Eskom Procurement Book 2015

PURCHASING ANALYSIS TOOLS AND TECHNIQUES

Each of the tools and techniques is covered in this chapter.

8.2 VALUE ANALYSIS Value analysis is the organised and systematic study of every element of cost in a part, material, or service to make certain it fulfils its function at the lowest possible cost. Value analysis is aimed at identifying the functionality the end user requires from a product and/or service; and the appropriate cost/lowest cost to fulfil that function. The key to value analysis and value engineering is to understand how a part fulfils its function. Function is that which the product or service must do to make it perform and sell. For example, a knife cuts material and a thermometer measures temperature. It is important to note that while function definitions describe the desired result, they do not define the means to achieve the end. For instance, the primary function of a pen is to write. It can be used for this purpose if the pen case is made of plastic or of metal. A secondary function may be to allow the pen to function for a long period of time and to be durable in a factory workplace setting. If this is the case then, possibly, the pen with a metal casing might be more appropriate for the given function it is expected to perform. There are other examples. For instance, a plastic container with a lid where the primary function of the container is to store perishable food in a refrigerator and the secondary function is to help ensure the preservation of the food for a certain period of time. There are often several choices one can make on how best to carry out a value analysis exercise. Acomplex product or process may have several functions and even sub-functions. The first step, therefore, is to carry out a function analysis so as to understand fully the intended function of the product. Value can be defined as the lowest cost at which the function can be accomplished at the time and place where the function is required at a prescribed level of quality. Value does not always have a direct relationship to cost. Some products that cost less than a similar product may accomplish the function better. For example, a premium paid for shipping an item by air increases the cost of a product but probably does not add to its value. However, it is important to think of value in terms of how the customer perceives value. In this example it may be more important to have a time utility for the product (i.e., to have the product available for use at a given time) than additional cost. Value analysis is a technique that lowers cost while maintaining worth from the end user’s perspective. It does not cheapen the product [1]. For value analysis to work all those individuals who work, directly or indirectly, with the development, creation and sale of the product must be involved in the study. It is also important to link value analysis to how well a product is received by customers. Value analysis can be used to improve a product’s quality, performance, marketability, maintainability, and reliability while reducing costs [1].

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