old and most of the competition
used lighter weight materials. Management at the courier company decided that
one of the sourcing goals was to review the high-value/high-volume products
to see if there was scope for improvement and express envelopes fell into
this category. The key purpose was to reduce costs; as stated, it seemed that
specifications for the envelope were outdated (the general industry-accepted
standard was lower than the courier company’s standards).
The courier company set up a cross-functional team to carry out a value analysis
exercise on express envelopes. They first examined the intended function of the
express envelopes, including requirements for protection of contents in transit,
and they also examined the conditions under which these envelopes would
need to function to adequately protect the contents of the envelopes. They then
approached the highest volume provider of the envelopes and talked with them
about alternatives to reduce costs. These alternatives comprised:
• Reducing thickness.
• Reducing trim (width of the closure).
• Reducing colours from six to two.
• Going to different type of board (a non-recycled material, virgin board. Board
being used was 80% post-consumer recycled).
The courier company felt that the thickness of the board presented an opportunity
for cost reduction (current thickness was 14 point and industry was 12) as did
the width of the trim, which could be reduced to cut costs. It believed that going
to a virgin board material did not present an opportunity because of the impact
of using environmentally friendly or recycled product and associated issues.
The courier company also felt that reducing the number of colours of envelope
presented an opportunity for variety and cost reduction.
The next step the team took was to review opportunities with the product
stakeholders, which included portfolio marketing and environmental groups. It
reviewed opportunities for cost reduction and obtained stakeholder opinions on
various alternatives including the above potential cost reduction opportunities,
which all stakeholders agreed were worth examination.
The value analysis team then created handmade prototypes, reducing the
thickness/weight of the board and reducing the trim. The prototype went
through a limited manufacturing run. These products were sent for testing to an
internal test lab and for outside testing to validate quality based on performance
requirements and specifications (i.e., the product had to pass ‘rub’, ‘shake’ and
‘puncture’ tests; there was no lowering of tolerances on operational or product
performance).