Stores location and layout

For arriving at right stores location and location following factors are to be discussed.

How is the stores organized? Is the store organized as centralized at one location? Or is it
located at different locations closer to the points of consumption? This decision is
primary for location.

Is there a common receiving station and then decentralized?

What product is stored? Nature of the product, whether inflammable, poisonous,

hazardous, physical state.

Store as a supplier should be close to the customer, the consumption point.

Minimum movement of ‘A’ category items from unloading bay up to the user should be
ensured.

Maximum Safety of employees and also general public should be ensured, especially with
respect to hazardous goods.

For ease in material handling, adequate space for movement should be ensured.

As a measure of good housekeeping, place for everything and everything in its place
should be ensured.

Optimum utilization of storage space must be ensured by following ‘go vertical’ principle
for space utilization.

Preservation of contents stored from weathering agents.

Compliance to all rules and regulations must be ensured.

Principle of ergonomics must be born in mind while planning the layout.

Provision for adequate lighting should be made.

Adequate fire fighting facilities must be provided.

Location of items as must be planned as per FSN analysis.

Provision for future expansion must be kept in mind.

Value Analysis, Value Engineering

Value Analysis is a process of improving the value of a product already sold in the market.
And value engineering is the same process done at the design stage of the product.

Value is a the concept in the minds of customers that makes them choose one product in
competition. Every manufacture likes to improve the value of his product so that his
customers remain loyal to him and more customers are attracted.

Mathematically, value is equal to function/cost.

Value of a product can be improved by any of the three ways listed below.

Reduce the cost without compromising the function.

Improve the function without increasing the cost.

For a small increase in cost make a large improvement in function.

Genesis, history of value analysis

Value analysis like so many Operation Research concepts came from military. L D Miles,
popularly known as father of Value Analysis, developed this concept, for American
Navy. After the war this concept came to business.

Selection of products for Value Analysis

Products in the maturity stage in product life cycle will yield extended life if value
improvement is made.

To select items for value analysis, ABC analysis in terms of usage /consumption is done on
all the items. Product with maximum weightage is chosen for Value Analysis.

Contribution analysis, in terms of contribution [sales price-variable expenses] is conducted

and product with minimum contribution is chosen for Value Analysis.

Why poor value exists?

Why do products become unattractive to customers? What adds poor value to a product?

1. Lack of review of product design

2. Product was designed under urgency. And subsequently it is not reviewed.

3. While launching the product factor of safety was fixed based on the level of technical
knowledge available at that time. Subsequent review did not take place.
Lack of awareness about alternate materials, cheaper in price but quite adequate in
function, changes in technology are also responsible for customer seeing value in
products of competitors.

Reluctance to change with time. Attitudes, beliefs and such behavioral problems add costs
to products.

Value tests to identify poor value areas

Some simple tests to identify poor value areas are as below.

Can the design be changed to eliminate a part? - Door handle is eliminated in modern
refrigerator.

Can you purchase it at a lower cost? – Can this part be outsourced at a cheaper cost?

Does it need all it’s features? - Lock as a feature on refrigerator was found to be not need
and hence eliminated.

Is there anything better for intended use? - Less expensive, more effective and low volume
polyurethane, as insulator, in a refrigerator replaces Glass wool.

Can a usable part be made by a lower cost method? Change of process

Can a standard part be used? Bolts and nuts are standard parts. It is cheaper to buy them
rather than make them.

Is it made on proper tooling considering the quantities involved? Are the tools chosen
taking into account tool life and impact on quality? Ceramic tools in place of carbide
tools.

Are there any newly developed materials that can be used? E.g. special alloys, plastics

Can two or more parts be combined into one? - ball pen top, AM/PM mouth wash.

9. Can any specifications be changed to effect cost reduction? Change in materials

specifications

Value Engineering Process

Seven steps in Job plan due to Mudge

General phase: convert resistance to assistance. This is Human Resource Development

phase where one has to win over people. In this phase potential resistance to anything
new must be converted into interest in something new. Awareness sessions and
training programmes lead by senior management are features of this phase.

