As Assessment Of The Application Of Value Analysis And Value Engineering In Cost Reduction (A Case Study Of United Foam Public Limited Company, Ilorin)
1.1 Background of the Study
Value Analysis/Value Engineering is a systematic and organized procedural decision-making process. It has been used in almost any kind of application. It helps people creatively generate alternatives to secure essential functions at the greatest worth as opposed to costs. This is referred to as value. It is also known as Value Analysis, Value Management, Value Planning, and a host of other names.
As organization seeks to maximize profitability, they have utilized various business strategies and techniques to ensure that this objective is realized. With the current competitive and fast pace dynamic environment, every organization strive to maintain it customers based, and also gain competitive advantage over its competitors by providing goods that are of value to the customers. Value according to Miles (1989) is the lowest possible price that can be paid for to provide a reliable function or services.
Over the world, there is always a need to provide goods that are of values and also capture the attention of the customers, and Nigeria is not an exception. Organization can do this by revisiting the product designs of products offered to the market. So there is a need for value engineering as a management tool that aims at providing an improved product design that will not reduce the value derived by the customers.
According to West Virginia division of highway (2004), “Value engineering is the systematic application of recognized technique by multi- discipline team that identifies the function of a product or service, establishes a worth for that function; generates alternative through the use of creative thinking, and provides the needed functions, reliability at the lowest overall cost.” This approach requires that in the process of minimizing cost, the required quality and performance should not be sacrifice. Value engineering as a technique involves the identification of new alternatives to product design at a reduced cost. So organizational profitability has become the concern of researcher as there are quite a number of study on value engineering, but not much work has be done empirically on this topic in this part of the globe. So this study aims at empirically ascertain value analysis and value engineering impact on organizational profitability.
Value Analysis and Value Engineering (VA/VE) has both primary and secondary functions.
Value Analysis is a study of function, the function of parts material or service is the function of parts material or service is the job it does. Its frequently defined as “something” which makes an item work or sell” it can be usually be defined with a verb and a noun viz.
- Knife: Cut materials.
- Thermometer:- indicates temperatures.
Defining function by using just two word, the verb, the noun, represents the attempt to define more than one simple function at one time and makes the function in addition to the primary or basic function earlier mentioned.
Which are the creation of eye appeal to help sell the product and certain added feature which will appeal to the buyer but really add nothing to the accomplishment of the basic function except for the advanced countries like those of the America and Europe, among others, the concept of Value Analysis and Value Engineering had meant little or nothing to the developing nation of the globe.
However, there has emerged a possible recognition of it in the recent times. Therefore, some of the companies are recording better mark ups on their sales and purchasing personnel through the program are offering fair prices on procurement activities.
1.2 Statement of Research Problems
Since organization needs to present products that are of value to the customer for them to be profitable, every organization is in a need to achieve this. But the problem here is that not all organization has what it takes to provide the necessary product design that will culminate to value to the organization.
Lack of innovation product design which is part of value engineering is lacking in organization. Also inability to identify alternative to indentified function of a product is a problem faced by most organization in their production process. If there is no alternative to identified function, it will be difficult to reduced cost without sacrificing the value to be derived by the customers. Therefore cost reducing is an essential criterion of public limited companies in Nigeria for been profitable and Value Engineering remains a technique for achieving this goal of cost reduction and profitability in Public Limited Companies.
1.3 Objectives of the Study
This study is undertaken in order to explore the academic relationship between classroom theory and what is practically obtainable in bottling company having chosen the project topic.
As assessment of the application of value analysis and value engineering in cost reduction “(A case study of United Foam Public Limited Company, Ilorin),
- To investigate those factors that are responsible for unnecessary cost of an item in an organization.
- To identify the benefits that can be derived from the implementation of effective value analysis programme in an organization.
- To investigate what should be the role of purchasing in value analysis programme in an organization.
- To identify those areas in which value analysis is applicable; that well result into cost reduction to the overall goal of organization.
- To cause top management to realize that value analysis should really be everybody business. In one sense, maximum potential can be realized from a values analysis programme only if management properly takes these potential resources.
1.4 Significance of the Study
In view of the huge expenditure on purchase of materials used in industries, it becomes imperative for the implementation of value analysis techniques to reduced cost of production in industries. It is the impact of this study to make a viable and importance rectification so as to determine alternative ways of obtaining same quality materials or items but at a reduced cost.
- It is also the significant of this study to accuse consciousness to the benefits of effective value analysis program in organizations.
- The project will also show how purchasing as a member of value analysis team is involved in value analysis programme.
- This project is also aimed at reviewing the way cost is being reduced by the use of value analysis techniques in an organization.
- The study is also undertaken in partial fulfillment of the National Board for Technical education and the Kwara State Polytechnic Ilorin, for the award of HND in purchasing and supply.
- Finally, it will remain as a data bank for future researchers.
1.5 Scope of the Study
This study is supposed to cover Unifoam Industries, but as a result of the researcher being a student, faced with so many work in school which involves lectures & studying for the final exams and writing of this project at the same time and due to time constraints this research work will be focusing on the very department in Unifaom company Ilorin“ that will make impact on the subject matter and these departments are as follows: Purchasing production, Quality control, Accounting, Design and Engineering Departments.
1.6 Research Questions
To achieve the objectives of the study, the following research question are necessary, notable among them are;
- Is value analysis an effective technique in respect to cost reduction programme?
- Does value analysis lead to a drastic cost reduction in products and services in industries?
- Does purchasing play a vital role in value analysis programme?
- Do those involved in product design; have enough time to critically examine possible alternatives materials and processes?
