ASSESSMENT OF THE APPLICATION OF VALUE ANALYSIS AND VALUE ENGINEERING IN COST REDUCTION
ABSTRACT
This project work was chosen in order to determine an assessment for the application of value analysis and value engineering in cost reduction. It will X- Ray the gains, Benefits and contributions of value analysis and value engineering in an organization with special reference to Nigerian Bottling Company Owerri. The topic in question will reveal the methods by which value analysis and value engineering techniques can be applied as well as the contribution of other functional departments in the application of value analysis and value engineering.It will also identify the factors that are responsible for unnecessary cost of products and the reasons why value analysis programme fail some times.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Value Analysis as an organized study of the function of materials, parts and components involves the critical examination of goods or products, which is aimed at improving its efficiency in use by changes in design, production techniques, packaging and other related process where as value engineering represents the application of value analysis at the pre-production stage. It centers more on cost avoidance ie it ensures that those things that adds to cost are being removed at the production floor before the materials are being processed in to finished product while value analysis is concerned more of cost corrections.
Value analysis is an organized procedure for the efficient identification of unnecessary cost by analysis of the function (ie the property of the product which makes it work or sell). The essence of value analysis, therefore, is fist to identify the function of the product and then, examine alternative ways in which this function can be achieved choosing that which involves the least cost. Value analysis is probably the greatest cost- saving techniques used in industries today. It represents a powerful set of tools which can be used by management in controlling costs. The fundamental objective of value analysis activities is the procurement of materials representing the, “Best Buy” in terms of function to be performed. The general idea behind this is the issue of quality and cost. The main objective of every organization is to make profit. Just as a product is purchased to satisfy a particular purpose. For this reasons, it becomes important to correct or even avoid those unnecessary cost elements in a production design. This in essence stimulated the researcher most in carrying out this research.
1.2 STATEMENT OF PROBLEM:
Nigeria as a nation is blessed with so many industries whose services the nation cannot do without. These industries are charged with the responsibilities of providing goods and services of high quality standard at a reduced and affordable price for the citizens. Materials in this respect becomes so Vital that no result could be achieved without good procurement procedures. This is essentially as a result of the fact that purchased materials contribute very tremendously to companies profit and profitability.
Apparently, this stems very sufficiently as a result of recognition being accorded to purchasing function by most of these companies. It is a material fact that a company that buys wisely and economically profits well and therefore less vulnerable to economical doom.
The researcher is associated with the following 1. The organization does not have enough time to examine critically, all the possible alternative materials and processes. 2. The organization inability to apply a formalized approach to the identification and elimination of unnecessary cost. 3. The Materials procured by the organization are very expensive and adds values to cost. 4. The purchasing function is not accorded it due recognition in performing their function in an organization. 5. The organization does not have the skill to consider the technical and commercial aspect of conducting a value analysis programme.
1.3 OBJECTIVE OF THE STUDYS
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 Nigerian Bottling Company. Owerir),
1. To investigate those factors that are responsible for unnecessary cost of an item in an organization.
2. To identify the benefits that can be derived from the implementation of effective value analysis programme in an organization.
3. To investigate what should be the role of purchasing in value analysis in an organization.
4. To identify those areas in which value analysis is applicable; that well result into cost reduction to the overall goal of organization.
5. To cause top management to realize that value analysis should really be every body’s 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 significance of this study to make a viable and significant 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 Federal Polytechnic Nekede, for the award of HND in purchasing and supply.
• Finally, it will remain as a data bank for future researchers.
1.5 RESEARCH QUESTIONS
To achieve the objectives of the study, the following research question are necessary, notable among them are;
1. Is value analysis an effective technique in respect to cost reduction programme?
2. Does value analysis lead to a drastic cost reduction in products and services in industries?
3. Does purchasing play a vital role in value analysis programme?
4. Do those involved in product design; have enough time to critically examine possible alternatives materials and processes?
5. What has firms benefited from the application of value analysis programme?
1.6 HYPOTHESIS
Based on the research questions above, the following hypothesis are formulated to be tested.
1. Ho: Value analysis is not an effective technique in respect to cost reduction programme?
H1: Value analysis is an effective technique in respect to cost reduction programme.
