Value Engineering for the Electronics Industry
August 1967 Electronics World
topics are timeless. This is one of them. The term "Value Engineering"
is not so familiar these days, since ostensibly it was developed by
back in the World War II era. Per
Wikipedia, "Value engineering (VE) is a systematic method to improve
the "value" of goods or products and services by using an examination
of function. Value, as defined, is the ratio of function to cost. Value
can therefore be increased by either improving the function or reducing
the cost. It is a primary tenet of value engineering that basic functions
be preserved and not be reduced as a consequence of pursuing value improvements
." This article from the August 1967 Electronics World was a good read
then, and it is a good read in 2011.
August 1967 Electronics World
of Contents] People old and young enjoy waxing nostalgic about
and learning some of the history of early electronics. Electronics World
was published from May 1959 through December 1971. As time permits, I will
be glad to scan articles for you. All copyrights are hereby acknowledged.
Electronics World articles.
See all the available
Electronics World articles.
Value Engineering for the Electronics
IndustryBy Fred H. Posser/Director of Value Engineering Airborne Instruments
Lab. (Div. Cutler-Hammer)
A management philosophy of applying a forced organized approach to reducing
costs while maintaining product quality. Many examples are included,
showing what creative thinking' can do in this area.
Value engineering is an organized attack on all elements which affect
cost in order to provide a required function or product at an optimum
price. These techniques can be applied to hardware, processes, schedules,
or procedures. Since there is much confusion in the field, let us differentiate
between value engineering and some of the other terms that appear to
be part of this subject.
Value analysis is the application of
the techniques and philosophies of value engineering to existing designs
or products. In many companies the terms "value engineering" and "value
analysis'" are used interchangeably, but we prefer to separate them
and consider value engineering the application to new designs and value
analysis the application to existing designs or products.
Cost reduction is the effort made to reduce the cost of a required item
by analyzing the fabrication techniques and procedures necessary for
its production. This means we do not consider ways of changing what
is specified or required, but rather investigate methods of obtaining
what is required at a lower cost. When this investigation is applied
to the item's or procedure's function after the item has been designed,
we call it "value analysis". When it is applied to the function of an
item still to be designed, we call it "value engineering".
Fig. 1. This capacitor was used by Lear Siegler's Power Equipment
Division. The previous design resulted in a cost of $11.22 each.
After redesign, cost dropped to $4.65 apiece, thereby resulting
in total savings of $6570 for every thousand produced
Fig. 2. Redesign of the molded-cable assembly used by General Electric
Missile and Space Division. In the original design, custom molding
was required and six types of cable assemblies were used. Typical
costs for one type was $250 each, for another type was $940. After
value analysis was used, the leads, breakouts, and connectors were
assembled using oversized tubing, then heat-shrink tubing was used.
Typical costs for each unit fell to $100 and $530 respectively.
The total savings for manufacturer amounted to some $111,000 per
Fig. 3. The line drawing (above) illustrates the previous method
used by Lockheed Electronics Co. to dispense color-coded wire. In
this case individual spools of color-coded wire were purchased from
an outside vendor. In new method, shown in the photo, white wire
is bought and up to three colors are applied by the in-plant machine
(below) to the exact lengths required for each job. This eliminated
surplus and resulted in saving $43,500/yr.
Fig. 5. A log i.f. amplifier manufactured by Airborne Instruments
Laboratory is shown before and after value analysis. The original
version used built-up sheet metal construction and welded interconnections.
The newer version used a cast casing and soldered printed-circuit
board. There was a per-unit savings of $50, resulting in a total
savings of $50,000 for a 1000-unit run. The implementation cost
in this particular case amounted 10 about $4500, resulting in $45,000
Fig. 6. Relation between the seven steps of creative problem solving
and the five steps of the value engineering job plan.
effectiveness analysis refers to optimizing the total cost of a product
or a system, i.e., user's cost to purchase, service, repair, maintain,
and satisfy the staffing requirements of a piece of equipment or system
for a specified number of years.
PERT is a technique for analyzing
the occurrence of sequential and parallel events or operations in order
to determine the path that is most critical in establishing the required
output. Value engineering may be used to reduce or investigate the cost
of specific events.