Information phase:
Gather authentic information about the product. Technical specifications, dimensions,
grades.

Environmental conditions in which product should perform. Whether in outer space,

underwater, inside the human body, etc.

Engineering drawings.

Production data eg. operations, speed, feed, outputs and stock levels

Cost data eg. material, labour, overhead costs.

Work specifications eg. workplace layout, standard times etc.

Features preferred by customer. What does the customer like most in our product?

Development and service records

Quantities involved

Scrap generation and rates

Fix costs on specifications and requirements

function phase

Every product has a primary function and secondary functions. Customer buys the product
mainly for its primary function. Product cost should not disproportionately lean on
secondary functions. If this happens products become expensive for the purpose they
are bought.

The technique to identify primary function is to define the function product is expected to
perform. The definition of function should always be in one word like as below.

Product function

mirror reflect light

brake arrest motion

clutch transfer power

electron tube cover shield tube

cigarette lighter provide ignition

light bulb emit light

screw driver transfer torque

coffee cup hold liquid

4. Creation Phase:

creation of ideas on ‘what else we can do?’to satisfy basic function.

How value can be added? How cost can be reduced? Generally brain storming is done to
generate ideas.

5. Evaluation phase:

Select most promising idea from brain storming for further analysis

6. Investigation phase:

use company or industrial standards that closest to the selected idea. Use of standards
reduces the cost. Consult vendors or specialists for finding suitable standards.

7. Recommendation phase:

present facts collected and analyzed with recommendations and motivate action.

Scope for Value Analysis in materials management

material substitution

supply size standardization to reduce scrap

standardization and variety reduction

Vendor Development

New tools and technology

Outsourcing

Learning Curve

Learning curve is a mathematical expression that indicates fall in labour cost for every
doubling of production output.

Learning & skills improvement:

As learning takes place skill improves and defects reduce raising the quality of product.

Reduction in labour cost is another manifestation of improved skill.

Learning curve shows scope for improvement in productivity.

Expected level of output at a later date can be assessed by using learning.

Significance of learning curve is that human element in work is the scope for learning and
improvement.

Concepts and principals of learning

Only humans learn. Larger the human element in work greater is the scope for learning.

Learning and familiarity – familiarity results into instant learning

Learning and skills – When the production quantity is doubled, the labour cost falls by
learning %age

Learning and quality - as learning improves skills the defects in work reduce improving the
quality of the out put.

Learning and cost – learning results in reduction of costs. All the improvements stated above
cause reduction in the cost

Phases of learning

Phase I – familiarity, learning is very fast. Instant benifits

Phase II – skills development, learning is slower. Benefits continue at a slower rate

Phase III – reverse learning, as learning continues the reduction in man hrs result into
excess inventory and abuse of the machine causing breakdown

Managerial utility of learning curve

1. Cost projection for future projects.

When to start work measurement in a company? If measurement is made in Phase I of

learning curve work standards become very loose.

Transfers and promotions. A person in phase II of learning a skill he is ready for a for a
promotion or transfer for another area of job.

Material requirement planning. Material requirement for a person in his I phase of

learning is quite large. This drops down with improvement in skills.
If skill improvement follows learning curve, we can say learning is good and training is
effective.

Raising productivity. All the features studied above lead to productivity improvement.

Price negotiations

- vendors learn at the cost of customer

- with learning his/her cost drops

- prices can be fixed on time scale based on learning cure projection

- scientific base for pricing and negotiations

Limitations of learning curve

Benefits run out with obsoletion of product.

Only human beings learn.

Attitudes come in the way of benefits of learning. In the absence of positive attitude human
beings refuse to learn and improve themselves.

Inventory constraints limit the benefit of learning

As the speed of the workman’s machine becomes incompatible with the speed of learning
employee, employee slows down his work due to equipment constraints.

As a result of learning cost per unit goes down and organization tends to become mass
production oriented and vulnerable to the competition.