Determining Quality - value Analysis

When quality requirements are not obvious, or when there is a need to review what quality level is best, quality requirements can be determined through value analysis which spells out the design specifications for a product. Quality specifications can be made in many ways. They can be in the form of acceptable ranges for:

weight

shape

size

temperature resistance

strength

flexibility

color, etc.

Quality specifications thus can include any physical aspect of the part to be made. They can also be expressed in terms of num­ber of pieces per hundred which do not operate properly or do not meet the specifications.

Another aspect of quality that affects purchasing decisions con­cerns reliability or appearance of a component. A less attractive switch or support that functions properly may be fully adequate and therefore be preferable to a more expensive model.

Value analysis studies parts, assemblies, and/or packaging, to determine whether there are changes in components or functions which will provide the same "value" for users at less cost, or greater "value" at the same cost. Value analysis consists of the following steps:

defining the function and purpose of the object in study; e.g., to conduct electricity, to hold a metal body together, to propel an object, to turn an axle, etc.

determining alternate solutions: e.g., can the metal be replaced with plastic; can the weight of the object be reduced; can the housing be made with thinner material, etc.?

determining and comparing feasibility and costs of the al­ternative solutions with the present component: e.g., if plastic is used instead of metal, will it hold up as well; will the performance of the product be affected; will production costs be lowered; can present machinery be adapted to create the plastic part, etc.?

implementing the best solution

evaluating the subsequent performance

following up and refining the component further, if necessary

Value analysis often results in changes in component design or part material, substituting one part for another, or eliminat­ing a part entirely. Here is a possible checklist for conducting a value analysis:

SAMPLE CHECKLIST FOR CONDUCTING A VALUE ANALYSIS

Can the component be eliminated?

Can a standard item be used, if the present item is not standard?

Can the size of the item be reduced?

Can the weight of the item be reduced?

Can the quality of the item be reduced?

Are the ranges which are specified smaller than neces­sary?

Are unnecessarily fine finishes specified?

Can the item be made from a less expensive material or more efficient material?

Can the design of the product be simplified to simplify pro­duction?             

Is it less expensive to make the component in your plant than to buy the component from a supplier? (This point is discussed further, later in this section.)

Can the item be bought for less than it costs your plant to manufacture it?

Can the cost of packaging or shipping be reduced?

Have suppliers been asked for suggestions on how to re­duce cost?

One example of determining whether a more or less expensive com­ponent should be used in a product is given below.

A certain product which sells for $150 is guaranteed by the manufacturer to be free from defects. This means that any products returned with defects during the first year have to be repaired free of charge. Last year there were 60 repairs, 45 of them due to one component, part P-38. Repairs related to this P-38 com­ponent cost $12 per unit.

There is one P-38 part in each unit and last year 500 units were sold.

In recent years, sales have been tapering off due to growing cus­tomer discontent with the product defect.

The P-38 component costs $10 each. However, a higher quality component (B-52) is on the market, at a cost of $12 a piece. This B-52 component is guaranteed by the supplier to reduce the de­fect rate to less than 2%.

What would you do if you were the manufacturer? Would you re­place the P-38 component with the B-52 component, or not?

Factors to be considered when determining whether to replace the P-38 component with the more expensive B-52 component are as follows:

The additional cost for the higher quality component is $12 for the B-52, less $10 for the P-38, or $2 per unit.

The additional cost for the higher quality per year is 500 parts used each year x $2/per part, or $1,000 per year.

The cost of repairing P-38 parts each year are: 45 repairs made per year x $12 per repair, or $540 to repair P-38 parts each year.

The number of B-52 repairs which would be required each year are: 500 units used per year x 2% repair rate, or approxi­mately 10 repairs on B-52 components each year.

The annual cost of repairing the B-52 components is: 10 repairs made per year x $12 per repair, or $120 to repair B-52 components each year.

The net costs saved on annual repairs is then: $540 to re­pair P-38 components, less $120 to repair B-52 components, or $420 would be saved each year by using the higher quality B-52 component.

The net cost each year of using the higher quality B-52 com­ponent is: $1000 per year of the additional cost of using the B-52 component less $420 per year saved on repairs. It would cost $580 per year to utilize the higher quality B-52 compon­ent in manufacturing.

The decision, thus, is a difficult one and would amount to a re­duction in profit of approximately $1.15 on 500 units sold. If it will stop the loss of sales, or even reverse it, the new com­ponent may be worth the extra net cost.

A similar analysis, in a different situation, could show a much better picture and result in a gain, either from the use of a higher quality or a lower quality component.

Frequently it is possible to obtain less costly components which require some redesign or manufacturing process change with a sig­nificant initial investment. These decisions, too, require detailed analysis to calculate the advantages they may bring.