- What has firms benefited from the application of value analysis programme?
1.7 Formulation of Research Hypothesis
Hypothesis represents an assumption which the researcher would like to verify hypothesis norm ally comes before the research is conducted.
Generally hypothesis may be stated in two ways.
- Null Hypothesis (Ho)
- Alternative Hypothesis (Hi)
- Ho: Value analysis is not an effective technique in respect to cost reduction programme?
Hi: Value analysis is an effective technique in respect to cost reduction programme.
- Ho: Not every firm requires the application of value analysis.
Hi: Every firm requires the application of value .analysis
- Ho: There is no need for the application of value analysis in respect to cost reduction in Unifoam companies.
Hi: There is need for the application of value analysis in respect to cost reduction in Unifoam companies.
- Ho: The application of value analysis has not in any way benefited firms.
Hi: Firms has in no measure benefited a lot from the application of value analysis programme.
- Ho: Purchasing do not play a dual role in value analysis.
Hi: Purchasing plays a vital role in value analysis.
1.8 Historical Background of the Case Study
The United Foam Plc, Ilorin is located along Asa-Dam New Yidi Road Ilorin, it was established in November 8th 1982 and commission on the 9th December, 1982 by the then executive governor of Kwara State Alhaji Adamu Attah As the name implies the organization manufactures foam products like mattress and cushions for the ultimate consumer’s consumption.
The company is jointly owned by the Kwara State government with 40% shares and the private individual comprising of the foreigners and indigenes have the remaining 60% shares.
Initially, the company served it customers throughout all the local government in Kwara State. However, it has extended it marketing operation to other state of the federation, Kwara State being the gate way. The present staff strength of the manufacturing organization stands at five hundred and forty-three Despite the young age of the company compiled with the present state of the economy in Nigeria, it has made itself one of the leading and most reputable of foam product country today.
1.9 Definition of Terms
Is simply the organized systematic and continuous study of every cost elements in a part, material or service to ensure that it fulfill its function at the lowest possible cost.
Has been used to refer to the design stage or before the fact value Engineering approach is used for new products and applies the same principle and techniques to pre-manufacturing stage such as concepts development, Design and prototyping.
Value is the relationship between what you want, the functions and what is cost to get it.
Refers to a number of procurement practices, aimed at findings, evaluating and engaging suppliers of goods and services.
Is an activity of acquiring goods or services to accomplish the goals of an organization.
Exact statement of the particular needs to be satisfied, or essential characteristics. That a customer requires in a goods, material methods, process, service, system or work and which a vendor must delivery.
A systematic procedure formula, or routine by which a task is accomplished .
Summary, Conclusion and Recommendations
5.1 Summary of Findings
From the study conducted, the summary findings were made.
The functions of value analysis and value engineering can not be carried out by one person or single designer. An organized value analysis and value engineering study usually utilizes a number of individuals with different types of background. Experience and skill which is possible to combine in one person or single designer. The company believes that value analysis yields maximum benefits only when it is practiced by all professional operating personnel consequently, this approach aims primary at developing on understanding of the concept and a working knowledge of techniques among all personnel responsible for specifying, buying and using production materials.
There are some problems which are causing draw backs on value analysis and value engineering programme. These includes lack of understanding company among members of the committee which make the success of the programme difficult. It was observed that ones the problems of the programme in the company is that it involves a lot of time and money. To supplement the staff training approach and committee approach, the company publishes monthly “value analysis” which has the following goals.
- To create a cost conscious attitude on the part of the employee and develop a team spirit in the approach to value analysis.
- To give examples of successful value analysis projects to employees so that they can see how to do it.
- To give recognition to individuals who have contributed good ideas.
The researcher is very much believes that the reader of this project work will in no doubt agree with me that the role of value analysis and value engineering (VA/VE) in a manufacturing company cannot be over emphasized. It is therefore imperative that all other companies should evaluate their system which is a means of reducing cost of an item without impairing functions. This can well b carried out in an organization by a competent value analyst. The value concept possess tremendous profit making potential. However if potentiality is to be realized those responsible for administration of the value analysis programme must adopt a broad management view point. This is essential because value analysis is a companywide activity whose purpose to optimize returns to the total business operation. Management must not over look the fact that on the long run, it is the attitude of the participants that largely determined that degree of success achieved by any programme. For this reason, the activities must be organized and administered with care.
Value analysis concept must be understood, accepted and practiced by a majority of the various functional specialists involved in the programme if such a programme is to be fall effective.
Conclusively, the company should continue with the programme so as to improve on its present achievements.
Based on my research study, the management should continue with the programme by utilizing a number of individuals with different background, the suppliers and a value analyst. By this, the management will be sure of carrying the value analysis operation effectively and efficiently.
Enough market survey needs to be carried out from time to tie in order to alert the management o the development in the market place.
The management should by as much as possible to see that much money and time are not wasted in carrying out the value analysis programme.
More so, management should try and see that during brain storming sessions. Each participants should be encourages to apply his imagination to the problem and purpose any idea that comes into his mind no matter how ridiculous it may sound. In addition, every idea should noted and recorded by the leader of the group. During the meeting, no idea should be criticized. And if any of the participant is criticized, it may discourage that person from putting forward whatever ideas he/she is having in mind. This should not happen. A idea by a person will lead to other suggestions which will finally lead to workable solution to the problem. After the session, all ideas should be analysed to find which ones are practicable. The team should find out the cost of implementing the new idea and compared to what is presently incurred. All ideas should be workable and should be given to the value analyst to develop them further, all department and personally of the company need to be convinced that value analysis programme is not a fault finding exercise.
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