Value engineering is a branch of industrial engineering in which the value of a system’s outputs is optimized. This involves crafting the optimum mix of performance and costs. In most cases this means the identification and removal of unnecessary costs. By avoiding unnecessary expenditures, value can be created for the manufacturer and/or their customers.

Cost Optimization

Value engineering can reduce the quality of a product but that need not be the case. Often value engineering reduces costs by eliminating wasteful practices. This can be done in several areas:

  • Material substitutions - Unnecessarily expensive inputs can sometimes be replaced by less expensive one that function just as well. If a product has a life span of ten years, then using a material that lasts thirty years is wasteful. In a perfectly value engineered product, every component of that product will function perfectly until the product is no longer useful, at which time all components will deteriorate.
  • Process efficiency and producibility - More efficient processes can be used and the product can be redesigned so that it is easier to produce. Reducing unnecessary parts, unnecessary precision, and unnecessary production operations can lowering costs and increase manufacturability, reliability, and profits. Process engineering can be used to increase process efficiency.
  • Modularity - Subassemblies that are designed and developed once and reused in many slightly different products can reduce a project's engineering and design costs. For example, a typical tape-player has a precision injection-molded tape-deck compartment. This component can be produced, assembled and tested by an independent manufacturer and sold to numerous companies as a subassembly. The tooling and design expense for the tape deck is shared over many products that can look quite different.
  • Market driven product improvements - A product with more features than customers want is inefficient. Customers will be paying for features that they don’t want to pay for. Value engineering can determine how to produce a product that exactly matches the wants of a major segment of the market. When a customer needs more features, these can be sold as options.
  • Energy efficiency - Value can be created by making a product or process more energy efficient for the user. This is particularly true in heating and airconditioning systems, transportation vehicles, industrial equipment, and other systems that use much energy.

When value engineers talk about reducing costs, they are usually referring to either total life cycle costs or the direct costs of production. Total life cycle costs are the total expenditures over the whole life span of the product. This measure of cost is most applicable to expensive capital equipment, and includes manufacturing costs, installation costs, maintenance costs, and decommissioning costs. Individual expenditures must be discounted to reflect the time value of money. When referring to consumer products, the direct cost of production is more typically used. This measure is limited to the costs directly associated with manufacturing the product.

Four Stages

Value engineering is often done in four stages:

The Origins of Value Engineering

Value engineering began at General Electric Co. during World War II. Because of the war, there were shortages of skilled labour, raw materials, and component parts. Lawrence Miles and Harry Erlicher at G.E. looked for acceptable substitutes. They noticed that these substitutions often reduced costs, improved the product, or both. What started out as an accident of necessity was turned into a systematic process. They called their technique “value analysis”.

As others adopted the technique, the name gradually changed to value engineering.

Examples of Value Engineering

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