ON-THE-JOB ACTIVITY

Use the summary checklist shown earlier to conduct a value analysis of several items which you use or manufacture within your business and where you believe that savings may be possible. If you cannot easily identify such items, select components or products which are widely used so that even small economies you achieve are like­ly to bring large dollar savings.

If possible, discuss your thoughts with a person whose opinion you respect and see what additional ideas come from such a dis­cussion.

TEveryone Requirements To be knowledgeable about the Decision Making Process. We all rely on advice, and tools or techniques, to
assist us in our everyday lives.

When we head out To eat, the restaurant is the instrument that provides us with all the information required to choose what to
purchase and how much to spend.

Running a Business also requires making conclusions using techniques and information - how much stock to preserve, what price to
sell it at, what credit arrangements to provide, just how many people to hire.

Decision Making Procedure in company is the systematic process of identifying and solving problems, of asking questions and
finding answers. Decisions usually are made under conditions of uncertainty. The future is not understood and sometimes even the
past is suspect. This manual opens the door for business owners and managers to find out about the selection of techniques which
can be utilised to improve your decision making process in a world of uncertainty, change, and uncontrollable conditions.

A General Approach to Decision Making Process. If a scientist, an executive of a significant company, or a small business owner
you can benefit from improving your decision making skills. The general solution to systematically solving problems is the same.
The following 7 step approach to better management decision making may be utilized to study nearly all issues faced by a business.

State that the problem. A problem first has to exist and be realized. What is the issue and why is it a problem. What's perfect
and how do current operations vary from that ideal. Describe why the symptoms (what is going wrong) and also the causes (why is it
likely wrong). Try to specify all terms, concepts, factors, and relationships. Quantify the issue to the extent possible. If the
issue, not accurately and fast filling customer orders, attempt to determine how many orders were incorrectly filled and how long
it took to fulfill them.

Establish the Objectives. What are the goals of the study. Which objectives are the most crucial. Objectives are stated by an
action verb like to decrease, to increase, or to improve. Returning to the client dictate problem, the significant goals is: 1) to
raise the percentage of orders filled properly, and 2) to decrease the time it takes to order and process. A sub-objective could
include to simplify and streamline the order filling procedure.

Grow a Diagnostic Framework. Next establish a diagnostic frame, which is, decide what methods will be used, what kinds of
information are needed, and also how and where the info is to be found. Is there likely to be a customer survey, a review of
company documents, time and motion tests, or some thing different. What are the assumptions (facts assumed to be right ) of the
analysis. Which are the standards used to evaluate the study. What time, budget, or other limitations are there. What kind of
qualitative or other special processes are going to be utilized to examine the information. (Some of which will be covered
shortly). To put it differently, the diagnostic frame establishes the scope and processes of the entire study.

Collect and Analyze the Data. The next step is to collect the information (by following the procedures created in Step 3. Raw
information is then tabulated and coordinated to facilitate analysis. Tables, charts, graphs, indexes and matrices are a number of
the standard tactics to arrange raw data. Analysis is your important requirement of audio business decision making. What does the
data show. What facts, patterns, and trends can be viewed from the information. A number of the qualitative methods covered below
can be utilized during the step to determine facts, patterns, and trends in data. Obviously, computers have been used widely in
this step.

Generate Alternative Solutions. After the analysis has been finished, some specific conclusions about the character of the issue
and its resolution should have been achieved. The next step is to create alternative solutions to the problem and rank them in
order of the net benefits. But how are choices best generated. Again, there are some well established techniques like the Nominal
Group Method, the Delphi Method and Brainstorming, among others. In all these methods that a team is involved, all of whom have
reviewed the data and analysis. The method will be to have an informed group suggesting many different possible solutions.

Grow an Action Plan and Implement. Select the best solution to the issue but be certain to understand clearly why it's best, which
is, the way that it achieves the goals created in Step 2 greater than its options. Then develop an effective method (Action Plan)
to execute the solution. At this stage an important organizational thought arises - who is going to be accountable for seeing the
implementation through and what power does he possess. The chosen manager ought to be responsible for seeing that all tasks,
deadlines, and reports are performed, fulfilled, and composed. Details are important in this measure: reports, programs,
activities, and communication are the key elements of any activity plan. There are several techniques available to decision makers
implementing an action plan. The PERT method is a method of setting out an whole interval such as an action program. PERT is going
to be covered shortly.

Evaluate, Obtain Feedback and Monitor. Following the Action Plan was implemented to Fix a problem, management has to evaluate its
effectiveness. Evaluation Criteria have to be determined, feedback stations developed, and monitoring performed. This Measure
ought to be done after 3 to 5 weeks and again at 6 months. The target is to answer the main point question. Has the problem been
solved?

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