During World War II, critical materials and components were difficult to obtain, and most manufacturers were required to specify numerous substitutions in their design and production activities.
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Harry Erlicher, then Vice President of purchasing for the General Electric Company, observed that many of the required substitutions during this period resulted not only in reduced costs but also in functional product improvement.
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Consequently, Mr. Erlicher assigned to L.D Miles the task of developing a systematic approach to the investigation of the function/cost of aspect of existing materials’ specifications. Mr. Miles not only met this challenge successfully, but subsequently pioneered the scientific procurement concept which General Electric called “Value Analysis”.
In 1954 the Navy Bureau of ships adopted a modified version of General Electric’s value analysis concept in an attempt to reduce the cost of ships and related equipment’s. In its application, the Navy directed its efforts primarily at cost avoidance during the initial engineering design stage and called the program “Value Engineering”, even though it embodied the same concept and techniques as GE’s value analysis program. In an operational sense, however, the two terms typically are used synonymously in industry today, only the timing differs.
The technique of value analysis represents a potentially powerful set of tools which can be used by management in controlling material costs. The fundamental objective of all value analysis activities is the procurement (or manufacture) of materials representing the ‘best buy’ the terms of the function to be performed. In this sense, the idea is not new; it is synonymous with a long standing objective of good purchasing.
The unique feature of current value analysis programs, however, lies in the systematic and through approach used in attaining this objective. Only after widespread publicity of Miles’s original work, a significant number of manufacturing concerns made a concerted and methodical effort to engineer unnecessary costs out of the parts used in their products.
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Much of the current effort devoted to value analysis closely parallels the activity involved in the interdepartmental development of material specifications. The major differences are in the depth of the analysis and in the timing.
Inter-departmental development of material specifications, like the Navy’s value engineering applications, focuses on new specifications developed at the engineering design stage. On the other hand, in most value analysis applications, management attempts to coordinate the talents of personnel in engineering, production and purchasing in conducting a meticulous investigation which usually leads to improvement of existing rather than new specifications.
Although different companies stress different variations of the fundamental idea, the following two general conceptual tools appear basic to the operation of a value analysis program:
1. Design analysis of the required material.
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2. Cost analysis of the required material.