2. H0: Not every firm requires the application of value analysis.
H1: Every firm requires the application of value .analysis
3. H0: There is no need for the application of value analysis in respect to cost reduction in Bottling companies.
H1: There is need for the application of value analysis in respect to cost reduction in Bottling companies.
4. H0: The application of value analysis has not in any way benefited firms.
H1: Firms has in no measure benefited a lot from the application of value analysis programme.
5. H0: Purchasing do not play a dual role in value analysis.
H1: Purchasing plays a vital role in value analysis.
1.7 SCOPE OF THE STUDY
This study is supposed to cover notable bottling industries, but as a result of the researcher being a student, faced with so many work in school which involves lectures and 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 “ Nigerian Bottling company. Owerri “that will make impact on the subject matter and these departments are as follows: Purchasing production. Quality control, Accounting, Design and Engineering Departments.
1.8 LIMITATION OF THE STUDY:
The researcher is handicapped by a number of factors, notable among them are:
a. Time factor
b. Finance
c. Insufficient literature materials
d. Poor response
( a) Time: Time factor was one of the limiting factor that affected this project work, that is to say, the time within which to compete this work relatively short and does not allow or does not enable the researcher to get a detailed investigation and information of the facts needed.
(b) Finance: In a project like this, there are bound to be some hindrances and obstacles posing a threat to the progress of the project.
As we all know, money is not easy to come by as the researcher has to limit herself to the available financial resources and has to structurally adjust the project.
C. INSUFFICIENT LITERATURE MATERIALS: The greatest hindrance of this project work is the unavailability of literature material for this work to be effectively and efficiently carried out by the researcher.
D. POOR RESPONSE: The response of people during interview was very poor and there were some questions asked and their response could be that they were incompetent to speak on such issues or they would tell you that it is confidential. As a result of this, information was not let out easily. There was also the risk of running up and down to collect the necessary data for the project, as they could not be collected at once. Also, the condition under which we are subjected to study is very poor and the research had to attend her lectures, do her assignments together with carrying out this project work. This did not affect the design of the project itself, rather, some of the figures and facts inside are accurate account based on the best of my knowledge.
1.9 OPERATIONAL DEFINITION OF TERMS:
FUNCTIONAL VALUE: Functional value as used is simply that which enables an item or product to fulfil its stated function. It can also be called used value.
AESTHETIC VALUE: This is simply the measure of value of beauty attached to an item that increases its desirability.
ANALYSIS: This is the detailed study of something in order to understand more about it or what it consists.
PURCHASING: As used here, it an important part of material management, standing mainly for obtaining the right quality material from the right source, in the right quality, and at the right time.
ALTERNATIVE: This is something you can choose or have out of two or more possibilities to achieve the same objective
EXCHANGE VALUE: This is the cash worth of something in its present form. It is the price, a purchaser offers for an item.
VALUE ANALYSIS: This is the systematic study of product or material with a view to reduce their cost by redesigning or eliminating the design features which adds to cost but do not contribute to value.
VALUE ENGINEERING: This is the application of value analysis techniques in the pre- production stage.
RE- DESIGN: This is the process of designing a product or material again in a different way. It is an adjustment on a product design by eliminating certain features of the product.
COST: This is the price paid or required for acquiring producing or maintaining something measured in money.
PRODUCTION: This can be defined as the creation or manufacturing of goods and services in to finished product with exchanges value.
VALUE: value is simply the desirability of a thing.
ORGANIZATION: This is the formal meeting of people who come together to achieve a particular goal
QUALITY: This is the totality of features and characteristics of a product or a service that satisfy a stated need.
PROCURE: It simply means to obtain or acquire.
SPECIFICATION: This is the description of any object, materials or process in sufficient detail to enable its manufacture and further identical reproduction
ELIMINATE: It simply means to remove or take out
RAW MATERIALS: These are materials on which further manufacturing process is carried out. It is the materials out for further production of goods of services.
PROFIT: This is the excess of revenue over quality and expenses in business enterprise.
DEPARTMENT: This is a specialized division of a large concern, such as business.
TECHNIQUE: This is a practical method or act applied to a particular skill.
INDUSTRY: This is simply a branch of commercial enterprise concerned with out put of a specified product
COMPONENT: Is a constituent part or aspect of something more complex.
RELIABLE: It simply means able to be trusted and dependable.
FEATURE: This means a prominent or distinctive part.