Zero defects is a philosophy emphasizing
each individual's importance in doing a job right, the first time. Zero-defects
philosophy, therefore, applies to everything, including how the value-engineering
job is done.
Value engineering is important to the electronics
industry since it applies a forced organized approach to the reduction
of the costs of all elements of the business. This is accomplished by
taking a hard look at the individual element requirements and then determining
first if the requirements are necessary, and second, how individual
requirements may be met to yield optimum cost. This is not an attempt
to reduce cost by reducing performance, reliability, or quality. Investigations
have indicated that successful value-engineering efforts not only reduce
cost and schedule, but usually improve other characteristics as well.
In May 1964, The Department of Defense published a document
entitled "Fringe Effects of Value Engineering" prepared by the special
committee on value engineering of the American Ordnance Association.
The report indicates that 44% of the 1961 changes investigated resulted
in improvements in reliability while 1% did not; 40% improved and 2%
decreased maintainability; 38% improved and none decreased quality;
and 21% improved and 3% decreased performance. This is because successful
value-engineering efforts usually simplify design, resulting in lower
cost, increased quality and reliability, and improved maintainability.
Some Practical Examples
In each of
the examples we will examine, the resultant new design reflects a careful
investigation of each detail of the old design. In the first example
shown in Fig. 1, the heavy steel plate used in the capacitor required
expensive machining while the redesigned piece is turned out as a stamping.
The soldered connection is replaced by an easily produced and assembled
threaded part while the relatively expensive ceramic parts, which were
not required, were replaced by molded rubber parts.
Fig. 2 not
only illustrates a cost saving obtained by replacing a custom-molded
assembly with an easily made harness enclosed in heat-shrinkable tubing
but also demonstrates the possibility of obtaining "fringe-effect" improvements.
In this case there was improved quality control as well as ease of repair
Fig. 3 is an excellent example of value analysis
as applied to a fabrication process. In this case the end product is
the same, yet there is an appreciable annual saving. Individual spools
of color-coded wire always present a problem in that they rarely come
out even with the run or not enough of a given color is available when
needed. In addition, when a small amount of a particular color-coded
wire is required, it is necessary to obtain a whole spool. In-plant
color coding of white wire provided the solution.
Fig. 4 illustrates
the application of value analysis to a product that had been in use
for some time. In this case the initial design was developed for a specific
application and then adopted by a number of programs for other uses.
The initial design permitted the handle, frame, and connector to be
eliminated if desired. But this fact was forgotten from the time of
the initial design until the assembly's latest application. This example
illustrates the importance of continually reviewing products and designs
even when they are acceptable and have been in use for a fairly long
Fig. 5 is still another example of a change in design
which resulted in less costly fabrication techniques. The built-up sheet
metal structure was replaced by a precision casting and the welded interconnections
by a soldered printed-circuit board. This was done when a thorough analysis
indicated that the change from welding to soldering was possible and
that an increase in quantity allowed use of more expensive tooling.
In smaller quantities, the sheet metal structure was less expensive
and for other environments the welding was found necessary.
These five examples clearly indicate that there is no one way to solve
a problem and what is an excellent solution a one time may be less than
optimum at other times.
Value Engineering Method
Value engineering developed as the result of discussions held
some time prior to 1947 in the Purchasing Department at General Electric.
The individuals involved recalled that during World War II it was necessary
to locate substitutes for the required materials. Many times, it was
discovered that the alternate proved far superior, both in cost and
function, to the material that had been originally specified. Mr. Larry
Miles, who is considered to be the "father of value engineering," was
given the responsibility of developing this technique.
course of investigating the various techniques employed, it was found
that the individuals most successful at it were those using creative
thinking. If we review the usual texts on creative thinking or creative
problem solving, we find that a seven-step procedure is involved: 1.
orientation, 2. preparation, 3. analysis, 4. hypothesis, 5. incubation,
6 synthesis, and 7. verification .
These steps have been changed
slightly by the value-engineering people and are referred to as the
"job plan." Some companies use seven steps, some five. When five are
used the form becomes: 1. familiarization, 2. speculation, 3 analysis,
4. evaluation, and 5. implementation. The relation between the five
steps of the job plan and the seven steps of creative problem solving
is shown in Fig. 6.
