It doesn’t seem to matter what product you are producing, today’s Global market place is constantly putting pressure on what price you can charge. And if your product falls into the category of a commodity, that price pressure just keeps on pushing the price lower.
So how do you make money in that kind of scenario?? The answer lies in being able to constantly take cost out the product, usually without your customer perceiving a drop in value. Or, you maybe able to maintain a price by increasing the perceived value without affecting the price. Bottom line, the market or a specific customer is demanding more for less.
How you achieve a lower product cost can be done in many ways, some more formal in approach than others. We hear lots about "Lean" to reduce waste, "Six Sigma" to eliminate variability, or on a less formal basis just good old "brainstorming", and so on. Each has its place and tends to focus on product or process. An old friend that is not that well known is VA/VE. What's that ???
Value Analysis/Value Engineering
Based on a little internet research, I discovered that this formalized method of cost reduction was originally developed by Larry Mills (General Electric) in 1943 and since then has been refined several times. "VA/VE is an approach that enhances decision making, improves products and processes and increases customer satisfaction. "
The objective of VA/VE is to improve value and is defined by this expression: Value = Function ÷ Cost
I first came into contact with VE/VE when I joined a Tier 1 Automotive company back in the late 80's. With constant cost pressures being put on the Automotive supply base VA/VE became one of the methods used to take cost out of the products. The method was so effective that 2 individuals in the Engineering Dept were dedicated to conducting VA/VE workshops and implementing the resulting improvements; all with significant cost reductions. As many of these types of initiative do, the methods seem to disappear with changes in management, customer driven initiatives, etc. In 2005, the technique emerged again as a viable method to help meet the OEM's requirement of year over year product cost downs. Again dedicated resources were put in place to drive cost out.
Regardless of which approach you take, if achieving your desired goal of "more for less" requires innovation within your organization, make sure you don't miss out recouping any of the costs that fall within the eligibility of the SR&ED Tax Credit/Refund Program. Remember the program is there to help companies remain viable and competitive in a Global market. It's a great initiative, take advantage of it! You can find out more about EMC's SR&ED Initiative here. If you have any questions, please email me…I would be happy to help.