Eskom Procurement Book 2015

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 The key purpose was to reduce costs; as stated, it seemed that specifications for the envelope were outdated (the general industry-accepted standard was lower than the courier company’s standards).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).

176 CHAPTER 8