1. Familiarization. During the familiarization
phase all effort is concentrated on understanding and defining the required
function. An attempt is made to define the primary function in two words:
one a verb, the other a noun. In this way, one is forced to define the
central purpose of the effort in unambiguous terms. During this phase,
a solution is not attempted. This produces a problem-oriented rather
than a solution-oriented attack. It also overcomes one of the greatest
handicaps to problem solving-a misstatement of the problem.
2. Speculation. This step involves listing all possible solutions. An
important characteristic of this step is the fact that no attempt is
made to justify or criticize any of the suggested solutions. By not
being critical of any of the solutions, freer thinking is encouraged.
This is extremely effective when a number of individuals are involved
and is very close to the technique of "brain-storming" which was popular
with some industries a few years ago.
Included in this speculation
phase is an "incubation" period. This is a time when the mind is allowed
to concentrate on other matters with the solution to the primary problem
coming as a ''bolt from the blue".
3. Analysis. The analysis
phase critically reviews the ideas generated during the speculation
phase with a view to developing an optimum solution. Many times a number
of possible solutions are advanced during this phase. The output of
this phase is one or a limited number of complete solutions which are
4. Evaluation. During evaluation, the solution
or solutions developed during the preceding phase are completely evaluated.
Back-up data is collected or generated and a complete solution is documented.
If a number of solutions are offered, these are ranked in some manner
so that a final selection may be made.
5. Implementation. The
"job plan" is set up so that a solution to the value problem may be
found either by a team or by an individual. The individual may be a
value expert working in a staff position or a design engineer authorized
to make his own decisions. Implementation in this latter case is no
problem. Implementation in the case of the value expert may present
some problems so it is included as a discrete step in the plan. In this
way, the entire effort is covered from investigation to solution.
Value engineering has embraced the whole subject of creative
thinking and placed it in a new context. The success of the technique
is due to its vigorous application and from forcing people to think
toward a goal. In value engineering, this goal can be stated as the
least cost for a function.
Value can mean prestige value, aesthetic
value, resale value, or use value. We are interested in use value. Use
value is the lowest cost that can be obtained while still providing
the required function or service. Many times this is expressed as V
= F/C where V is value, F is function, and C is cost. We are trying
to obtain the greatest value for a given function and obtain this function
for the least cost. "Least" is a relative term since in actuality we
usually work to a definable or target cost.
The selling price
of the equipment has been established by the time an engineer starts
actual work on the project. Not only is the selling price established,
but this total price has been prorated, as has the schedule, among individual
segments of the company involved in producing the finished product.
(This is demonstrated by the issuance of budgets and schedules to all
departments involved before work is even started.)
is a staff function which provides value information, assistance, and
training to other departments. It is responsible for guidance and information
- not direction. It provides a check and balance system for the cost
characteristics of a design or procedure.
The relationship between
the value engineer and the design engineer has been a matter of concern
ever since the inception of value engineering. The degree of this concern
involves the maturity of the organization and the type of business in
which the company is involved. Where the company is predominantly development-oriented
with a small production business, value engineering has had limited
acceptance. Where the company is product-oriented with emphasis on production,
value engineering has usually been well received.
In the first
case, emphasis is placed on developing a product within a tight schedule
and on a limited budget. In the second case, design for production involves
a product which can be produced for a pre-determined cost. Additional
investment to achieve this goal can be amortized over a large production
run. In this environment value engineering has thrived and the usefulness
of the value engineer is very well understood and his services are fully
It is important to realize that value engineering
cannot be utilized effectively on all projects or even within all companies.
As the type of program or project approaches the research area, value
engineering is of less use. This is because the cost of the hardware,
procedures, or equipment is such a small part of the project cost. As
the cost of hardware, procedures, or equipment increases, however, the
usefulness of and need for value engineering also increases.
Electronics organizations holding government contracts have acquired
industrial "know how" over the past 20 years working on the relatively
low-risk cost-plus-fixed-fee contracts. The usual measure of such an
organization was its ability to solve problems within the schedule.
Within broad limits, profit in terms of return on investment, didn't
take into account how the work was done but whether or not the company
could meet the contract deadline. With a change in both procurement
policies and the competitive environment, the entire picture has changed.
Not only is the profit potential greater but the risk of loss is greater.
