Showing papers on "Value engineering published in 1997"

Target costing and value engineering

Abstract: What would happen if everyone in your company followed a disciplined approach to cost reduction? Go ahead -- imagine it. What would it look like? How can it be done?The answer -- smart cost management.Effective cost management must start at the design stage. As much as 90-95% of a product's costs are added in the design process. That is why effective cost management programs focus on design and manufacturing. The primary cost management method to control cost during design is a combination of target costing and value engineering.Target Costing Objectives:Identify the cost at which your product must be manufactured at if it is to earn its profit margin at its expected target selling price.Break the target cost down to its component level and have your suppliers find ways to deliver the components they sell you at the set target prices while still making adequate returns.Value Engineering:The connection to function: An organized effort and team based approach to analyze the functions of goods and services that the design stage, and find ways to achieve those functions in a manner that allows the firm to meet its target costs.The result: Added value for your company (development costs on-line with added value for your company; development costs on-line with selling prices) and added value for your customer (higher quality products that meet, possibly even exceed, customer expectations.)

Learning curves: accuracy in predicting future performance

Abstract: Many repetitive construction field operations exhibit a phenomenon known as the learning or experience effect. A learning curve is generated when the time or cost required to complete one cycle of an activity is plotted as a function of the cycle number. For practicing construction engineers and managers, the greatest potential value of learning curves lies in their ability to predict future performance, instead of fitting historical data. This paper presents a new method for using learning curves to predict the time or cost to complete the remaining cycles of an activity in progress, to assess the accuracy of this method, and to compare the accuracy of this method with the standard forecasting technique used in construction cost reporting. Using the proposed method, the accuracy of predicting the time or cost required to complete an ongoing activity improves dramatically for about the first 25-30% of the activity and then levels off to within 15-20% of the actual value. Compared to the standard method using the cumulative average, the new learning curve method is shown to be more accurate. The analysis quantifies the trade-off between accuracy of predicting future performance and the timeliness and potential value of such a prediction.

Total cost analysis: an alternative to benefit-cost analysis in evaluating transportation alternatives

Abstract: This paper explains the theory in support of total cost analysis (TCA) to compare transportation system alternatives. The full costs of each alternative are first aggregated, including travel time costs and monetizable environmental and social costs. Many costs which are considered on the benefits side of the equation in benefit-cost analysis (BCA) as "cost savings" are brought over to the costs side. Total cost differences among alternatives are then traded off against their estimated non-monetized benefits or impacts, just as a consumer trades off product quality against cost before deciding which product he or she will buy. One advantage of TCA over traditional BCA is that the concept of "total cost" is more easily understood by the public and by political decision-makers than BCA concepts such as "net present worth", "benefit-cost ratio" and "internal rate of return". A second advantage is that there is no suggestion that all "benefits" have been considered; decision-makers are free to use their own value judgements to trade off total cost against non-monetizable social, environmental and economic impacts, just as they trade off quality and convenience against cost when purchasing goods and services in their roles as consumers. The TCA approach is demonstrated in this paper through a case study of two systemwide alternatives for the Baltimore, MD urban area.

Purchasing: No Time for Lone Rangers

Abstract: The objective must shift from cost to competitive advantage Half your purchasing group may need to be replaced Operating at the hub of a supplier network Purchased goods and services can account for 50 to 80 percent of a company's expenditure It is hardly surprising, therefore, that after pricing, reducing purchasing costs is the most powerful way to improve shareholder returns, and that most companies have at some point embarked on a purchasing cost reduction program [ILLUSTRATION FOR EXHIBITS 1 AND 2 OMITTED] What is surprising, however, is that many executives still believe the benefits of better purchasing and supply management (PSM) begin and end with a one-off cost reduction, essentially achieved by telling their purchasing departments to lean on suppliers to cut prices Those executives would do well to think again For, properly managed, PSM can give companies a network of suppliers capable of delivering the technology, knowledge, products, or service quality that will beat competitors, at the same time as securing ongoing cost reductions There are many examples A leading fast-food company cut the number of its suppliers so that it could work closely with the remainder to improve their performance The result has been not only annual cost reductions of 4 to 5 percent over several years, but faster product development and innovative packaging that sees the company now selling its food in unique environment-friendly containers An automotive manufacturer integrated PSM personnel into its product development teams so that sourcing is considered during, not after, development This integration means development teams constantly consider the cost and manufacturing implications of their decisions, and usually enables suppliers to be brought into the development process, lending their own knowledge and skills to improve design and speed up development One development team that collaborated with a supplier to redesign an instrument panel was able to cut the part count by 30 percent, halve the number of assembly steps and materials specifications, and shrink development time from years to months Similar efforts in other areas have enabled the manufacturer to produce two vehicles in the time it takes competitors to turn out one A leading clothing retailer formed close relationships with a small number of suppliers to redesign its supply chain Shipments now arrive at lower cost and up to seven days earlier - a significant advantage over rivals in the fast-moving fashion business And sound PSM management helped a defense company discover that many of its engineers had for years duplicated suppliers' work in areas such as R&D, parts-engineering support, and quality audits The duplication, inevitably costed into the final product, amounted to an unnecessary 7 percent "tax" which, once discovered, was easy to eliminate The company's engineers now take on higher value-added tasks such as value engineering, giving it an edge over competitors that have yet to look for similar overlaps These examples, and our experience of working on PSM improvement programs with more than 250 companies in a range of industries and services, reveal the same simple message: companies must define PSM more broadly if they are to use it to the full as a strategic weapon Indeed, PSM lies at the heart of any successful continuous-improvement program, helping best-practice companies constantly to upgrade their performance at the same time as reducing costs In other words, PSM helps them improve their "spend productivity" (that is, year-on-year cost reductions on goods and services) faster than competitors do Beyond cost reduction The key to successful PSM is to configure and manage supplier networks to emphasize the purchaser's competitive strengths Technical innovation, for example, is vital in information technology Therefore, computer manufacturers must use suppliers to speed up the rate at which they introduce new products …

The value of travel time changes in a random non-linear utility model

Abstract: Standard practice in econometric estimation of the value of travel time-changes divides travellers in market segments and assumes linear utility functions in each category. Here instead a RUM-model is derived from a second order approximation to the utility function. The model is estimated by probit on data from a recent SP value of travel time study. The influence of socio-economic variables, trip duration, etc. on the value of travel time changes is estimated, and tested, in more efficient use of the data than possible with the standard approach. The conclusions differ in several ways from those of a previous study evaluating the same data set with the conventional method. It is found a considerably lower value of travel time savings and signs of a perceptual threshold; respondents decline travel time savings smaller than 10-15 minutes irrespective of the bid price. The non-linear approach also provides a convenient means for benefits transfer, i.e. to calculate the mean value of time savings for a specific road project depending on how it will be used and by whom. (A)