The vigorous application of value-engineering principles and philosophies
is one of the most important shelters available to manufacturers in
this new environment.
Fig. 4. Modifications in printed-circuit card
assembly used by Airborne Instruments Laboratory. The photos show that
the handle (1) and frame (2) were removed, the connector (3) was replaced
with printed contacts (4), and the test points (5) were replaced with
a flow-soldered test strip (6). These changes resulted in a total unit
savings of $85.25. The total quantity involved was 1200 units so that
the total savings amounted to about $102,000. The implementation cost
for the newer version was $20,000 for a total net savings of $ 82,000.
Introducing Value Engineering
Introducing value engineering into an existing company framework
is an extremely sensitive matter. If the company has a history and modus
operandi for utilizing corporate or division staffs, this is an acceptable
and useful organizational set up. If this prior acceptance and use has
not been established, value engineering will have to be introduced in
the department where it will receive maximum utilization. This will
eliminate the problem of the "outsider." No matter how mature and intelligent
department personnel may be, design assistance from outside groups is
rarely accepted with enthusiasm.
Where value engineering personnel
should be placed is also dependent on whether their primary function
will be in value engineering or value analysis. If they will be concerned
primarily with value engineering, they should work out of the product-engineering
On the other hand, if the primary activity is to
be value analysis, personnel can be assigned on a much more flexible
basis. In a company where the responsibility for product improvement
rests with the original design group, value-analysis personnel should
be attached to the product-engineering department. If some other department
is responsible for product improvement, say, purchasing or manufacturing,
the value-analysis group should be attached to that department.
Because value engineering is a relatively new "profession," some
confusion exists as to the qualifications required of a value engineer.
It is doubtful that such a man exists in "newly minted" form since one
of the requirements is experience. He must have a broad background to
enable him to understand the multiple facets of the problem and sufficient
information regarding allied fields to seek the solution there if that
is the answer. He must be mature enough to accept honest differences
of opinion and senior enough to be respected for his views. These basic
requirements can be met only after a number of years of experience -
ten seems to be the minimum.
The requisite experience should
be acquired in creative rather than analytical fields. In addition,
special training in creative problem solving techniques will be required
- usually via work-shop training seminars.
The Department of Defense has always been
an enthusiastic supporter of value engineering and continues to push
the technique as a means of reducing costs. To this end. the Armed Service
Procurement Regulations incorporate contract provisions for value engineering.
These are of two types: one is called Value Engineering Program Requirements,
the other Value Engineering Incentive Provisions. The Program Requirements
define the value-engineering effort and specify the amount of effort
to be expanded as an item of the contract. Cost reductions resulting
rom this effort are shared on a pre-negotiated basis with the customer.
The Value Engineering Incentive Provisions do not require any specified
amount of effort, are not funded as an item of the contract, but do
include provisions for sharing any savings. The contract-sharing benefits
that are available under the incentive provisions are more liberal than
under the program requirement.
In addition to saving-sharing
available on existing (referred to as instant) contracts, provision
is made for sharing savings realized on future purchases by the customer
as well as other customer collateral savings.
Value engineering includes the application of
philosophies and principles that are far from new. All have been used
by individuals and groups both now and in the past. (This is particularly
true in the case of electronics firms which make products for the commercial
and consumer markets as contrasted with those whose principal customer
has been the U.S. Government. - Editor) What has happened in the past
few years is that all of these programs have been coordinated in a number
of defense-oriented industries into a useful technique.
the case with most new approaches, value engineering has encountered
some resistance. Most electronics firms have never seen fit to divorce
development design from product design and have continued to handle
both functions within the same department. Shorter contract schedules
and limited production runs have seemingly justified this approach.
Yet it is a fact that it is virtually impossible to handle development
and production at the same time, as one area invariably suffers. The
experience with government electronics contracts has been that the cost
portion of the formula has been the loser as optimum production costs
cannot be obtained during the development phase.
On the other
hand, value-engineering efforts, especially the cost-target approach,
can do much to improve the costs of limited-production items with short
development schedules. As competition grows, more companies will discover
that the application of value engineering can improve control of product
costs and thus improve their market position and their profits. This
will only happen if they investigate the tools available and then apply
them in the manner which best fits their philosophies.